Additional reporting by Anna Coulson
- UK energy price cap set at £1,717 for October to December
- The fourth quarter cap is £149 higher than the third quarter cap, but is down £117 year-on-year
- Higher wholesale energy prices in Q1 2025 indicate an increase in the price cap compared to Q4 2024
LONDON (ICIS)–The UK energy price cap for October to December will rise compared to the previous quarter, energy regulator Ofgem said on August 23, but will remain lower than in the same period a year ago.
Introduced in January 2019, the price cap sets the maximum price that energy suppliers can charge end users for each unit of energy. Ofgem sets the cap based on the supplier’s operating costs, including ICIS wholesale energy prices as well as VAT and network costs.
If forward prices for deliveries in the first quarter of 2025 remain at current levels, the wholesale share of the cap for the January-March period is likely to be higher than in the previous three months.
FALLING PRICES
ICIS estimated the price of the UK’s fourth-quarter 2024 NBP gas contract for the period 20 May to 15 August – the period used by Ofgem to calculate wholesale energy costs for the upcoming cap – to average 97.069 pence per tonne.
This is 17.026 pence per tonne below the fourth quarter 2023 contract average for comparable periods.
The year-on-year difference is due to several factors, including a gradual decline in prices from the peak following the Russian invasion of Ukraine and the subsequent trade sanctions.
Fears of strikes at Australian LNG refineries also pushed up gas prices in 2023, while LNG markets were overall quieter in 2024.
Due to its significant role in electricity generation, gas is a key price driver for the UK electricity market. This means that UK electricity prices have moved with a similar declining trend to Q4 24 NBP prices, but at a discount to Q4 23 prices.
ICIS estimated the UK baseload power contract price for Q4 2024 to average £85.65/MWh between 20 May and 15 August, 28% lower than the corresponding Q4 2023 prices.
The power contract for the fourth quarter of 2024 is more expensive compared to European contracts, suggesting that the UK is likely to import electricity from neighbouring countries, including France, in the first quarter.
Data from French energy company EDF shows that average nuclear power output will be 48.1 GW between October 1 and December 31, 7.1 GW above the 2019-2023 average.
Both gas and electricity prices in the first quarter of 2025 are currently higher than the fourth quarter of 2024 prices, which will likely result in the wholesale portion of the cap being larger for the first quarter of 2025 than for October to December.
CAP OUTLOOK
On 22 August, ICIS estimated that the NBP contract for Q1 ’25 was 7.025 p/th above the Q4 ’24 contract and the UK Baseload contract for Q1 ’25 was £7.10/MWh above the Q4 ’24 contract.
Annual energy prices generally peak in February, when the coldest months of the year increase energy demand for heating. During these months, gas storage facilities begin to deplete and supply disruptions lead to larger price increases than at other times of the year.
Given Europe’s increasing dependence on liquefied natural gas, higher prices are also attracting LNG supplies to the UK, ensuring supply stability.
On the energy side, the availability of French nuclear power is another important factor affecting UK electricity prices in the first quarter.
The UK baseload contract for Q1 2025 was at €109.47/MWh on 22 August, €5.22/MWh above the French contract, suggesting that the UK is likely to import electricity from France until Q1 2025.
ICIS Power Foresight estimates that nuclear power generation in France could total 98.6 TWh between 1 January and 31 March.
However, unplanned outages, downward revisions to nuclear availability forecasts and cold weather into the first quarter of 2025 could lead to an upward trend in electricity prices in France and the UK.
