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EU raises renewables target as UK power prices drop

Stay updated on energy market changes over the last 7 days with Haven Power’s market report.

Here’s a summary of the week starting 11th June:

• The recent downward trend in prices continued for most UK power contracts.
• High wind output caused a significant drop in UK day-ahead price.
• Saudi Arabia and Russia hinted at oil production rises, pushing UK gas and power prices down.
• National Grid reduced wind generation, resulting in negative system prices.
• The EU informally agreed to increase 2030 renewable energy target to 32%.

Prompt/Day-ahead Power

Prompt prices were turbulent over the course of the week, with an average price of £60.03/MWh. Prices dropped to £53.49/MWh, the lowest for the week, on 14th June when wind output was forecast to increase by 3-4GW. The following day, when wind output suffered a sharp decline to around 5GW, the day-ahead price for 15th June shot back up to £63.85/MWh. Due to the relative lack of wind generation, gas-fired generators had to increase output from 8GW to over 12GW to fill the gap. Day-ahead prices for delivery over the weekend softened, as more wind was expected.

Imbalance Prices

Single imbalance prices during week 24 averaged £48.97/MWh, down almost £3/MWh on the previous week due, in part, to some periods of negative prices.

The week’s highest final price – a relatively low £86.00/MWh – was for settlement period 19 (09:00-09:30) on 12th June. Ultimately, this was set by Fiddlers Ferry coal-fired power station offering to increase generation and contributing 203MWh during the 30 minute settlement period. Other contributors included Ffestiniog pumped storage hydro at £100/MWh, although their output was lower than that provided by Fiddlers Ferry.

The lowest price during week 24 was for settlement period 7 (03:00-03:30) on 14th June, when the UK system exceeded generation and National Grid had to re-balance supply and demand. During this time, the System Operator had to pay numerous wind generators to either decrease generation, or stop generating completely. One of the biomass-fuelled units at Drax power station was also paid the cost of the renewable subsidy to reduce generation output. Coryton and Damhead Creek, both combined cycle gas turbine (CCGT) plants, paid to take themselves out of the UK generation mix to save on fuel costs.

 

Renewables and other

Solar output over the course of the 7 days was low in comparison to recent weeks; which was one of the factors behind inflated day-ahead prices.

Even though peak solar output was high (8.7GW) on 11th June, it failed to have any material impact on suppressing day-ahead prices because wind output was low. In contrast, on 14th June, with wind output at 13GW and relatively high solar output, there was a dramatic impact on day-ahead prices.

That day’s high wind output reduced the network’s dependency on gas-fired power plants, where output dropped by around 4GW compared to 13th June (and 15th June too). This reduced the carbon emissions of the UK generation mix by over 30% compared to 13th June.

 

Seasonal Contracts

Most Secure and Promote* (Seasons +1, +2, +3, +4) baseload contracts suffered losses last week, the exception being the season +1 contract (currently winter-18). Although Friday’s closing contracts were lower than Monday’s opening levels, prices were bullish throughout most of the week before experiencing losses towards the end of the week.

On 12th June, bullish influence came from European coal prices pushing value into the National Balancing Point (NBP) gas market, with UK power prices following suit. There was a similar story during trading on 13th June, although additional upward momentum came from rising oil prices.

The Brent Crude oil benchmark continued exerting its influence over NBP gas and UK power prices on Friday, this time dragging them downwards. The benchmark suffered significant losses as the largest oil producers, Saudi Arabia and Russia, hinted at increasing production. Additional downward pressure came from a fall in the price of carbon, following the EU’s albeit informal agreement to increasing its renewable energy target to 32% by 2030.

*For more information about Secure and Promote, please consult this Ofgem web page.

Annual Power

The annual power graph shows how the value of an annual power contract changes over time. The annual contract value is the average of the front two seasons, currently Winter 18 and Summer 19.

To help you make sense of the industry, you can also use our jargon buster and handy guide to Third Party Costs (currently 60% of your bill). And for interesting articles and useful insights, look out for our blog.

Report written by Thomas Stebbings and Andrew Jarman, Haven Power’s Portfolio Analysts. To speak to them, or the rest of our Flex & Portfolio Management team’s analysts, call us on 01473 707755 quoting reference HP250.

Disclaimer

Although we’ve made all reasonable effort to verify the information in this report and provide the highest possible accuracy, Haven Power Limited gives no warranty – express or implied – in respect of this information. Furthermore, our provision of this report does not constitute advice of any kind and readers should not take it as the basis for any commercial or financial decisions. You should make any such decision based on your own records, knowledge and perception of power market data, supplemented with appropriate independent expert advice when required.

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