Pumped storage hydro comes to the rescue
8th October 2018
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Here’s a summary of the week starting 1st October:
- Fast response pumped storage bailed out the UK system on 5th October
- Strong link between changes in wind forecasts and day-ahead power prices
- UK seasonal products saw gains driven by fuel commodity prices
- Coal generation replaced some lower-efficiency gas
Week 40’s highest price (£68.70/MWh) for day-ahead baseload power was for delivery on 3rd October. A severe decline in wind output, from over 11GW on 2nd October to below 6GW the following day, meant more expensive Combined Cycle Gas Turbine (CCGT) stations increased their output.
The lowest price for baseload delivery was £60.36/MWh for 2nd October, when wind output averaged over 10GW. High wind forecasts suppressed demand for day-ahead National Balancing Point (NBP) gas, and reduced premium for day-ahead power products.
The average of imbalance prices during week 40 was £65.75/MWh – a slight increase when compared to week 39.
There were several settlement periods when the final system prices were negative, all coinciding with days when wind output was relatively high. The lowest price of -£64.34/MWh occurred at 01:00 (settlement period 3) on 2nd October, when the UK system had excess generation. National Grid removed more generators from the system than it paid to come on. Notably, it paid Thanet offshore wind farm £135/MWh, Black Law wind farm £64.66/MWh and Whitlee wind farm £73.19/MWh to reduce generation output.
The week’s highest price was £110.78/MWh on 5th October, for settlement period 13 (06:30-07:00). During this time, National Grid took more actions to bring generators online than generators paid to remove themselves, since the UK system flipped from being long (oversupplied) to short (undersupplied). A sharp drop in volumes imported from abroad via the interconnectors appears to have been the cause. National Grid called upon fast response pumped storage hydro generation to ease system imbalance, with Dinorwig and Foyers contributing significant volume.
Renewables and other
Average wind output was higher during week 40, at around 6.2GW, than it was in the previous week. As ever, Combined Cycle Gas Turbine (CCGT) output fluctuated to compensate for the rise and fall of wind generation.
Solar output is declining as the days shorten; on 6th October, cloudy and rainy conditions across most of the UK meant solar output peaked at a little over 1GW.
Coal-fired output was present in the UK generation stack for the whole of week 40, replacing some less efficient and more expensive CCGT generation.
Secure and promote* Seasons +1, +2, +3, +4) baseload contracts gained an average of £2.80/MWh over the course of week 40. The summer-19 contract now becomes the front season, following the expiry of winter-18.
At some stage, each fuel commodity dictated the direction of contracts on the curve – with gas being the primary driver. The Brent Crude Oil benchmark strengthened throughout most of the working week to add a premium to National Balancing Point (NBP) gas prices and, in turn, the power curve. Oil and European coal hit multiyear highs during trading on 3rd October, lifting the price of gas and power contracts.
*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 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.