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UK winter electricity market ripens for oil-fired back-up capacity

14 Nov 2013 10:20:52 | edem

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The UK electricity market is set to call upon costly oil-fired power generation more often this winter than in previous years to maintain supply margins, the commercial operations head at system operator National Grid said on Tuesday.

And any strain on the market could set in earlier than previously thought, wholesale electricity market spreads suggest, with peak demand during the week-ahead expected to jump to the highest level seen since last winter’s late-March cold snap.

“Forecast margins are lower than last year, so if all other things are equal, we’d expect to call upon oil-fired generation more this winter,” National Grid’s Duncan Burt said.

This could be potentially lucrative for operators of quick-response, oil-fired balancing plants. To illustrate the economics of tightening capacity margins, one 685MW unit at RWE npower’s Littlebrook oil-fired plant was fired up on Monday 4 November to maintain secure margins when the build-up to evening peak demand coincided with a relatively fast drop-off in wind power volumes, production figures show.

Offers from Littlebrook into the balancing mechanism of up to £200 (€237)/MWh were accepted by National Grid between 15.30 London time and 18.03, according to market data, which resulted in generation from the plant peaking at around 128MW.

“Should the market provide insufficient generation capacity, we will call on the cheapest generation that is available,” Burt said. “We take actions in cost order so we will buy oil [if it is] the next available unit in the price stack. We are incentivised to minimise cost,” he added.

Full tilt

The Littlebrook offer may sound expensive, but National Grid had little choice on 4 November, with other responsive forms of supply, including pumped storage and interconnection, feeding into the grid at full tilt alongside 21GW of combined-cycle gas turbine (CCGT) capacity – the largest single chunk of CCGT volume to be delivered into the system this winter so far. And all of this happened as demand topped out at 50.9GW.

According to National Grid, electricity demand in week 47 is expected to peak at 51.8GW, compared with 50.5GW this week.

This would be the highest demand since 27 March, when the UK and interconnected electricity markets saw sharp gains, including the biggest single-session rise on French front-month baseload for two years ( see EDEM 27 March 2013 )

The forecast, a rough 1.3GW week-on-week increase, has fed into a gradual rise in risk premium at the back of the prompt, ICIS assessments show, with the first two weekly products – which on Monday covered the last week of November and the first week of December – settling in the same range as the front month.

This has been a swift turnaround, because December has held a sustained premium over the back end of the prompt over the past months, which peaked at £5.20/MWh on 18 October (see graph).

During week 45, baseload for delivery in the last week of November twice closed at a premium to the December contract, reflecting the gradual build in risk premium for delivery during the back end of November.


Oil be back?

Alongside the increase in demand in week 47 will come relatively tight supply margins, National Grid forecasts show, with the peak surplus expected to be around 8.4GW early in what is now the front week – the tightest yet this winter.

An additional 1GW of coal plant should be available to the system compared with the previous week, which will ease any strain, but again wind could be the swing factor, potentially paving the way for oil-fired capacity to sell at inflated prices into the balancing mechanism.

National Grid said in its winter outlook report, published in October, that the UK system was facing its tightest winter capacity margin for six years, although this must be taken in context because the system has been over capacity for some time.

Even in the most extreme circumstance, referred to as the “arduous forecast margin”, which assumes maximum exports from Britain totalling 3.75GW, generation availability is deemed sufficient to meet demand, the outlook said ( see EDEM 7 October 2013 ). Jamie Stewart

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