Weekly Energy Report - High wind pushes day-ahead to new low
15th October 2019
To stay updated on the week’s activities in the energy market, read Haven Power’s market report. Here’s what happened over the past 7 days, starting Monday 7 October:
- High levels of wind generation pushed the day-ahead auction to a new weekday low for the year.
- Secure and promote contracts made gains due to a rising carbon price.
- Average solar output fell in line with seasonal averages.
- System price was negative in just one settlement period in week 41.
Read more below:
The day-ahead power price for delivery on Monday 7 October moved higher, driven by a bullish (rising) National Balancing Point (NBP) day-ahead. Increased demand, plus outages on Norwegian gas fields (Troll – a planned outage – and Kvitebjorn, which was unplanned) caused these NBP prompt gains. However, the increase in wind power output on Monday did provide some resistance to prompt power prices.
Prompt prices for Tuesday 8 October dropped sharply, with the N2EX day-ahead auction falling by 15.4%. These losses were due to increases in wind power generation, combined with a falling NBP day-ahead (driven by a rise in Norwegian gas flows into UK terminals).
Day-ahead prices for Wednesday 9 and Thursday 10 October moved slightly lower, following further rises in wind output and healthy supply margins. NBP prompt prices fell over these two days as well, as the demand for gas fuelled generation and heating dropped due to the high wind and mild temperatures. The recent high levels of gas storage in the UK have also been bolstered by October’s frequent Liquefied Natural Gas (LNG) deliveries.
The power day-ahead for Friday 11 October moved lower still. This was a reaction to the continued strong wind output and – as often happens – a fall in demand as businesses wind down operations as the weekend approaches. The N2EX day-ahead auction out-turned at the lowest price for a weekday so far this year: £29.57/MWh.
The highest imbalance price in week 41 was £64.45/MWh, set on Tuesday 8 October during settlement period 38 (18:30-19:00). The was due to accepted offers to increase generation from South Humber Bank Power Station, a 1.37GW CCGT plant in north east Lincolnshire.
Imbalance prices were positive over the week, apart from on Tuesday during period 48 (23:30 – 00:00). At this time, the negative price of -£60/MWh was set by accepted offers to decrease generation or increase consumption from Cruachan Power Station and a Drax Power Station biomass unit. Cruachan is a 440MW pumped storage hydroelectric plant in Argyll and Bute, Scotland. Drax Power Station is in North Yorkshire and has 2.6GW of biomass capacity.
Renewables and other
Wind power was consistently high over week 41, starting the week with an average of 10.2GW on Monday 7 October. Over Tuesday 8 and Wednesday 9 October, wind generation rose to average 12.85GW and 13.05GW respectively. The highest level of generation was during the early evening of Tuesday, with a peak of 14.25GW.
Wind output remained above 10GW until the early hours of Saturday 12 October, when it began to fall rapidly. It hit the week’s low of just 1.8GW on the morning of Sunday 13 October, averaging 4.9GW over the day.
Solar peaks broke above 3GW from Tuesday 8 to Thursday 10 October, achieving the weekly high (4.4GW) on the day between. However, over the rest of the week, generation struggled to reach above 2.5GW.
Average solar output fell from 930MW to 710MW week-on-week, putting it in line with seasonal averages. The average level of wind generation increased from 7.5GW to 10.3GW from week 40 to week 41. Coal featured in the energy mix again this week, making up around 1% of UK power generation.
Over week 41, secure and promote* (Seasons +1, +2, +3, +4) baseload contract prices gained £1.40/MWh on average.
On Monday 7 October. seasonal contracts made marginal gains following a late rally in the EU Allowances (EUA) Dec-19 price. Closer in on the power curve, there were losses due to a bearishness in shorter term NBP contracts; these were caused by strong gas supplies.
Contracts gained value across the curve on Tuesday 8 October as the pound fell against the Euro. This was a reaction to the increased likelihood of a “No deal Brexit” following conversations between the UK prime minister and German chancellor. The pound’s fall makes UK power contracts comparatively cheaper than contracts from the continent, increasing the number of buyers of UK wholesale power contracts and driving the price higher. Conversely, the increased chance of a “No deal Brexit” pressured EUA carbon prices, with the front Dec-19 contract falling by 3.8% day-on-day.
On Wednesday 9 October, the power curve made further gains following bullishness in NBP gas and the wider energy complex. EUA carbon, Brent crude oil and Rotterdam coal all made gains on the day.
The following day, secure and promote contract prices continued to increase as they tracked the upward movement in carbon prices. The EUA Dec-19 price had moved 2.7% higher on a day-on-day basis by the time the market closed and the rise in the carbon price supported NBP curve prices. An increase in the cost of carbon allowances causes an increase in demand for gas generation, due to switching from more carbon intensive forms of generation (i.e. coal).
On Friday 11 October, the bullish sentiment in carbon continued to help push UK power prices higher. This happens because carbon allowances remain a cost for those generators using forms of generation (such as Combined Cycle Gas Turbines, CCGT) that emit carbon dioxide (CO2). Since gas fuelled generation still contributes around 40% to the UK energy mix, UK power prices are sensitive to movements in the carbon price.
The Brent crude oil prices moved higher on Friday following a missile strike on an Iranian-owned oil tanker in the Red Sea (60 miles from Jedda, Saudi Arabia). The strike triggered a surge in oil prices, with the Brent front month price rising by 2.4% by the close of the day’s trading. Although there was no claim of responsibility for the alleged attack, the incident is likely to increase tensions between Iran and Saudi Arabia.
*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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