What is Driving the Electricity Prices in the UK?

Background

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The main driver has been gas prices. This winter has been the coldest since the Ukraine invasion meaning European gas storage levels are currently around 37% full, the previous two years we finished winter at roughly 60% full. This, along with the EU edict that gas storage must be at 90% capacity by 1^st November spooked the markets. The summer period usually sees an excess of gas & hence the price falls. However, with such a large summer injection of gas required to hit the 90% target it has kept summer gas (& hence electricity prices) exceptionally high for a summer period. Summer 25 gas & Winter 25 gas have been trading at near parity & on some occasions summer has been more expensive than winter. This has removed the usual incentive for gas producers & traders to inject gas for storage.

The EU is talking about relaxing the 90% rule or at least making it more flexible which has relieved the market somewhat, although nothing concrete has been laid out yet. This along with the onset of warmer weather is helping push prices back down.

There is also a Russia / Ukraine effect, but this has had a more limited impact so far than the gas storage issue (although of course the 90% rule was brought in as a result of the invasion). If a cease fire were to be announced, then yes, there would be a significant downward movement but it would probably then correct itself over the following weeks. It is highly unlikely that Europe will go back to using Russian gas in the volumes it did prior to the invasion, but assuming there is some lifting of sanctions as part of the ceasefire then there are estimates that Russian gas use could increase by around 15% which would have a downward (but not massive) effect on prices.

Overall we still have a global LNG supply & demand issue. 2025 will remain tight in regard to this. However, through 2026 into 2027 a number of new LNG production facilities are expected to come online in various parts of the world which will significantly increase global supply. This will alleviate the supply issue & should result in falling gas prices, we are already seeing this when we look at forward 2026 & 2027 gas prices.

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