Weekly Energy Report - Fluctuating wind output drives UK power
1st November 2018
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Here’s a summary of the week starting 22nd October:
- Fluctuating wind output and expectations of colder weather steered the UK prompt market.
- UK system saw demand pick up sharply as clock change brought darkness forward an hour.
- Wind output was considerably higher during this week, reaching up to 44% of the generation stack.
- Seasonal contracts experienced losses over the week due to carbon and oil losses.
In Week 43, fluctuations in wind output changed demand for gas and coal-fired generation and created price volatility on day-ahead baseload contracts. Forecasts for increased wind output on 23rd October, plus an oversupplied gas system, created significant downward pressure on the day-ahead baseload contract. The result was the lowest price for the week (£58.69/MWh).
Prices for baseload delivery then climbed sharply for delivery on 24th and 25th October. Wind output was expected to reduce dramatically and expectations about colder weather increased demand for gas; this resulted in the highest price for the week (£64.05/MWh) for delivery on 25th.
The average imbalance price across week 43 was £59.99/MWh, a decrease of over £3/MWh from week 42. Despite high wind output on a number of days during the week, there were no periods of negative prices.
On 23rd October, the price for settlement period 11 (05:00-05:30) of £6.79/MWh was the lowest for the week. During this period, high wind output was contributing over 46% of the generation stack and the UK system had almost 600MWh more generation than it needed. Therefore, National Grid paid a number of wind generators to reduce their output, resulting in the low system price outturn. The price was prevented from turning negative by accepted bids for over 380MWh at £17.50/MWh.
The highest price for the week was £142.04/MWh for settlement period 36 (17:30-18:00) on 28th October. Following the clock change from BST to GMT, darkness in the UK fell an hour earlier; demand picked up from 40GW to almost 43GW within settlement period 35. The final price was set by accepted offers from West Burton CCGT (Combined Cycle Gas Turbine), Fiddlers Ferry and Cottam (coal), and pumped storage hydro plants.
Renewables and other
Average wind output in the UK during week 43 was substantially higher than the previous week, at almost 9.5GW. Due to higher wind output, coal-fired generation made up a smaller proportion of the generation stack compared to recent weeks. Wind output reached over 13.5GW during the evening of 23rd October, making up almost 33% of total generation. Wind output continued to contribute the lion’s share of the generation mix into the early hours of 24th October, reaching a high of 44%.
Secure and promote* (Seasons +1, +2, +3, +4) baseload contracts again experienced volatility over the week. However, their closing prices on Friday were all below where they’d opened on Monday morning; the front season, Summer-19, closed around £2/MWh lower.
Despite stronger European carbon prices, significant losses during trading on 23rd October were due to a weaker Brent Crude Oil benchmark. In turn, this oil weakness pressured National Balancing Point (NBP) gas prices downwards. NBP gas prices can be sensitive to oil price fluctuations as, historically, some gas contracts have been linked to oil.
During trading on 26th October, the European carbon market experienced marked losses, reaching their lowest level since mid-August. These losses pressured the UK power curve further downwards.
*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, call us on 01473 707755 quoting reference HP250.