In this week’s edition of our Current± Price Watch series – powered by LCP Enact – we take a look at the record high wind generation – and curtailment – over the past week, as National Grid ESO sets out its Winter Outlook Report.
Day Ahead: Wind generation surges to 17.6GW
The Day Ahead price hit a high of £329.2/MWh last week on Monday 3 October, and a low of £10/MWh on Friday 9 October.
One of the biggest drivers of power prices over the last week was the strong wind generation, which hit a new record for the highest amount of wind generation available to the British system ever on 5 October.
At 22:30 BST, there was 17.6GW of wind generation available, according to LCP Delta.
Wind remained strong throughout most of the week, with 41% of Britain’s power coming from wind over the last week, hitting a maximum amount on the system of 74% on 7 October.
However, this also meant there was the second highest amount of wind curtailment seen on Britain’s grid.
Intraday: Strong winds drive power prices negative
APX Mid Intraday prices hit a high of £383.57/MWh on 3 October, and a low of £-38.66/MWh on 7 October.
“Last week was characterised by high levels of wind generation resulting in comfortable system margins and relatively low prices by recent standards,” said Tim Sparks, LCP Delta consultant.
“Intra-day prices dipped into negative territory overnight on Thursday and again on Friday. This was in response to negatively priced wind bid setting the imbalance price, which reached a low of £-68.73/MWh early on Friday morning.”
This dip was contrasted by the end of the day on Friday 7 October, when we saw relatively high intraday prices, rising significantly above the Day Ahead price level.
“The system was around 2GW short in the run up to the evening demand peak, due to the combination of interconnector exports running at close to 2GW and a number of CCGT units struggling to deliver to their scheduled generation profiles,” continued Sparks.
“Low day-ahead prices across much of the day meant that the bulk of the CCGT fleet was not scheduled to come on until late afternoon and so the start-up risk associated with these plants shifted from the morning demand pickup to the evening peak.
“Saltend unit 2 never got going, having declared an unplanned outage shortly before it was due to come on, while other CCGTs had issues reaching or maintaining their scheduled load. NGESO had to turn on peaking plants to manage the energy imbalance and the system price spiked to £600.00/MWh for period 38, with the intra-day (APX MID) price peaking at £374.71/MWh for period 37.”
Imbalance: Volatility increases as warning of a tight winter continues
Like Day Ahead and Intraday prices, Imbalance prices were more volatile over the last week on the back of wind generation. They hit a high of £600/MWh on 7 October, and a low of £-69.49/MWh on 9 October.
This volatility is likely to be nothing in comparison to many periods during winter, as demand grows in line with the temperature drops and gas supplies remain tight.
Last week, National Grid ESO released its Winter Outlook Report, which included both Base Case modelling for the period 31 October 2022 to 31 March 2023, and an alternative scenario.
The report set out the host of tools available to the operator to keep the system balanced, including using coal units it has contracted to stay online over the winter and the Demand Flexibility Service.
As part of the alternative scenario, the operator modelled a system where outages and an inability to rely on interconnectors led to the need for three-hour black outs.
“In line with National Grid’s latest report looking ahead to the winter, our recent analysis also found that, without imports from Europe, we could expect ten hours this winter where demand in the UK will exceed available electricity supply. With coal fired power stations already on standby to step in when needed, even this may not be enough, meaning the upcoming launch of a scheme to incentivise businesses and households to reduce their electricity use at key times will be critical and as yet unproven,” said Chris Matson, partner at LCP.
“It is notable National Grid’s worst case scenario in this latest forecast estimates households could lose power for up to three hours at a time this winter, and our own study did outline the very high possibility of power cuts this winter. Since these forecasts were published, the energy crisis on the continent continues, and uncertainty remains about the UK’s interconnector supply from Europe through the winter. Notably, our study suggested that either a cold winter or low wind output could see many more hours where supply of electricity is insufficient and the likelihood of an emergency situation increases”
The instability in the sector continues to be driven by the wider geopolitical instability, with the security of gas supplies paramount to energy security. This is expected to last well into 2022, with the long-term impact on power prices yet to be determined.
“In the forward markets, the premium for this winter became much more concentrated into January and February through last week’s trading,” said Sparks.
“The Jan-23 and Feb-23 baseload contracts gained significant value during Wednesday’s session, reflecting bullish trading in the corresponding NBP gas contracts. Sentiment was influenced by the OPEC+ announcement of planned cuts to crude oil production, amounting to 2m barrels per day. Meanwhile, the Nov-22, Dec-22 and Mar-23 power baseload contracts all posted losses week-on-week, with bearish-leaning weather fundamentals weighing on the front month in particular.”