UK power prices have fallen to a four-year low due to oversupply of gas in the market.
According to the ICIS Power Index (IPI), wholesale electricity prices at the end of 2014 were 11 per cent lower than at the same time in 2013. The trend of decline accelerated in the final quarter of the year, with the IPI falling by eight per cent in December.
ICIS attributed the reduction in prices to a “glut of gas in the UK market”, which arose from both high storage levels and an increase in liquefied natural gas (LNG) imports.
Extra LNG supply began diverting to the UK after a warmer winter in northeast Asia led to a fall in demand in that region, and the trend of increased supply to the UK is something that is expected to continue in 2015.
The continued decline of crude oil prices has also impacted long-term gas values, as some long-term supply contracts still include a link to the price of oil. The cheaper the gas under these contracts gets, the less likely firms are to buy gas in the wholesale market, which adds to downward pressure on prices.