Market Pulse
This week, there have been glimpses of the ‘extreme conditions’ the UK could experience over the coming winter. Wind only averaged 2GW, and there was a tight and volatile system, resulting in the highest Day Ahead and system prices since January 2021. Therefore, National Grid had to consistently call upon coal powered stations at £4,000/MWh, especially when wind generation dropped as low as 0.4GW. Day ahead prices peaked at £756.50/MWh and £867.00/MWh on Monday and Thursday respectively.
System prices spiked to over £3,400/MWh on Tuesday due to demand performing above forecast by 1.5GW and trips at Drax 4 and Didcot B6 removing a further 800MW. Additionally, there were ongoing tests on the new Norwegian electricity interconnector, which saw the UK exporting over 1GW despite imbalance prices well over £3,000/MWh. On Thursday, system prices peaked even higher at over £4,000/MWh as demand moved from underperforming forecasts by 2GW to over performing forecasts by 2GW. The reason why these price spikes have been so extreme is because we have seen a worryingly thin de-rated margin. This measures the amount of excess supply above peak demand, and any time this drops below 5GW concern grows. On Tuesday and Thursday, the derated margin dropped below 2GW and therefore the market reacted extremely bullishly.
The forward market continues to rise and this week’s prompt market activities have spooked it even further. The extreme prices we have experienced this week has led to market commentators questioning how severe it will be if there is no wind over winter. So, all parties involved are trying to cover themselves, which is pushing prices up. There have been continued gains across power, gas and carbon prices this week, mainly driven by the ongoing increase in NBP prices. The driving force behind this week’s gains has been maintenance on the Troll Field, a Norwegian gas plant which curtailed supply into the UK. There continues to be issues with LNG cargoes heading into the strained UK’s Norwegian flow of gas, combined with the continuing issues with LNG cargoes skipping Europe and heading to Asia where gas prices are twice as high at the moment). The completion of Nord Stream 2 pipeline has officially been announced, but there will be no flows until it is commissioned by the German regulator. In the past week NBP prices have increased by 8p/therm to 145p/therm, bringing UK Baseload Winter 21 prices along with it, increasing by £6.90/MWh to £136.90/MWh – to put these high prices into context, NBP prices were only 30p/therm one year ago. Carbon prices have remained relatively steady, with the UKA trading at £53.40/mt, whilst the EUA is trading at €61.80/mt.
This week, Limejump spoke at Power Responsive’s Virtual Summer Event. Power Responsive is a stakeholder-led programme, facilitated by National Grid ESO, to stimulate increased participation in the different forms of flexible technology such as DSR and storage. It brings together industry and energy users, to work together in a coordinated way. Melanie Ellis, Our Head of Regulation, and Thomas McGoldrick, our Business Development Manager, delivered an insight on the UK’s existing and future opportunities for large scale batteries.
If you missed the event, we have you covered. All the presentations and the virtual stands will be available until the 19th September, click here to register and access some great market insight.
Next week is looking very similar to this week. Wind is ramping down again over the weekend which means we are expecting a very tight system on Monday and Tuesday. It remains low but will gradually increase by the weekend. The deciding factor will be whether a Drax biomass unit returns as planned on Monday. Drax would provide an additional 1GW of supply, but at the moment the market is pricing with the stance that it won’t return. The market could potentially be at the mercy of asset trips as we saw again this week.