Hello, welcome back, and thank you for joining me once more for this week’s market update from Smarta Energy.
I want to start today with the issue facing businesses, because the important change this week is not simply that energy prices have risen again, which they have. It is that the increase is spreading further into the future now.
Using Friday’s closing prices, the price of gas for next summer rose from around 150 to 164 pence per therm in one week. The equivalent power price increased from roughly 118 to 127 pounds per megawatt hour. Those are substantial moves, but businesses also need to pay attention to what is happening in later years.
Until recently, the biggest increases were concentrated in the nearer contracts, whilst prices several years ahead were less affected by the immediate crises. That separation is beginning to narrow.
Gas prices for winter 2027 increased by 9% and for summer 2028 by 8%. The equivalent power contracts were also up by 7% and 5% respectively. Even the later seasons have moved higher, although thankfully by smaller amounts.
For businesses with contracts ending over the next few years, this matters. Those later prices remain substantially below the cost of the current winter, so there is still potential value. However, that value is not guaranteed to remain available until the usual renewal window arrives.
I am not suggesting that every business should fix every year today. Far-dated prices can fall if tensions ease, shipping becomes safer or new infrastructure improves supply. Forecast demand also becomes less certain further ahead, so overcommitting carries its own cost.
The sensible response is to review the options now. A longer supply contract can give access to lower-priced years, whilst a flexible strategy may secure volume in stages. The key is to decide whilst the value remains available, rather than after the market has moved.
To understand why the whole curve is becoming more expensive, let us start with gas.
The gas market remains volatile without one clear direction. Improving UK supply is competing with colder weather and serious ongoing risks to global shipping.
Temperatures are expected to fall into single figures this week, slightly below normal for the time of year. That increases gas demand for heating across homes, offices and industry, just as the market begins to focus more closely on winter supply.
The most concerning weekend development came from the Strait of Hormuz, where an oil tanker reportedly struck a mine and exploded. Iran’s offer to reopen the route within seven days remains available, but there is still no sign of an agreement with the United States.
The gas risk is not limited to vessels in the strait. An Liquified Natural Gas cargo due to arrive in the UK later this week has been redirected to Thailand. Clearly a scheduled cargo can still be drawn elsewhere if another buyer is willing to pay more.
Of course, there are some important offsets. UK storage is now above the levels recorded at this point in both 2024 and 2025. Norwegian imports have improved since Friday, and production from the UK Continental Shelf is also expected to rise. The price gap between the UK and mainland Europe has narrowed as well, reducing the incentive to export gas away from the UK.
That leaves the prompt market balanced between genuine risks and improving physical supply. Further ahead, however, low storage across Europe and uncertainty over future LNG deliveries are encouraging buyers to pay more for protection. That is one reason the rise is reaching into later contracts.
That bullish gas pressure feeds directly into power because gas-fired stations are still needed whenever wind, nuclear and imports cannot cover demand.
Wind generation is running below normal today, but the forecast for the week as a whole is healthier. Average output is expected to reach around 10.6 gigawatts, compared with a seasonal norm of about 9.4. That should reduce the need for expensive gas-fired generation on the windier days and may soften day-ahead prices.
The complication is that the UK does not operate in isolation. French nuclear availability is unusually low at the moment, which limits the surplus electricity France can send to neighbouring countries. French output is expected to recover, but until it does, the UK has less access to one of its usual sources of lower-carbon power.
The Russia-Ukraine conflict is adding another layer of risk. Russia continued attacking Ukrainian energy infrastructure despite the claimed ceasefire, and Ukraine responded over the weekend with a very large drone attack that included Russian oil facilities. Whatever the diplomatic language, the physical evidence still points to disruption rather than resolution.
Longer term, there are reasons for some optimism. European governments are under growing pressure to invest more in grids, whilst proposals in Scotland could give councils a greater financial benefit from approving wind farms. Both could help new generation reach the system, but neither changes the supply balance quickly.
For now, stronger wind can pull short-term prices down, but gas costs, weak nuclear availability and geopolitical risk are pushing the forward market higher. As with gas, the opportunity further along the curve has not vanished, but it is becoming less generous.
This week, we will be watching temperatures, Norwegian supply and whether the diverted LNG cargo is replaced. We will also be following shipping through the Strait of Hormuz, wind output, French nuclear availability and any further attacks on energy infrastructure in Russia or Ukraine.
For businesses, the message is straightforward. If your contract ends within the next couple of years, or you have significant long-term volume exposed, now is the time to review it. That means understanding what can be secured, what can remain flexible and what further increases would mean for the budget.
If you are assuming cheaper prices will always be available further ahead, please speak to our Trading and Risk team here at Smarta Energy. We can compare shorter and longer contracts and build a plan around your appetite for risk. Waiting may still be right, but it should be an informed decision rather than the default.
Please get in touch with us at [email protected]. We would be very happy to have that conversation.
Thank you for watching and/or listening, and I will see you again next week.
Disclaimer
This market update is provided for general information only and reflects market conditions at the time of recording/publication. It should not be treated as financial, legal or procurement advice, or as a recommendation to buy, sell, fix or trade energy at any particular time. Energy markets can change quickly, and businesses should seek advice based on their own circumstances before making procurement decisions.
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