Weekly Energy Report - Falling gas prices pressure power curve
22nd October 2019
Haven Power’s market report covers what’s happened in the energy market over the past week. Here’s your update on the past 7 days, starting Monday 14 October:
- Front four National Balancing Point (NBP) gas seasons fell by 1.6% on average to push power curve down.
- Day-ahead price jumped almost 27% at the start of the week, after wind generation dropped.
- Hydroelectric generators set both the highest and lowest imbalance prices of the week.
- Average weekly wind generation fell by almost 4GW week-on-week.
Read more below:
The prompt power price for delivery on Monday 14 October rebounded following a sharp drop in wind output that began on the evening of Friday 11. The low levels then persisted over the weekend and into the start of week 42. Wind generation ended up averaging 4GW on Monday, down from 12.8GW on the Friday of the previous week. Demand on the grid in this period moved the other way and was another factor in the price jump. Demand rose from 32.1GW on Friday 11 October to 33.45GW on Monday 14 October. Due to these factors, the N2EX price increased by almost 27% when comparing the same days.
The day-ahead price for Tuesday 15 October rose compared to Monday’s, due to a slight rise in demand and the daily averages for wind generation remaining the same day-on-day. Over the peak hours of Tuesday, the lower levels of renewable generation led to a higher demand for more expensive gas and coal generation., helping to increase prompt power prices.
Prices for Wednesday 16 October fell in response to a rise in wind output. However, strength on the National Balancing Point (NBP) day-ahead during the morning supported the power price and prevented it from dropping further.
Prompt prices for delivery on Thursday 17 October moved lower, despite a slight fall in wind and solar output. The power day-ahead tracked losses on the NBP equivalent, which moved down 3.7% compared to the previous day. On Friday 18 October, further losses on the NBP prompt and a rise wind generation caused prompt power prices to fall even lower.
During settlement periods 37 & 38 (18:00 – 19:00) on Saturday 19 October, the system price reached its highest level of the week: £95/MWh. The price was set by an offer to increase generation from a single Balancing Mechanism (BM) unit: Cruachan turbine 2. Cruachan is a 440MW pumped hydroelectric power station in Argyll and Bute Scotland, which also featured in the BM during week 41. Back then, it was one of the units setting the lowest imbalance price of that week (-£60/MWh).
The week’s lowest system price of £0/MWh was also on Saturday 19 October, set during settlement period 19 (09:00-09:30) by bids to reduce production/increase consumption from two power stations. They were Dinorwig Power Station (a 1.7GW pumped storage station in Gwynedd, North Wales) and Fasnakyle Power Station, a 76.5MW hydroelectric plant near Cannich, in the highlands of Scotland.
Renewables and other
Wind output was highly variable over week 42 in comparison with the previous week. There were low generation levels at the start, with both Monday 14 and Tuesday 15 October averaging 4GW. Output levels moved higher on Wednesday 16 October, averaging 7.15GW and reaching the week’s high of 10.9GW mid-morning. After a slight drop on Thursday 17 October, daily wind averages continued to increase over the latter half of the week; remaining above 8GW for most of the weekend.
Monday 14 October saw the lowest solar generation level, at just 1.4GW. However, throughout the rest of the week, output remained above 3GW and the weekly high of 4.2GW occurred on Saturday 19 October.
The weekly wind average decreased from 10.3GW to 6.4GW week-on-week, in contrast to the marginal increase in the weekly solar average, rising from 710MW to 810MW.
Week-on-week, coal made up a larger proportion of the UK power mix in week 42 – up from 1.05% to 1.6%. As winter approaches, temperatures begin to drop and demand increases, coal will start to make up a larger percentage of the power stack.
Over week 42 secure and promote* (Seasons +1, +2, +3, +4) baseload contract prices decreased by £0.55/MWh on average.
On Monday 14 October, seasonal contracts made losses over the trading day. Power contracts moved lower in reaction to bearishness in European Union Allowance (EUA) carbon contracts. The Dec-19 carbon price fell to lows of €23.51/t during the morning before recovering in the afternoon; by the close of trading, the contract had fallen by 1.2% day-on-day.
On Tuesday 15 October, rallying carbon prices gave strength to prices on the near curve; the Dec-19 contract finished the day up 6.5% at €25.71/t. However, the pound rallying against the Euro – which helped pressure UK curve power contracts downwards – counteracted the effect of the rising carbon price. More pronounced falls in NBP equivalent prices pushed down the far curve, leading to losses in power contracts from Summer 2021 onwards.
Over Wednesday 16 October, carbon prices continued to find strength and reached highs of €26.30/t. Despite this, curve prices remained largely unchanged due to bearishness in the NBP gas curve and sideways movement in Brent crude prices. The increased likelihood of an agreement over a Brexit deal helped to strengthen the EUA carbon prices and the pound. A deal would keep the UK within the EU Emissions Trading Scheme (ETS), where EUA credits are traded. In turn, this would make sure that UK businesses continued to submit carbon allowances, sustaining the demand for them and therefore supporting prices.
The power curve lost value across all maturities on Thursday 17 October. The losses stemmed from bearishness on NBP curve products and the EUA carbon front year contract. High levels of storage and frequent Liquefied Natural Gas (LNG) deliveries have caused the recent downturn on the NBP gas curve. Consumption has also been quite low, thanks to the seasonally mild temperatures.
On Friday 18 October, curve power prices dropped further due to continued bearishness in NBP equivalent products, Dec-19 EUA carbon and Brent crude oil.
*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, 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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