Day-ahead power prices for Thursday 15 September 2016 have risen to more than ten-year highs at £158/MWh as a result of negative supply margins forecast by National Grid.
Power demand has been climbing steadily since the start of September. Peak demand on Tuesday was 38GW about ten per cent higher than the levels through the summer and forecast to increase this week. However, supply capacity has not increased in this timeframe as power plants remain on maintenance and are expected back later in the month. There is currently over 8 GW of generation capacity offline, which would normally respond to meet the higher demand.
National Grid forecast supply and demand in advance, and included in their demand forecast is wind generation. Before this week, expectations were that the amount of spare capacity would be very small. Throughout the week the actual spare capacity has declined as wind forecasts have become more accurate and the amount of wind expected has fallen. This has reduced the spare capacity and pushed up prices.
Day-ahead prices have broadly traded between £32 and £42 MW/h throughout 2016 to date, and were regularly in the low thirties through last week. The lower surplus pushed prices up to £59 for Tuesday as margins were forecast at just half a per cent.
Prices for Thursday have risen far beyond this point as current forecasts are indicating negative margins. This means that there is not enough forecast generation to meet expected demand levels. The surge in price will attract additional generation online, particularly coal-fired power stations which struggle for profitability under normal market conditions.
Wider Impact on Pricing
In the shorter-term market power plants which had been expected to withdraw from the wholesale market or close entirely were able to generate during the most stressed hours, earning upwards of £450 per megawatt hour. The Fiddlers Ferry coal plant – which originally announced its closure in February 2016 – is operating under an “ancillary services” contract with National Grid and came online yesterday at these prices for the first time in at least three months. The Day-ahead power auction which attracts bidding on an hour by hour basis, reached its maximum of £999/MWh for the period between 8pm and 9pm on Thursday, when National Grid is forecasting its highest system stress.
The rise in Day-ahead prices has supported gains in the front-month October contract but it has had minimal effect on prices beyond this point, reflecting the short-term nature of the incident. Winter 16 prices are up 25% since January with traders wary of possible tight supply margins over the period. However, longer-term margins for the winter period are little changed from last week and prices have not responded significantly to the short-term prompt movements seen in the last few days.
The Utilitywise Corporate Risk Management team have been managing flexible contracts since 2004 and look after some of the largest energy users in the UK. We have the expertise in-house to understand the market and manage any risk. Our team of experts can help you to avoid an unwanted winter price scare. For more information call 01527 511 757.