Market Pulse
On Wednesday, we saw the markets react extremely bullish following Gazprom’s comments regarding Nord Stream 2. They hinted that even if it is operational by the end of this year, they would not flow any additional capacity through the new pipeline. If the pipeline does open this year, any gas that does flow through it will mean there is a reduction of supply across other pipelines as opposed to an overall increase in gas flow into Europe. This clearly came as a shock to the market as it was only two weeks ago that there was a significant drop in the price of gas following an announcement that the Nord Stream 2 pipeline will deliver 5.6 billion cubic meters of Russian gas by the end of the year. Their comments could be a reaction to their recent court case loss regarding their claim to be exempt from EU fair competition laws. We saw the biggest moves across Oct-21 and Q122, with prices increasing by 7.5% (9.3p/therm) and 12% (14.25p/therm) respectively. This means that gas has now completely recovered the losses previously mentioned with Winter 21 gas prices peaking at 134.52p/therm before a slight drop off. This is a result of OPEC announcing they will increase their oil supply and wider losses in the commodity market.
The gas price increase has had a knock on effect across power prices and carbon credits with UK baseload Winter 21 breaking through £120/MWh and new records high across both European (EUA) and UK (UKA) carbon credits. To put this into context, according to Imperial College London, prior to 2021 there had never been a power price above £100/MWh since the market was formed in 1990. UK baseload Winter 21 is now trading at 127.75/MWh, as of Friday morning. This week saw the 46th time this year that record prices have been set in both the EUA, sitting above €61/mt, and UKA having traded above £53/mt. Along with pressures from high gas prices, Carbon is also influenced by low gas storage levels which means there will be increased coal generation, which is more carbon intensive, and therefore there will be more of a demand for carbon credits.
Consistent trips and grid demand, up to 2GW higher than forecast, has resulted in volatile intraday prices this week. We witnessed multiple trips every day of the week, removing 600-850MW of supply from the system resulting in system prices sitting consistently above £150/MWh whilst pushing £300/MWh at its most severe. Wind has been ramping down throughout the week, averaging around 2GW, meaning there has been an increased reliance on gas assets. With strong day ahead prices, peaking at £233/MWh, due to high gas prices and low wind, the majority of CCGT’s were already on physical notification leaving only a small proportion of gas generators available, in particular the more expensive gas peakers sitting in the Balancing Mechanism.
National Grid delivered a long awaited update on their SMP and product launch dates, we have summarised the key points below.
– SMP will deliver some foundational capabilities in January and March 2022 that will automate the registration processes and unit management. This includes an agent option that will be useful for aggregators.
– Dynamic Containment H is still scheduled for early October, but this depends on when National Grid moves to different prices and volumes for the EFAs. This could delay the scheduling.
– Dynamic Moderation / Dynamic Regulation are still planned to go live in March 2022, but the consultations will be later than expected as National Grid is conducting further modeling.
– There has been a further delay on Reserve products. The first to go live will now be Negative Slow Reserve (generation turn-down/demand turn-up) in March 2022 with a consultation in October.
– Positive Slow Reserve (which largely replaces Day Ahead STOR) will be late 2022/23).
– National Grid is reviewing how Quick Reserve (30 second response) and Dynamic Moderation / Dynamic Regulation will interact, this could cause some delays but will be interesting.
Next week looks to be trading at all time highs with £170/MWh for the baseload contract – unprecedented. Very low wind output is forecast, particularly on Monday/Tuesday. This is pushing the spark spreads up.
The Curve continues to rally with NBP on the up with carbon breaking the 60 euro mark and power following suit. Margins looking stretched for this winter, however, the two new interconnectors coming online soon should make a positive impact.