This week: Fluctuating forward market, varying wind generation and battery storage planning applications soar
Market Pulse
Fluctuations in the forward market as conflict in the Middle East counters Covid concerns
The week began with another steep rise in gas prices. This was due to reduced capacity into the UK from the continental shelf and Russian flows via the Mallnow pipeline – further accentuating the UK’s tight supply picture. European gas storage levels are currently lower than they have been in August for over 5 years. However, this has been followed by steady drops in the price of gas due to increased fears of the Delta variant spreading through large economies. This increases the chance of potential lockdowns and an overall reduction in demand for gas and power. On Friday, we saw another steep rise in prices across the board due to reports that a fire broke out at a Gazprom gas condensate preparation facility in the Yamal region. This has disrupted gas deliveries and adds to the bullish sentiment on gas prices overall. Winter 21 gas prices have spiked up by 6.25p/therm to 110.75p/therm, which brought Winter 21 power prices along with it, climbing £4.60/MW to £109.80/MW.
The price of Carbon has been on a steady rise since last Wednesday, with UKA’s increasing by £2.50/mt to £45.60/mt. Similarly, the price of EUA’s has increased by €4.18/mt to €54.58/mt. This is the highest carbon price in almost a month. Currently the EUA sits at over £1/mt premium to the UKA but this has been eroded in the last few days. Market Analysts are now predicting that the UKA’s may trade above the EUA’s soon, although, there is no fundamental reasoning behind this, and is led by investor confidence.
Varying wind generation continues to drive prompt market prices
Similar to last week, Monday and Tuesday saw very low levels of wind generation across the UK, dropping to as low as 0.25GW and remaining below 1GW (mostly). Despite this low generation there was strong supply from gas generators due to very high day ahead prices, up to £158/MWh, which incentivised the majority of available CCGT’s to run on this price. This meant that the system was always well balanced and we didn’t see any especially high intra day prices. On Thursday, wind ramped up to 10GW and remained higher than seasonal averages through to Friday. This brought different balancing challenges for National Grid as it suppressed day ahead prices, and led to fewer assets making themselves available.
Record breaking quarterly battery storage capacity under planning
The UK has seen a record breaking quarterly increase of planning for utility scale battery storage. In Q2 of 2021 there was an additional 3.2GW of battery storage planning requests, with 92% above 30MW. This highlights the growing appetite not just for battery storage but also the confidence in investors to build bigger and more expensive sites. The biggest site is a massive 500MW site in Lanarkshire, Scotland. Currently, the overall battery storage capacity under planning has increased from 17GW to 20GW spread across 800 sites. It is important to note that projects in planning do not always materialise, however this does highlight the growing interest. The highest capacity of battery storage projects registered for planning consent is 4.9GW in 2017. 2021 currently stands at 4.7GW of battery storage capacity planning submitted, with an increasing variety of investors beginning to catch on to the high returns that battery storage can provide.
Outlook for next week:
Wind is forecast to be above seasonal norms for the first half of the week, then dropping slightly but remaining around seasonal. Solar generation is expected to be level with yearly averages for August, whilst temperatures drop slightly below. We see a drop in the availability of Biomass, but an increase in CCGT and Nuclear availability meaning we will continue to have a healthy generation stack.