Fuel commodities weaken, leading to power price retreat
12th July 2018
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Here’s a summary of the week starting 21st May:
- Renewables contributed over 50% of generation at times during the bank holiday weekend.
- Increased US rig count and production rises encourage oil price retreat.
- Strong renewable output and low demand push down day-ahead prices.
- UK power curve saw price increases earlier in week 21, before losses in second half.
Prompt prices remained strong again during week 21, with prices for baseload delivery comfortably above £50/MWh for most of the week before falling steeply.
Day-ahead prices peaked at £57.55/MWh for delivery on 25th May; only the second/third time since the severe cold snap at the beginning of March that prices have exceeded £57/MWh. Recently, the bullishness of the general power curve has inflated prices; the low renewable output forecast for 25th May exagerated this particular high. Week 21’s lowest prices of £47.05/MWh were for delivery on 27th May, with relatively high renewable output and lower demand the key contributors. Despite this, coal was still present in the UK fuel mix throughout the day, probably due to the UK’s currently limited nuclear capacity.
Single imbalance prices during week 21 averaged £52.64/MWh, with no periods of negative pricing and a few price spikes of over £100/MWh.
The highest price of £131.80/MWh was for settlement period 36 (17:30-18:00) on 24th May. During this period, National Grid paid £148.50/MWh to Killingholme Combined Cycle Gas Turbine (CCGT) plant to increase its generation output; it produced over 130MWh extra. Other contributors during this period included Dinorwig Pumped Storage Hydro (£140/MWh) and Crauchan (£94.20/MWh).
The lowest price during week 21 was for settlement period 11 (05:00-05:30) on 21st May, when the UK was over supplied; during this period National Grid took actions to reduce oversupply in the system. Carrington CCGT paid £42.60/MWh to take itself out of the generation stack and still saved on gas costs.
It’s important to note that the extent of the system oversupply/undersupply doesn’t necessarily lead to the highest/lowest periods of imbalance pricing. The final price merely shows the cost to National Grid of balancing the system.
Renewables and other
Week 21 saw high levels of solar output again, as the UK enjoyed a sunny late May bank holiday weekend.
Solar output was high throughout week 21 and was combined with higher wind output over the weekend days. This resulted in approximately 55% of UK power generation coming from renewable technologies mid-afternoon on 26th and 27th May.
Wind output was low at times during the week, contributing to high day-ahead prices for delivery on 25th May, and lower day-ahead prices on 27th when wind output picked up.
Secure and Promote* (Seasons +1, +2, +3, +4) baseload contracts experienced fluctuations throughout week 21. The bullish trend continued for the first half of the week, before bearish influences resulted in most products closing on Friday below where they opened on Monday.
Fuelled by stronger trade on coal, oil and carbon, the gains across the National Balancing Point (NBP) were the primary driver for the bullish sentiment on Monday and Tuesday. However, from Wednesday, the trend was generally bearish as the Brent Crude oil benchmark lost value. European coal and carbon also suffered losses, although slight increases in value towards the end of both Wednesday and Thursday prevented heavier falls.
The likely reasons for the retreat of Brent Crude oil towards the end of the week include the US increasing the number of rigs looking for oil. Another driver was the news that Russia and Saudi Arabia would soon discuss increasing production.
*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 18 and Summer 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 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.