Recession will take heat off summer power demand, says National Grid

By Sarah Arnott
Tuesday 14 August 2012 02:01

"On the demand side of our assessment of the summer outlook, clearly the biggest change for the coming summer from last summer is the impact of the recession," the National Grid said yesterday. "We anticipate continued recession impacts through the summer, with demand on average reduced by 1.1 gigawatts."

Although summer demand for gas typically runs at about half of winter levels, maintenance requirements and the uncertainties in global and European supply markets introduce a level of insecurity. Modest declines in gas from the UK continental shelf are expected to be offset by additional volumes from Norway this summer, according to National Grid.

The growing capacity for liquefied natural gas (LNG) will also plug any shortfalls. Earlier this month, the first ever LNG tanker – loaded with 216,000 cubic meters of gas from Qatar – docked at the South Hook terminal in Milford Haven in South Wales. The vast facility cost £1.1bn to build and is large enough to support imports of 20 per cent of the country's gas needs.

But international gas prices have already come down considerably from last year's high, and falling summer demand will apply further downward pressure. National Grid says gas has accounted for 40 per cent of UK power generation in recent weeks, a 10 per cent rise on earlier in the year, as prices plummeted in comparison with coal.

Gas and electricity charges shot up by 50 per cent and 27 per cent respectively in the past 12 months on the back of the ballooning oil price, but retail energy prices have started to come down as oil dropped back to about $40 per barrel and recession slowed demand.

Utilities blamed their forward contracts for the lag between the dip in wholesale prices in the autumn, and reductions in consumers' bills. But all the major utilities have now announced plans to drop their prices. British Gas and Scottish and Southern were the first to announce plans to cut their charges, but by the end of February Scottish Power, RWE npower and E.ON had all followed suit. If wholesale prices continue to fall, there is the chance bills will come down further.

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