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Strong winds cool down day-ahead price volatility

Keep up to date with energy market changes over the last 7 days with the Haven Power market report.

It’s particularly relevant if you’re buying electricity flexibly, or about to sign or renew a fixed electricity contract. Getting these decisions right can reduce your vulnerability to price-peaks in the wholesale market and save you money.

Here’s a summary of the week starting 5th February:

  • High wind output kept day-ahead prices in control.
  • Oil and coal commodity prices continued their fall in value.
  • Nuclear availability improved after the 600MW Torness plant returned to operations.
  • The system operator didn’t need generation from pumped hydroelectric storage, as high wind output caused supply to outstrip demand
  • The threat of strike action in Colombia’s largest mine contributed to coal price weakness.

Prompt/Day-ahead Power

The week’s highest day-ahead prices were for delivery on Monday 5th February, when wind output was at a relatively low level. From then, day-ahead prices showed a steady drop in value across the week, as wind generation grew stronger. Prices for delivery on Thursday were the exception to the overall decline, picking up alongside predictions of higher wind generation towards the end of the day – away from the peak demand periods. Another contributor to Thursday’s rise in day-ahead prices was a short shutdown at the Forties Pipeline System, pushing National Balancing Point (NBP) prices higher as worries increased over a supply crunch. Meanwhile, the return of the 600MW Torness nuclear plant put nuclear capacity back to over 80%, increasing supply margins. Prices reached their lowest level on Sunday, 11th February: just £46.93/MWh for baseload delivery, when wind output reached its peak for the week.

Imbalance Prices

Single imbalance prices over the week averaged £49.27/MWh, reaching a peak of £180/MWh on 10th February in settlement period 36 (17:30-18:00). During this time, National Grid paid Dinorwig pumped storage hydro £180/MWh to generate and ease system shortness (when supply isn’t matching expected demand). There were no periods of negative pricing this week; the minimum imbalance price of £0.00/MWh occurred during settlement period 29 (14:00-14:30) on 11th February. Once again, National Grid called on Dinorwig and paid the plant not to generate, as the system was long (an over-supply) due to high levels of wind generation.

Renewables and other

The UK experienced progressively windier conditions last week, with output peaking at 12.5GW during the afternoon of 11th February – when wind constituted over 32% of the country’s fuel mix. Wind output was at its lowest on 6th February, with just 2.5GW on the system. 6GW of solar generation on 7th February helped plug some of the gap left by a drop in wind generation during the middle of the day. However, for the rest of the week, solar generation was below 4GW – even at its peak. Last week experienced the same uncharacteristic conditions as other weeks this winter, where wind generation was relatively high despite cold temperatures.

Seasonal Contracts

Secure and Promote* (Season +1, +2, +3, +4) baseload contracts were relatively unchanged over the week, losing just £0.06/MWh. The Winter-18 contract lost the most value, closing c.£0.20/MWh down on where it began trading on Monday 5th February. NBP gas contracts were the primary driver for electricity price movements, with some help from other commodities weakening. This included weakness across coal markets internationally, perpetuated by supply concerns due to the threat of strike action in Colombia’s largest mine – averted only by a last-minute agreement. Weak demand for coal in Europe compared to previous winters is contributing to the decline in coal prices over the last few weeks. Brent crude oil also experienced losses last week, dropping to $64 a barrel after concerns over high US output and playing their part in the weakening of coal prices via transportation costs.

*For more information about Secure and Promote, please consult this Ofgem web page.

Annual Power

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 18 and Winter 18.

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, check out our blogs.

For a more in-depth analysis from our Flex & Portfolio Management team, speak to us directly on 01473 707755 quoting reference HP250.

 

Disclaimer
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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