LONDON (ICIS)--The UK power intraday balancing market traded at a high for nearly two decades on Friday evening of £4,000/MWh. In light of such extreme price spikes, market participants are wary of the longer-term stability of the UK power grid.
Last Friday’s price spike came despite the original electricity margin notice (EMN) issued the previous day by National Grid ESO (NGESO), asking suppliers for a larger cushion of spare capacity on Friday evening, being cancelled at 14:00 London time also on the Friday.
That EMN was the second one issued by NGESO in that same week, a relatively rare occurrence.
According to ICIS analyst forecasts, day-ahead prices are expected to continue surging for 12 January, driven again by low wind generation, before easing but remaining relatively high on 13 January. But prices are set to flatten thereafter as some of the bullish fundamentals subside.
Wind generation and temperatures are expected to ramp up slightly, according to weekly forecasts.
Further ahead, an outage on the BritNed link to the Netherlands is set to end in February, offering 1GW more of potential import capacity.
However, multiple market sources have voiced more long-term concerns. The UK’s recent 10 point plan pledged to quadruple the UK’s offshore wind capacity within nine years, signalling a further dependence on variable generation.
One trader cited “coal closures taking margin out and not being replaced with any transmission-connected generation” as the main cause of his concerns. This refers to a lack of centralised power production, as opposed to smaller-scale decentralised assets connected to distribution grids which show up as negative demand on the central transmission system.
The source also said the UK had been fortunate during past winters which happened to be milder and windier.
Another trader also said the issue was not isolated to the UK as “everywhere in northwest Europe is in the same boat with lower conventional capacity [and] more intermittent [generation]“.
The source also stated that as interconnector flow capacity grows, that may not solve the balancing issues with a renewables-dominated grid and could possibly even be a further hindrance by creating price volatility.
The removal of the BSUoS charge should make UK power prices cheaper and lower the premium to continental prices in theory, according to the source. This will in turn make UK power “more price reactive to continental prices”.
Interconnector flows also failed to counter the recent prompt surges as supply was also very tight in western Europe.
When asked about carbon neutral solutions to variable supply issues, one market source pointed to effective storage of power at commercial, wholesale scale.
Aaron Lally, managing partner of VEST Energy, an electricity storage asset manager said: “We need to start integrating flexible assets such as batteries into the mainstream for the UK power system.”
Lally expanded further by saying that the recent surges “could have been avoided if gigawatts of flexible assets were confident that making themselves available in the balancing mechanism would have led them being dispatched by the TSO”.
A NGESO spokesperson said: “Our ambition is to be able to operate the electricity system at zero carbon by 2025 when we expect zero carbon sources to dominate, but within a diverse generation mix, including wind, solar, storage and nuclear.”
NGESO intends to design new processes to keep the power system stable, secure and reliable by 2025 as the current systems still relies “to some extent on the intrinsic nature of traditional fossil-fuelled generation”, the spokesperson added, a reference to the traditional approach of selling power on the forward market and running a plant to fulfill that obligation.
As far as nuclear is concerned, a recent UK white paper said that “[The UK government] will aim to bring at least one largescale nuclear project to the point of final investment decision by the end of this parliament” and that it expects the cost of new build nuclear projects to decrease by 30% by 2030. The UK government is also said to be committing to nuclear innovations such as small modular reactors , allocating £385m for their research and development according to the white paper.
Despite these commitments to nuclear, BEIS still expects renewables to take up over half the UK’s generation stack and for nuclear power to take up less than a quarter by 2050.