Energy procurement consultancy Inprova Energy has reported that winter wholesale gas prices have jumped by 7 per cent and power prices by 5.5 per cent following news that the UK's key gas storage facility could be shut down until Spring 2017. This will leave the country extremely tight on gas during the coming peak winter period.
This problem is exacerbated by the Brexit effect, according to the latest market report from ICIS, the Brexit result has helped push prices towards nine-month highs due to the collapse in value of the pound, which has boosted demand for British energy from traders dealing in euros.
ICIS analysts have warned that because the UK is a net importer of gas and coal, which are traded in dollars, any prolonged post-Brexit sterling devaluation could lead to higher energy prices in the long term.
Michael Dent, Managing Director of Inprova Energy, said: "Centrica's Rough storage facility accounts for more than 70% of the UK's total gas storage capacity and can provide about 10% of winter gas demand. Such a potential capacity crunch is driving winter prices skywards for both gas and power. When you add in the impact of Brexit and its likely repercussions, the energy market looks very volatile indeed.
"We believe that manufacturers who are due to renew fixed contracts now and in 2017, should conclude negotiations as soon as possible. While nothing is ever certain in terms of energy market forecasting, there's every indication that the market is rising, so risk averse businesses would be better to settle soon."
"Flexible contracts can provide the best protection against market fluctuations by allowing energy to be contracted in chunks over a period of time, rather than fixing at one point and having to take the price that exists at that moment. Flexible products can be built around a client's appetite for risk by capping prices and introducing protective parameters into the purchasing strategy."