UK power balancing prices hit zero during peak demand

13 June 2017 18:19 Source:ICIS

Electricity system prices hit close to zero on the UK’s balancing market during peak demand on Monday after several wind farms bid into the market at negative prices.

And weak system prices during the day could reoccur later this week, with high wind and solar forecast by National Grid.

System prices on Monday dropped to just £0.01/MWh for the half-hour 17:30-18:00, before slowly recovering. The balancing market resumed some sort of normality from 18:30 when prices returned above £20.00/MWh.

It seemed to come unexpectedly with the price of power for delivery between 17:00 and 18:00 on the N2EX day-ahead auction held the previous day valued at £50.00/MWh.

“It’s a bit of a weird one,” one trader at a supplier said. “Demand out-turned about 1GW below forecast.”

The price-setting plant was the Immingham CHP, which bid in at £0.01/MWh.

The plummet in balancing market prices occurred during a period of strong wind generation, which exceeded 7GW across both transmission and distribution connected sites. Nuclear production, which also sits low in the generation stack, was at 8.6GW.

High renewables and low demand also contributed to balancing prices dropping to -£69.00/MWh late on Tuesday evening last week ( click here for market comment ). Negative prices persisted early on Wednesday morning as unseasonably high quantities of wind drowned the system.

Hedging impact

Sources do not expect the recent instance of negative prices to change forward hedging strategies however.

The volatile nature of the market was evident from the fact that system prices peaked just below £60.00/MWh at times on Monday.

Price spikes have already occurred in the balancing market this summer, with offers exceeding £1,000/MWh from gas- and coal-fired units accepted on 17 May.

“The problem is you’ve got the chance of the crazy spikes like we saw a few weeks ago which are much more severe,” another trader at a supplier said. “There’s a fine line between negative prices and very high prices.”

“They are very separate markets,” another prompt trader at an energy-to-business supplier said in reference to balancing and wholesale markets.

“You can’t predict wind but in the summer you can generally say there is less wind.”

Outlook

Weak system prices during the day could reoccur later this week according to National Grid wind and solar forecasts.

Wind power production is forecast to recover from a low of 1GW early on Wednesday morning to average almost 6GW on Thursday and 7GW on Friday.

Solar generation is also forecast to peak at 6GW on Thursday and 5GW on Friday. Nuclear availability is set to remain around 8GW for the rest of the week, just shy of 90% of total UK nuclear capacity.

“There’s a lot of inflexible generation on the system at the moment, so I wouldn’t be surprised to see a few more [negative prices],” the first source said. “It’s more likely overnight on windy days, or midday on a sunny weekend.” henry.evans@icis.com

By Henry Evans