The likelihood of power cuts in Britain this winter has diminished “significantly” after a sharp fall in the wholesale price of gas.
A spell of mild weather in the UK and Europe sent prices tumbling in a respite from the highs that led to soaring energy bills.
European prices for delivery in February fell by 4.3% to €73.7 a megawatt hour while UK prices fell by 3.8% to 179p a therm.
Recent warmer weather has reduced demand for heating in the UK and the rest of Europe and conditions are expected to remain mild for the next two weeks.
The situation has boosted optimism over gas supplies, which have been stretched since Russia reduced gas exports to Europe after its invasion of Ukraine. Last week, prices fell to their lowest levels since before the start of the war in February 2022.
European nations had rushed to fill up gas storage facilities amid fears of shortages this winter. They have made good progress, creating optimism among traders and leading to prices easing. Traders also bet that a potential global recession would cut energy demand this year.
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National Grid warned in October there was an outside possibility of three-hour rolling power cuts if cold weather combined with shortages, caused, for example, by a reduction in the gas supply from Russia.
In December, a sudden blast of cold weather combined with low wind speeds to put a strain on Britain’s power systems and led to record power prices.
Imported electricity from France and increased output from gas-fired power plants helped plug the gap left by renewables, averting a potential shortage of energy.
National Grid has not had to use several of the emergency measures it had put on standby to avert power cuts this winter.
Tom Marzec-Manser, the head of gas analytics at energy consultancy ICIS, said: “The risk of another cold snap and gas supplies not meeting demand this winter is now very low. We have done it once as a pan-European group of nations and proved we can withstand one of the coldest Decembers.
“We are now that much closer to the end of the winter. The risk of there not being enough gas around this winter has reduced significantly.”
Investec oil and gas analyst Nathan Piper said: “I do not think that we are likely to see power cuts come to pass. The situation with gas storage has improved, and we’ve seen electricity imports from France and Norway recently, so the likelihood of those extreme scenarios have eased a bit. However, gas price prices still remain far higher than in the past.”
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Concerns remain over how Europe will replace Russian gas imports in the coming year, meaning prices are likely to remain high against historical averages.
Prices peaked at about 550p a therm in August, far higher than the 50p a therm 10-year average.
Over the Christmas period, the Russian deputy prime minister, Alexander Novak, indicated that Moscow was prepared to resume gas supplies to Europe through the Yamal-Europe pipeline, which runs across Poland and was shut off last year.
If this week’s fall in gas prices gathers pace, it could significantly cut the cost of the UK government’s efforts to cut energy bills. The state is covering the gap between wholesale prices and the energy price cap for suppliers, in an effort to limit typical household bills to about £2,500.
The government said in November that it expected its scheme to cut domestic bills to cost £25bn this financial year and a further £13bn in 2023-24.
Businesses and other energy consumers, such as schools and charities, are awaiting an update from the government on plans for an extension of a similar non-domestic initiative beyond March.
Data from National Grid’s electricity system operator on Tuesday showed that more than half of the power generated in Great Britain was from wind, with gas accounting for 21% and nuclear 17%.
In the run-up to Christmas gas-fired power stations made up as much as 60% of the energy mix.