Market Volatility Amid Geopolitical Pressures
- Professional Energy People
- Apr 9
- 6 min read
UK Energy Market Update
March 2025
Market Summary
The EU ended heating season with aggregated storage levels of just 33.6%, nearly 25 percentage points below the same period last year and well under the five-year seasonal norm of 45%, reflecting the lowest post-winter levels since the 2022 energy crisis. The European Commission has proposed extending the mandatory 90% storage target to 2026 and 2027, while introducing greater flexibility—allowing deviations of up to 5 percentage points and shifting deadlines from November 1 to as late as December 1 under certain conditions. However, high summer gas prices and geopolitical uncertainty continue to complicate injections. Despite a projected 7% rise in LNG imports, analysts warn that Northwest Europe may fall short of winter storage targets, with forecasts around 77% and as low as 66% in colder scenarios.
Geopolitical developments have continued to drive volatility in energy markets, with ongoing tensions related to the Ukraine conflict. The expected Ukraine-US minerals deal collapsed after President Zelensky abruptly left negotiations following a heated exchange with President Trump. Meanwhile, French President Macron and UK Prime Minister Starmer are pushing for a one-month ceasefire to safeguard energy infrastructure, though the potential for a long-term resolution remains uncertain. Meanwhile, delays to the European Union's planned phase-out of Russian energy imports, along with speculation around the potential restart of Ukrainian gas transit, have added further uncertainty to market dynamics.
Despite temporary ceasefire agreements, including a halt on attacks against energy infrastructure, reports of continued missile and drone strikes on Ukrainian energy assets have raised concerns over the conflict's trajectory. Both sides have agreed to temporary pauses, particularly in Black Sea maritime and energy sectors, but violations and persistent attacks suggest that a lasting peace deal is still distant. As military aid pauses and shifting diplomatic efforts unfold, European gas markets remain under pressure, with the outlook for Russian gas flows remaining highly uncertain.
Britain's energy minister, Ed Miliband, is visited Beijing from March 14-17 to discuss climate and energy issues. The visit aims to strengthen ties with China, the world's largest carbon emitter and a key supplier of renewable energy infrastructure. Miliband plans to launch a new framework for climate talks and update a decade-old clean energy partnership, focusing on areas like carbon capture, hydrogen power, and renewable energy collaboration. Britain hopes to accelerate its clean energy transition by engaging with China, while also sharing expertise on phasing out coal in a bid to influence China's decarbonisation efforts.
Britain's greenhouse gas emissions fell by 4% in 2024, driven by the closure of the country's last coal-fired power plant and reduced emissions from the industrial sector. Total emissions were estimated at 371 million metric tons of CO2 equivalent, down from 385 million tons in 2023. The electricity sector saw the largest decline, with emissions down 15% due to increased renewable generation, higher electricity imports, and the end of coal power. Industrial emissions dropped by 9%, mainly due to closures in the iron and steel industry, including the end of production at Port Talbot steelworks. This progress supports the UK's goal of reaching net-zero emissions by 2050.
Net Zero News
The UK cannot achieve its net-zero targets without carbon capture and storage (CCUS), the Carbon Capture and Storage Association (CCSA) has warned. If the Labour Party is serious about meeting the 2050 goal, it must focus on reducing costs and accelerating the scale-up of CCUS projects.
The EU’s newest climate regulations are poised to impact consumers directly—through their wallets. Scheduled for launch in 2027, the Emissions Trading System II (ETS II) will extend carbon pricing to road transport, buildings, and smaller industries. According to BloombergNEF (BNEF), carbon prices under ETS II could surge to €149 per metric ton by 2030, potentially making Europe home to the highest carbon price globally.
Ofgem has confirmed that a new flexibility market system will be implemented in two years. Elexon has been appointed to develop and operate the Flexibility Market Asset Registration (FMAR) system, with its launch now scheduled for 2027. The initiative aims to accelerate the rollout of flexible energy tariffs and contribute to lowering consumer energy bills.
In 2024, the United Kingdom reached a major environmental milestone, cutting greenhouse gas emissions by 3.6% and recording its lowest coal usage since 1666—the year of the Great Fire of London.
SSE and Gilkes Energy have submitted plans for the proposed Fearna pumped storage hydro (PSH) project in the Scottish Highlands. If approved, it would become the UK’s largest PSH scheme, featuring an installed capacity of 1.8GW and up to 36GWh of energy storage—enough to provide 20 hours of continuous output.
To meet its 2030 clean power goals, the UK must dramatically scale up energy storage, as around 10% of wind-generated electricity is currently going to waste. A new report by Drax and Imperial College London reveals that, for the first time in 140 years, wind power overtook fossil fuels to become the UK’s largest source of electricity in the past year—accounting for 31% of total generation.
Global energy demand rose at an accelerated pace in 2024, driven by surging electricity consumption and a strong push from renewables. The International Energy Agency’s (IEA) Global Energy Review reports a 2.2% increase in energy demand last year—significantly above the 10-year average of 1.3%.
The UK is at the forefront of global tidal energy development, hosting nearly 40% of all wave and tidal projects worldwide. A new report from the Energy Industries Council (EIC) highlights the UK’s growing role as a proving ground for innovative technologies that could revolutionize renewable energy markets.
Electricity & Gas Prices
March 2025 saw positive overall trends for energy prices, though the market remained volatile. Gas prices initially dropped below 100 pence per therm, the lowest since December 2024, due to milder weather and a strong LNG supply. However, they rebounded mid-month and stabilized toward the end as colder weather increased demand, with geopolitical developments, like potential U.S.-Ukraine peace talks, adding uncertainty. Electricity prices mirrored this trend, falling early in the month due to strong wind generation but rising later as wind output decreased and demand for gas-fired generation increased.
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 8.87 p/kWh (commodity). With the non-commodity added to this, the overall rate will be around 19.77 p/kWh+.
Carbon Prices
European Union Allowance (EUA) prices averaged €68.69 per tonne in March, marking a 9.15% decline from the previous month. Over the course of the month, EU carbon prices trended downward. Although prices had peaked at €82 per tonne earlier in the year, they fell to as low as €65 per tonne by the end of the third quarter.
The drop was largely driven by a global economic slowdown, fluctuating natural gas prices, and market anticipation of a tighter future supply of allowances. Additionally, weakened industrial activity and reduced demand for allowances contributed to the downward pressure on EUA prices.
Oil Market
4th - Oil prices declined again following reports that OPEC+ will proceed with its planned April output increase, as fresh U.S. tariffs on Canada, Mexico, and China came into force, triggering retaliatory actions from Beijing.
11th - Oil prices reversed earlier losses to edge higher, supported by a weaker U.S. dollar. However, gains were limited amid growing concerns over a potential U.S. recession and the economic fallout from global tariffs.
17th - Oil prices rose after the U.S. pledged to continue strikes against Yemen's Houthi rebels until they cease attacks on shipping, while upbeat economic data from China boosted expectations of stronger demand.
24th - Oil prices rose in volatile trading as investors balanced the effects of new U.S. sanctions on Iranian exports against ongoing peace talks over the war in Ukraine, which could potentially boost the flow of Russian crude into global markets.
31st - Oil prices gained around 1% in volatile trading after U.S. President Trump threatened secondary sanctions on purchasers of Russian oil and issued a warning of potential military action against Iran if it refused to negotiate a nuclear deal.
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