As the UK heads towards the summer season, the wholesale power market is in a very different place compared to this time last year.

As the UK heads towards the summer season, the wholesale power market is in a very different place compared to this time last year.

Last year COVID-19 lockdowns led to reductions in energy demand and notable lows for commodity markets. However, since autumn 2020, prices have generally climbed, most notably in recent months. With this is in mind, Cornwall Insight examines the outlook for the wholesale market over the summer months.

Outlook for the summer season
• Demand levels are expected to remain stable, supported by increased economic activity in parallel to gradually easing nationwide lockdown restrictions.
• Power prices are likely to stay above the £20/MWh lows of last summer.
• Uncertainty in the wholesale market persists.

Sam Peek, Analyst at Cornwall Insight, said:

"COVID-19 lockdowns led to drastic reductions in energy demand and resulted in multi-year lows for commodity markets. However, the combination of restrictions gradually being lifted should continue to support demand levels. In fact, demand has more or less recovered to the level seen before COVID-19 impacts took hold.

"This should mean that power prices stay above the consistent sub £20/MWh lows of last summer. Additionally, power prices are being held at higher levels through a combination of high carbon prices and a relatively bullish gas market, with European gas stocks at very low levels for this time of year. Front-month prices reflect this, with the May 2021 baseload power contract at ~£60/MWh compared to ~£30/MWh for the May 2020 contract at this time last year.

"However, it should be noted that uncertainty persists, particularly on the future trajectory of COVID-19 measures and their impacts on the electricity market. A good example is National Grid ESO reinstating their Optional Downward Flexibility Management (ODFM) service this summer in case of exceptionally low demand periods.

"Whilst nothing is certain for power and gas markets, Cornwall Insight shares a broadly similar view to National Grid on the potential trajectory of the market over the next six months. Electricity demand is now far more likely to follow more "normal" patterns of 2019 as we further emerge from the existing nationwide lockdown restrictions. However, another demand shock or a change in the trajectory of commodity markets could still change this picture."

-Ends