Weekly Energy Report - Brexit uncertainty pressures UK curve
7th November 2018
To keep up-to-date with weekly changes in the energy market, see the Haven Power market report. Here’s a summary of the last 7 days, starting 29th October:
- Brexit uncertainty steered the European carbon price and pressured UK power curve down.
- Low wind and colder temperatures supported the UK power prompt at the start of the week.
- A new methodology was introduced to imbalance price calculations.
- Low wind output meant the UK relied on fossil-fuelled plant for most of the week.
Wind forecasts once again steered prompt prices during week 44, with forecasts for cooler weather providing additional strength.
At the start of the week, lower temperatures, darkness falling earlier and increased demand for gas and power combined to strengthen day-ahead prices. This also reinforced the sense that winter’s arrived. The highest price for day-ahead power (£61.59/MWh) was for delivery on 31st October, when wind output was relatively low.
The lowest price for the week (£55.16/MWh) was for delivery on Saturday 3rd November, when wind output increased dramatically. The low of 2GW on 2nd November increased to over 14GW on 3rd November, although this didn’t seem to adversely affect the many firework displays occurring across the UK that evening. This period also saw a reduction in output from Combined Cycle Gas Turbines (CCGTs) by over 8GW.
The average imbalance price across week 44 was £63.69/MWh, an increase of over £3/MWh from week 43. Despite wind output reaching 14GW on 3rd November, there were no periods of negative imbalance prices. The higher average price may have resulted from the relatively low wind output over the majority of the week.
On 4th November, the price of £14.50/MWh for settlement period 5 (02:00-02:30) was the lowest of the week. This period coincided with low demand and high wind output, with National Grid taking actions to reduce the excess generation by turning down wind output.
The week’s highest price of £171.68/MWh was for settlement period 35 (17:00-17:30) on 1st November. During this period, the UK system switched to being short (under-supplied) after being long (over-supplied) for a number of periods. The price was ultimately set by Corby gas-fired power station, which contributed 104MWh at a price of £165/MWh.
From 1st November, the imbalance price calculation - or Price Average Reference (PAR) volume - was reduced. It now takes into account only the most expensive 1MWh of balancing actions (down from 50MWh), with the result likely to be an increase in the volatility of imbalance prices.
Renewables and other
Renewable output during week 44 was lower than in the previous week. Wind output averaged just 6.5GW, down 3GW, and solar output was negligible.
The lower wind output during week 44 meant that the UK system relied more upon fossil-fuelled generators to meet demand compared to the windier week 43. Average output from coal-fired plant increased by almost 2GW, and generation from gas-fired power stations saw an increase of 3.5GW. So, there’s still a huge reliance on fuelled stations, even though the UK now has over 20GW of installed wind capacity. Coal generation has become more prominent in the UK stack of late due to increased gas prices, and the recent decline in carbon tax prices, allowing profitable running.
Secure and promote* (Seasons +1, +2, +3, +4) baseload contracts continued their downward trajectory during week 44, losing £0.90/MWh on average. The front season, Summer-19, suffered losses of over £1/MWh.
This bearish sentiment was apparent across the UK power curve for most of the week, with UK power prices pursuing weaker fuel commodities. The European carbon benchmark was a particularly strong driver, losing over 8% of its value on 29th October alone, before further significant losses on 1st November. It’s possible to attribute the carbon slide to reaction to the autumn budget (on Monday 29th October). Some believe it increased fears that the UK could drop out of the EU’s emissions trading scheme post-Brexit, resulting in a surplus of carbon allowances.
Trading on 2nd November somewhat reversed the trend seen earlier in the week, halting a week of almost continuous losses. The rebound of gas and power prices was due to a strengthening of coal and carbon prices, with increases of 1% and 7% respectively. With the former more present in the UK generation mix, power prices are sensitive to movements in coal.
*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 Summer 19 and Winter 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 Ben Symonds, Haven Power’s Portfolio Analysts. To speak to them, or the rest of our Flex & Portfolio Management team’s analysts, on 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.