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Wind blows away supply concerns

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Here’s a summary of the week starting 30th January 2018:

• High wind output last week helped ease supply concerns caused by nuclear resources running at just 70% capacity.

• During this winter’s coldest periods so far, the uncharacteristically windy conditions have kept day-ahead prices at a relatively low level.

• The Dutch energy regulator has recommended immediate cuts in gas production at the earthquake-prone Groningen gas field, so they’re now at 40% of 2014 levels.

• UK gas storage is at a much higher level than at the same time last year, so there are no immediate concerns about security of supply.

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.

2018-02-05 annual-prices

Seasonal Contracts

Secure and Promote* (Season +1, +2, +3, +4) baseload contracts lost on average £0.11/MWh last week. The winter-19 product lost the most value over the course of the week, closing c.£0.25/MWh down on its price when trading began on Monday 29th.

National Balancing Point (NBP) gas contracts were the main driver for electricity price movements, with the NBP curve generally weakening.
Interestingly, on Thursday 1st, the Dutch energy regulator announced a near halving of production (compared to the current annual cap) at the Groningen gas field. The aim of this move is to limit the threat posed by the area’s seismic activity. While NBP prices reacted to this news, the UK power curve did not see a significant price hike.

Haven Power Market Report

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

Prompt/Day-ahead Power

In a week that celebrated ‘groundhog day’, it’s perhaps not surprising that it felt very similar to many other recent weeks: high wind generation forecasts drove down day-ahead prices. High levels of wind output on Monday 29th January resulted in the week’s lowest price (£40.47/MWh) for day-ahead delivery. However, prices picked up for delivery on 30th January, as the forecast was for much lower levels of wind.

Day-ahead prices continued to rise, despite wind forecasts also continuing to increase. These prices may have moved up because of a reduction in nuclear plant availability, after the 640MW Torness Unit 2 came offline on Monday evening. The week’s highest day-ahead prices were for delivery on Saturday 3rd February, when wind output was at its lowest level: just 1.35GW. Peak supply margins are forecast to be much tighter for the week ahead; National Grid anticipates under 5GW of surplus capacity, so day-ahead prices could be more volatile.

In a week that celebrated ‘groundhog day’, it’s perhaps not surprising that it felt very similar to many other recent weeks: high wind generation forecasts drove down day-ahead prices. High levels of wind output on Monday 29th January resulted in the week’s lowest price (£40.47/MWh) for day-ahead delivery. However, prices picked up for delivery on 30th January, as the forecast was for much lower levels of wind. Day-ahead prices continued to rise, despite wind forecasts also continuing to increase. These prices may have moved up because of a reduction in nuclear plant availability, after the 640MW Torness Unit 2 came offline on Monday evening. The week’s highest day-ahead prices were for delivery on Saturday 3rd February, when wind output was at its lowest level: just 1.35GW. Peak supply margins are forecast to be much tighter for the week ahead; National Grid anticipates under 5GW of surplus capacity, so day-ahead prices could be more volatile.

Imbalance Prices

Single imbalance prices over the week averaged £49.31/MWh, reaching a peak of £120.43/MWh during settlement period 36 (17:30-18:00) on 4th February. During this period, National Grid called upon a number of relatively expensive CCGT (Combined Cycle Gas Turbine) and pumped storage hydro plants to increase generation and ease system tightness. This is a frequent occurrence, as the flexibility of these sources allows them to generate at relatively short notice compared to other technologies.

Last week also saw a period of negative imbalance pricing – when the electricity system is typically ‘long’ and there’s significantly more supply than demand. As you may expect, this occurred during a very quiet time for demand: settlement period 8 (03:30-04:00) on Monday 29th January, when demand was just 24.4GW. This was the second lowest period of demand in 2018, after New Year’s Day. During period 8, National Grid paid a number of flexible generators, including hydro plant and one of Drax’s biomass units, to reduce generation output.

Single imbalance prices over the week averaged £49.31/MWh, reaching a peak of £120.43/MWh during settlement period 36 (17:30-18:00) on 4th February. During this period, National Grid called upon a number of relatively expensive CCGT (Combined Cycle Gas Turbine) and pumped storage hydro plants to increase generation and ease system tightness. This is a frequent occurrence, as the flexibility of these sources allows them to generate at relatively short notice compared to other technologies. Last week also saw a period of negative imbalance pricing - when the electricity system is typically ‘long’ and there’s significantly more supply than demand. As you may expect, this occurred during a very quiet time for demand: settlement period 8 (03:30-04:00) on Monday 29th January, when demand was just 24.4GW. This was the second lowest period of demand in 2018, after New Year’s Day. During period 8, National Grid paid a number of flexible generators, including hydro plant and one of Drax’s biomass units, to reduce generation output.

Renewables and other

In another windy week for the UK, output levels were over 10GW on a number of days – with the peak at 19:30 on 1st February, with nearly 13GW generating. During this time, wind made up over 27% of the UK fuel mix. However, wind output dropped during the weekend, with just 1.35GW generating during the morning on 3rd February; once again this coincided with the highest day-ahead prices.

During recent winters, cold spells have usually coincided with periods of low wind output. This has resulted in more expensive generation being relied upon to meet the increased demand that cold weather brings. However, things have been different this winter. Uncharacteristic weather conditions and an increase in wind capacity connected to the grid have led to unexpected levels of wind generation during cold spells this winter, reducing the reliance on primarily nuclear generation.

In another windy week for the UK, output levels were over 10GW on a number of days - with the peak at 19:30 on 1st February, with nearly 13GW generating. During this time, wind made up over 27% of the UK fuel mix. However, wind output dropped during the weekend, with just 1.35GW generating during the morning on 3rd February; once again this coincided with the highest day-ahead prices. During recent winters, cold spells have usually coincided with periods of low wind output. This has resulted in more expensive generation being relied upon to meet the increased demand that cold weather brings. However, t things have been different his winter. Uncharacteristic weather conditions and an increase in wind capacity connected to the grid have led to unexpected levels of wind generation during cold spells this winter, reducing the reliance on primarily nuclear generation.

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 the company’s Flex & Portfolio Management team, speak to Haven Power 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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