Weekly Energy Report - Gas and wind help deflate day-ahead prices
29th October 2019
Do you know what happened in the energy market last week? Find out with Haven Power’s market report – here’s our summary for the past 7 days, starting Monday 21 October:
- Curve power contracts made losses on the week, after downward movement on carbon price.
- Day-ahead power prices fell over the week as wind dropped and the gas prompt rose.
- System price went negative for a total of 3.5 hours on Sunday 27 October.
Read more below:
Prompt prices for power delivered on Monday 21 October moved higher off the back of a bullish (where prices are rising) National Balancing Point (NBP) and a slight fall in wind and solar output. Demand increased from 33.2GW on Friday 18 October to 35.1GW on Monday 21, following a 1.2°C drop in the daily average temperature. The decrease in renewables and rise in demand meant power supplies were tighter, so National Grid called upon more expensive forms of generation (e.g. gas and coal) to meet demand.
Bearish behaviour (where prices are falling) caused NBP day-ahead prices to drop for Tuesday 22 October. An increase in Norwegian gas imports was the main factor, with flows from the Langeled pipeline almost doubling compared to the levels seen at the end of week 42. In addition, a marginal increase in wind generation put further pressure on day-ahead power.
The power prompt for Wednesday 23 October moved below Tuesday’s level due to a rise in the forecasted wind output. However, the actual daily average wind outturn was largely unchanged day-on-day. The rise in the NBP day-ahead – caused by a 26% drop in Norwegian gas imports – helped limit losses on the power prompt.
Prompt prices for delivery the following day (Thursday 24 October) continued to fall in response to a forecasted rise in wind generation. Firm NBP prompt prices – caused by decreased imports from Norwegian pipelines and increased exports to continental Europe – prevented day-ahead power prices from dropping further.
Despite wind output increasing over Friday 25 October, the day-ahead power price moved higher. The bullish drivers for this move were a 3% rise on the NBP day-ahead and a drop in solar generation.
The system price was negative over seven settlement periods in week 43, all of them during the early hours of Sunday 27 October. The price hit weekly lows of -£70/MWh during settlement period 3 (01:00-01:30), set by bids to reduce generation by two wind farms. The first, Pen y Cymoedd, is a 228MW capacity project in South Wales; the second is An Suidhe, a smaller-scale wind farm in Argyll and Bute, Scotland (19.3MW capacity).
Renewables and other
Wind power output was fairly consistent over the first half of week 43, with daily averages on Monday 21, Tuesday 22 and Wednesday 23 October at 6.6GW, 6.9GW and 7GW respectively. After generation levels dropped slightly on Thursday 24 October, wind ramped up going into the weekend; daily average levels were above 8GW from Friday 25 to Sunday 27 October. Output reached a peak of 12.7GW on the evening of Saturday 26 October.
Solar was highly variable, with the lowest levels (around 1GW) on Friday 25 and Saturday 26 October, and the highest peak (6GW) on Sunday 27 October.
Weekly wind averages rose from 6.4GW in week 42 to 7.55GW in week 43; the weekly solar average dropped from 800MW to 640MW over the same period. Coal was part of the UK’s fuel mix again this week. However, with the average weekly generation dropping from 540MW to 340MW, it made up less than 1% of the total.
Over week 42, secure and promote* (Seasons +1, +2, +3, +4) baseload contract prices fell by £0.47/MWh on average.
Power contracts lost value across the curve on Monday 21 October, driven by a rally in the pound against the Euro. This kind of resurgence in sterling makes UK power contracts comparatively more expensive than their continental European equivalents. In turn, this leads to UK power prices correcting downwards to reach equilibrium with European contracts. The Brent crude oil front month closed down slightly on the day, providing some pressure to power prices, while the Dec-19 carbon price closed largely unchanged day-on-day.
On Tuesday 22 October, secure and promote contracts moved lower in reaction to weakness in carbon prices and NBP equivalent contracts. However, the near curve gained value due to a predicted drop in temperature to below seasonal norms over weeks 44 and 45, plus a forecast of falling wind output during week 44.
Wednesday 23 October saw the power curve make losses on the day, following falling prices across the energy complex. By market close, the front year carbon contract (Dec-19) had fallen by 3.5% compared to the previous day’s closing price. Both NBP curve contracts and Cal ’20 coal also made losses day-on-day. The Brent crude oil front was the only energy complex constituent to go up, rising by 2.5% to reach $61.17/bbl.
On Thursday 24 October, a jump in energy complex prices helped to support the UK power curve and resulted in average gains of 0.64% on the day over the front four seasons. The Dec-19 European Union Allowance (EUA) reversed the losses of the previous day, closing at €25.44/t; the front four NBP seasons made average gains of 1.38%.
Both Dec-19 carbon and Cal ’20 coal had fallen by just under 2% at the close of Friday 25 October. This bearishness filtered into UK curve power prices, with most contracts making losses on the day. Carbon prices made losses in week 43, with the Dec-19 contract dropping by just over 5%. Some longer dated contracts (Summer 22 to Summer 23) did make small gains, possibly in response to a rally in Brent crude prices late in the day.
*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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