Breaking News: ‘Nobody knows where we can end’: UK, French power prices spike further

Christopher Somers

01-Nov-2016

An anticipated supply-demand crunch drove the hourly UK day-ahead auction price for electricity to be delivered from 17:00-18:00 London time on Wednesday to €444.95/MWh (£399.95/MWh) on Tuesday morning.

Also on Tuesday morning, system operator National Grid was forecasting a negative peak time system surplus of almost -500MW for Thursday, which could pave the way for similar spikes at the day-ahead auctions to be held on Wednesday morning for Thursday delivery.

Tuesday’s extreme spike – which was almost four times higher than the previous week’s equivalent – reflected expectations of very tight transmission system margins on Wednesday evening. It was recorded on the GB Hub, which is calculated from bids and offers matched across the APX and N2EX exchange platforms.

System operator National Grid was on Tuesday forecasting that total system demand would exceed available generation by almost 1.4GW at 17:30 on Wednesday.

This figure however was based on capacity available to the market on a day-ahead basis and therefore did not include any capacity that will be made available intra-day on Wednesday or will be held back to take advantage of an inevitable balancing market price spike.

System margins are expected to be pressured by a sharp reduction in wind generation on Wednesday evening.

‘Nobody knows where we can end’

Further pressure will stem from inflated prices on the French market, which means the UK is often an exporter of power to France, even at peak times. As a result, flows across the 2GW IFA interconnector are currently a marginal supply driving the UK market (see EDEM 28 October 2016).

In France, the week-ahead baseload contract was trading at €165.00/MWh early on Tuesday morning with the peaks at €275.00/MWh, before softening by 13:00 London time, but still remaining very high. This initial high was around €35.00/MWh above the previous day, boosted by an anticipated increase in demand as the first taste of cold weather is set to coincide with the ongoing nuclear supply crunch.

French traders said of the price spikes: “Nobody knows where we can end in tight hours.”

Back in the UK, tight system margins are likely to cause sharp spikes on the prompt for the remainder of the week.

The negative system surplus of almost -500MW for Thursday that National Grid was forecasting was calculated against an allowance for a once-a-year loss of load event, for example a small number of generation units suffering unplanned outages in the same brief period. Therefore it does not mean that demand will outstrip available supply on the day, but when a negative surplus margin has been forecast previously, hourly price spikes on a day-ahead basis have followed for the peak half-hours in questions.

Low wind power generation is expected until the end of the week, which will strain the UK’s central electricity system further.

Forecaster WSI has already predicted that the UK is likely to see less wind generation this winter than it has done in previous winters (see EDEM 31 October 2016). christopher.somers@icis.com

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