Weekly Energy Report - Bears grip UK power market
Haven Power’s weekly market report updates you on what’s happened in the energy market for the past 7 days. Here’s our summary for the week starting Monday 30th September:
- UK power curve down as “bears” gripped market; Liquefied Natural Gas contracts a key driver.
- Slowing global economy was also to blame for bearish week of falling prices.
- Imbalance prices turned negative, coinciding with high wind output.
- 14% increase in National Balancing Point (NBP) day-ahead pulled up power equivalent.
Read more below:
The prompt price for delivery on Monday 30th September jumped over 18% in reaction to a drop-off in wind generation in the morning.
However, following a rebound in wind output, the day ahead price for Tuesday 1st October moved down – undoing some of the gains of the previous day. The National Balancing Point (NBP) day-ahead price also dropped following lower demand on the system. The higher-than-average temperature, and the reduced requirement on gas-fired power plants due to the high wind, caused the lower demand.
Day-ahead prices for power delivered on Wednesday 2nd October moved slightly higher, day-on-day. A bullish NBP prompt (driven higher by a drop in UK temperatures) supported the price rise. However, movement on the power prompt was dampened by consistent levels of wind generation from Tuesday into Wednesday.
On Thursday 3rd October, wind generation declined – and supported the power day-ahead price. As the wind and temperatures continued to drop, there was an increase in natural gas consumption for use in heating and power generation. Consequently, the NBP day-ahead price moved higher.
The day-ahead price for Friday 4th October was down following a substantial rise in wind power generation. Such a rise naturally drives more expensive forms of generation out of the energy mix and pushes prompt prices lower. However, a rallying NBP prompt – it increased 14.8% day-on-day as the falling temperatures continued to increase demand for heating – prevented further losses. Further support for the NBP prompt came from reduced gas flows (from the Langeled pipeline to the Easington terminal) as planned maintenance on the Norwegian Troll field was extended.
Imbalance prices averaged £38.58/MWh over week 40, remaining positive for all but one settlement period: 17 (0800-0830) on Sunday 6th October. At this time, the UK system was 549MWh in imbalance, with sell actions outweighing the System Operator’s buy actions. The final price of -£3/MWh (the lowest imbalance price for the week) was set by an accepted bid by an unknown party to reduce output.
The highest price for the week of £100/MWh was in settlement period 27 (1300-1330) on Monday 30th September. For this period, buy actions to increase levels of generation outweighed sell actions by 205MWh, meaning the UK system was short. The final price was set by accepted offers to increase output by Ffestiniog pumped storage hydro.
Renewables and other
Wind-powered generation fell on Monday 30th September; down from the strong outputs seen at the end of week 39 to lows of 1.9GW in the early afternoon. However, on Tuesday 1st October, wind bounced back to average 8.95GW before dropping slightly to 8.9GW on the following day. The latter part of the week saw large swings in wind output, which had a direct impact on the price of day-ahead power; more expensive gas-fired generation was pushed out, only to generate again on low-wind days. Wind output peaked at 13.27GW during the evening of Saturday 5th October, when it made up 34.5% of the generation mix. Over the week, wind output contributed 24.5% on average.
Average temperatures over week 40 were close to 3.5C lower than in week 39, increasing demand across the week by an average of 1.4GW. Coal-fired generation featured as part of the UK generation mix every day during week 40.
Secure and promote* (Seasons +1, +2, +3, +4) baseload contracts decreased by £2.17/MWh on average over week 40.
Secure and promote contracts lost value over Monday 30th September following bearishness (downward movement) on the NBP gas market. This was driven by a predicted high level of supply, as more LNG will be sent to northwest European terminals in the coming weeks. A 2.3% drop in the EU Allowance (EUA) Dec-19 carbon price also pressured the power curve.
On Tuesday 1st October, there were mixed movements in power curve prices, with the near curve making gains and longer-dated contracts falling. The main driver for the gains were the NBP gas curve contracts moving higher, in reaction to the colder weather predicted for the coming weeks. Carbon prices also gained ground by the close of trading, providing added support for the power curve.
During Wednesday 2nd October, the power curve lost value across all contracts due to pressure created by losses on the NBP curve contracts and EUA carbon. There was a 3.4% drop on the Dec-19 carbon contract and an average fall of 3.1% on the front four NBP seasons day-on-day.
On Thursday 3rd October, a bearish energy complex weighed down the whole power curve, as a slowing global economy pressured commodity prices. One indicator of this slowdown has been the fall in global oil demand growth from 1.5mln bpd (million barrels per day) at the start of 2019, down to 0.9mln bpd in September.
In the shorter-term, Saudi Arabia fully restored its production to 11.3mln bpd following the drone strikes on the country’s oil infrastructure on 14th September. This increase in global supply pressured the front month Brent crude oil price; carbon prices also fell on Thursday, with the EUA Dec-19 contract dropping 3.9% from Wednesday’s close.
*For more information about Secure and Promote, please consult this Ofgem web page.
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 19 and summer 20.
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 Ben Symonds and George Goodhew - Haven Power’s Portfolio Analysts. To speak to them, or the rest of our Flex & Portfolio Management team’s analysts, call 01473 707755 quoting reference HP250.
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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