The Week in Flexibility: Solar up, wind down, coal closing and a negative weekend …. another unpredictable seven days.
Our biggest news of the week comes from this weekend’s events. In a first of a kind scenario, the System Price dropped to -£50 for settlement period 21 (about the time you were relaxing with the Sunday papers) and remained negative until 4:30 pm resulting in an average System Price of just 6.29 for the whole day.
We’ve called this a “black swan” event – even though we are pretty sure this could be the first of many such events – but how did it happen? The short answer is the influence of supply and demand coupled with the distinct weather pattern we saw across the day. Solar generation peaked at 7.7 GW yesterday, above the 6.5 GW forecast and well above the seasonal average of 3.5 GW, increasing the power generation surplus. After a long period of gloomy skies, the shock effect of the sudden sunny weather meant people spent more time outdoors, causing demand to drop well below forecasts, an effect that is hard to quantify in demand modelling. With demand generally low for the weekend, National Grid was left with an interesting challenge.
With very low demand and very high renewable generation, gas plant wasn’t in play for the grid to turn down. What this led to was a situation where had to resort to turning down renewables (wind in particular) in the BM because the gas they’d normally turn off in times of low demand – was already off. If we take into account that gas units all tend to respond to turn down c.£30-40/MWh, what we can conclude when the prices hit this kind of negative level, is the widespread turndown of renewables. This turn down at a negative signal saw prices reaching as low as -£70.24 during settlement periods 28 and 29.
Thinking about the rest of last week…. Monday set a bumpy tone for the week. Significant price volatility (with an eventual System Price averaging around £63.62/MWh) and concentration of balancing actions were seen in the latter part of the day during SPs 35 through to SP41. These settlement periods all had Buy-Price Adjustment (BPA) leading to an added incentivisation to generate from National Grid.
Making use of the Limejump competitive advantage and its trading experience, Limejump utilised the System Price spread through optimising asset management and trade, to take advantage of this scenario, twice in one day.
Into Wednesday we saw an interesting solar peak forecast of 4.9GW vs the seasonal norm of 3.2GW. Then come Friday we witnessed a glimmer of the ‘old days’ of normality where we saw prices beginning to rise shortly before the evening peak as energy deficiencies in the power system rose close to 600MW. A sharp drop in wind was the catalyst for this (only 1-2GW of the expected 6GW) and the System Price eventually peaked between 18:30-19:00 at £87.
What was notable, is that despite all the system flux, we saw System Prices averaging out at c£40/MWh most days – if we take the weekend out of the equation of course.
Looking to the week ahead, we spare a thought for our meteorology colleagues as the month close sees three conflicting forecasts derived from different models: one with low temperatures, one sitting around seasonal norms and one much warmer than normal. Unpredictability no longer seems a strong enough word, but it underpins the needs for tight asset management coupled with Limejump’s ultra-flexible optimisation. Today’s solar generation – for example – is expected around 6.5GW with wind generation dropping from 10GW overnight to 2-3 GW by midday and with strong solar generation, we expect to see low System Prices throughout the day. But as we have seen in the last 7 days … anything can happen.
In closing, last week also saw a pivotal moment in the UK’s move away from coal with the upcoming closure of one of SSE’s Fiddlers Ferry units set to yield further opportunities for flexible assets. This, added to the Brexit volatility that leaves no market untouched, means an interesting six months are ahead of us with opportunities for savvy asset managers which have the right partners in place and market access.