UK Energy Market Update
February 2025
Market Summary
EU gas storage concerns continue to be a major talking point through February as the EU as whole barely met its February 1st targets as many countries fell short of the required levels. Storage ended the month at 38.54% full, 11.6 percentage points below the five-year average. Refilling storage is a major part of the concern currently, as the EU has a strict 90% refill target for 1st of November, as well as interim targets for February, May, July, and September. The low storage level and strict refill targets have added a premium to summer gas prices, with the summer prices being higher than winter at times, discouraging storage replenishment. Discussions have taken place regarding relaxing the storage refill requirements, with several member states pushing for this, but no final decision has been announced.
News of potential peace deal between Ukraine and Russia, brokered by the US, as well as that deal possibly including the resumption of Russian pipeline gas to Eastern Europe had a positive effect on prices during the month. However, the heated confrontation between Trump and Zelenskyy at the White House on February 28th and the failure to sign the mineral agreement between the two nations, as well as the US threatening to withdraw military aid put the likelihood of a peace deal in doubt and increased market prices.
Russia intensified attacks on Ukraine’s energy infrastructure, targeting gas production facilities in the Poltava region and causing disruptions to domestic storage access. As a result, Ukraine imported over 16 million cubic meters of gas from Hungary, Slovakia, and Poland to compensate for falling production. With gas reserves running critically low, Ukraine may need to further increase imports. In response, EU gas exports to Ukraine are expected to rise, supporting near-term energy prices. Additionally, Ukraine reportedly struck a Russian oil refinery in Saratov, escalating tensions in the ongoing energy conflict.
The UK government is expanding nuclear energy development by opening more sites for Small Modular Reactors (SMRs) in England and Wales. This move aims to attract private investment and accelerate the transition to a cleaner power grid. The reforms include removing the current restriction of eight nuclear sites, eliminating planning rule expiry dates, and establishing a Nuclear Regulatory Taskforce. SMRs could be located near energy-intensive AI data centres to enhance efficiency. With no new nuclear plants built since 1995 and only one under construction, these changes seek to streamline planning, boost investor confidence, and support the UK’s clean energy goals.
The UK has launched the 'Clean Industry Bonus', an incentive scheme to attract investment in offshore wind projects and support its goal of decarbonising the energy system by 2030. Successful bidders will receive £27 million per gigawatt (GW) of capacity, encouraging both project development and supply chain infrastructure. The UK aims to expand offshore wind capacity from 15 GW to 43-50 GW by the decade’s end, a key part of its plan to generate 95% clean energy. The funding will be distributed through upcoming renewable energy auctions, where developers bid for government-backed price guarantees.
Net Zero News
The government has confirmed plans to cut subsidies for Drax Power Station by half starting in 2027, saving consumers £170 million annually. Following a review of biomass support, the decision will permit Drax to continue operations under stricter conditions but on a significantly smaller scale.
The UK Government has relaunched the Net Zero Council with a strategy to help various sectors accelerate their transition to net zero while supporting thousands of jobs. This relaunch introduces a new "mission-led approach," ensuring active government engagement with industry leaders and stakeholders to drive progress toward net zero goals.
The UK's net zero and clean energy sector expanded by 10% last year, emerging as the country's fastest-growing industry. According to CBI analysis, the sector is growing three times faster than any other, offering higher-wage jobs and contributing £83 billion in gross value added (GVA), which measures the economic value businesses generate through their goods and services.
Dan McGrail has officially taken over as interim CEO of Great British Energy. Based in Aberdeen, he will lead Labour’s flagship initiative to transform the UK into a renewable energy powerhouse, accelerating projects, creating skilled jobs, and driving economic growth.
Ofgem has launched a £4 billion bidding competition to own and operate the transmission link connecting one of the world’s largest offshore wind farms to the UK’s energy grid. The offshore transmission assets link RWE’s 1.4GW Sofia wind farm, located 120 miles off the Northeast coast, to the onshore grid in North Yorkshire. With the capacity to power nearly 1.2 million homes, Sofia is a vital part of Britain’s renewable energy future.
The facts are clear—gas is the primary driver behind the surge in energy bills over the past four years. According to the Energy and Climate Intelligence Unit (ECIU), gas price spikes have added an astonishing £3,000 to the average UK household bill since the crisis began.
The UK’s energy future hangs in the balance—and zonal pricing could push it in the wrong direction.
RenewableUK has joined a strongly worded letter to the Government, criticizing proposals for regional electricity pricing.
UK renewable energy market trends - UK renewables have reached record highs, overtaking fossil fuels as electricity demand continues to decline.
British Gas plans to recruit over 400 apprentices in 2025 to support the push toward net zero.
Electricity and Gas Prices
February brought a much-needed reprieve for gas and power markets following January’s unexpected volatility, with a notable shift to bearish conditions in the latter half of the month. This was driven by easing geopolitical tensions, including discussions between the US, Ukraine, and Russia aimed at resolving the conflict. However, challenges remain, and despite falling prices, uncertainty persists around tariffs and inflationary pressures.
Flexible Purchasing
EPEX Price
Some of our flexible purchasing customers are buying on EPEX, a European auction for power. Because they auction every hour of each day, customers get the “market average” price as opposed to a fixed-term contract over e.g. a 12-month period. Being on this product means that you will pay the average of each day for the month and once the market falls the price will follow.
The EPEX price finished the month with an average of 10.58 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 21.48 p/kWh+.
Carbon Prices
The average price of European Union Allowances (EUA) in February was €76.97 per tonne, marking a 0.65% decline from the previous month. While prices remained high at the start of February, they gradually decreased, settling around €72 per tonne by month-end.
This decline was driven by several factors. A global economic slowdown dampened the energy demand outlook, putting downward pressure on EUA prices. Additionally, fluctuations in natural gas prices led to shifts in the power generation mix, with some producers transitioning to low-carbon energy sources, reducing the demand for carbon allowances.
Oil Market
3rd - Oil prices increased after U.S. President Donald Trump imposed tariffs on Canada, Mexico, and China, sparking concerns about supply disruptions. However, gains were limited by fears of a potentially harmful trade war.
7th - Oil prices edged higher in Asian trading but remained on course for a third consecutive weekly decline, pressured by U.S. President Donald Trump's renewed trade war with China and threats of additional tariff hikes on other nations.
13th - Oil prices dipped slightly, weighed down by the prospect of a potential peace deal between Russia and Ukraine, as well as rising crude inventories in the United States.
18th - Brent crude prices climbed, extending gains from the previous session after a drone attack on a Russian oil pipeline pumping station disrupted flows from Kazakhstan. However, expectations of an imminent supply increase limited further gains.
24th - Oil prices continued last week's decline as investors sought clarity on negotiations to end the war in Ukraine and assessed the potential resumption of crude exports from northern Iraq.
28th - Oil prices fell 1% and were on track for their first monthly decline since November, as markets reacted to Washington's tariff threats and Iraq's move to resume oil exports from the Kurdistan region.
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