Day-ahead and prompt feel the cold
27th February 2018
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Here’s a summary of the week starting 19th February:
- Day-ahead prices rose, feeling the effects of the impending cold weather front, despite relatively high wind output.
- Bullish prompt gas prices paved the way for coal generation.
- The UK and north western Europe are set to experience below seasonal-norm temperatures during week 9, which will likely lead to higher prices.
- National Grid used flexible generation to help balance the system.
- Oil prices continued their recent upward trend as US inventories reduced.
Last week, prompt and day-ahead power prices were strongly influenced by the threat of cold weather due to arrive in the UK at the weekend and to continue into week 9.
Day-ahead prices were up on recent weeks, as the cold weather outlook pushed up National Balancing Point (NBP) gas prices. Prices ranged between a low of £50.60/MWh for baseload delivery on Tuesday 20th February and a high of £55.00/MWh for delivery on Saturday 24th. Interestingly, day-ahead prices were at their highest during a time when wind output was also relatively high for the week. This suggests that the threat of cold weather greatly outweighed wind’s influence.
Stronger price movements for prompt power products largely copied their NBP gas equivalents, as the demand outlook for week 9 looked high for the UK and much of north-western Europe. Thanks to improved supply margins from nuclear plant, the UK is in a more comfortable position to cope with extended cold spells this winter. As a result, the UK is likely to export to France where, due to the prevalence of electric heating power, prices are more susceptible to cold snaps.
Single imbalance prices during week 8 averaged £47.68/MWh, but showed a range of over £300 as spikes and negative price periods were seen.
Prices reached a maximum of £158/MWh during settlement period 37 (18:00-18:30) on 21st February. During this period, National Grid deemed the system to be undersupplied and paid Killingholme 2 CCGT (Combined Cycle Gas Turbine) £158/MWh to generate and help alleviate some of the stress on the system. The lowest prices of -£150/MWh were seen during settlement period 16 (07:30-08:00) on 25th February. National Grid paid Dinorwig pumped storage hydro to reduce its generation at this time, as the system was deemed to be in over supply.
Renewables and other
There was strong renewable generation in the UK during week 8, as the country experienced both windy and sunny conditions.
Wind levels fluctuated across the week, with the lowest in mid-week and maximum levels late in the evening on Friday 23rd February. These wind levels peaked at just over 11GW, or 28.5% of the UK fuel mix at the time. Solar generation reached over 7GW on 24th February, as clear skies brought about sunny conditions. During the solar peak, wind generation was also high, meaning that solar and wind combined made up over 40% of the UK fuel mix. However, with the cold weather on the horizon, prompt gas prices have increased, reducing the profitability of CCGT plants and pushing more coal into the UK fuel mix; coal generation during week 8 was frequently over 5GW.
Secure and Promote* (Season +1, +2, +3, +4) base load contracts gained on average £0.10/MWh as the UK wholesale market experienced generally bullish conditions. The bullish sentiment affecting the prompt and nearer dated contracts seemed to have a muted impact on seasonal products last week. Winter-18 saw the largest increases, as it rose £0.25/MWh from its opening on Monday to the close on Friday. The Brent Crude oil benchmark was bullish throughout the week, despite an increase (albeit small) in US oil rigs. The driver of the price rise was likely the drop in US crude oil inventories and the ceasing of production at a Libyan oil field.
*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 18 and Winter 18.
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 blogs.
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.
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.