• French power demand rises when temperatures fall below 9°C, bringing up exchange prices, which spike below 4°C
• For the UK, prices increase at a slower rate when daily average temperatures are under 9°C, with no similar spikes on the very coldest days
• French PEG Nord gas prices start to rise at temperatures below 8°C and NBP prices at 9°C
ICIS analysis has found that a daily average temperature of 9°C has been the tipping point at which French and UK power and gas prices have started to rise over the last three years. Grids in both countries have been capable of coping with demand increases at milder temperatures.
The French power market is the most thermosensitive in western Europe, due to a high share of electric heating, as well as inflexible nuclear generation in the power mix. Not including weekends or bank holidays, overall daily average power demand since 2015 has varied from 40GW on mild days in August when seasonal demand is also low to nearly 87GW on the coldest days of the year.
Looking at RTE’s day+3 temperature forecasts (ICIS analysis found the grid operator’s peak demand forecasts to be within 2% of actual consumption over this period (click to read story), power demand has been fairly unresponsive to temperatures above 13°C, with most of the country’s electric heaters switched off. As the weather cools, demand grows in a linear fashion, with a 1°C temperature decrease equating to around 2.3GW more in power demand. Although there are few such days in the sample, it appears that demand plateaus when temperatures reach below freezing, presumably due to the country’s electric heaters running close to maximum capacity.
The UK power market is less thermosensitive than France, due to little residential electric heating and a high share of flexible gas generation. Over the same period, average daily demand has varied between 23GW and 43GW across the channel.
National Grid temperature data shows a similar demand plateau to France at temperatures above 15°C. Demand then increases in a linear fashion as the weather turns colder, with a 1°C decrease in temperature equating to around a 1.1GW increase in power demand. The UK has no similar demand plateau on the coldest days of the year, with electric heating likely turning on as a last resort in homes with existing gas-fired boilers.
UK gas demand is higher than France year-round, as the fuel accounts for the majority of residential heating and power generation in the country. Since 2015, average daily demand has varied from below 90 million cubic metres (mcm) in mid-summer to above 360mcm at the height of winter.
At temperatures between 14-17°C each degree cooler equates to a 9mcm/day increase in demand, according to ICIS data. This then picks up at a rate of 20mcm/day as boilers are switched on, until temperatures reach 8°C. The rate of increase then slows down to 17mcm/day until temperatures reach 3°C or lower, at which point demand plateaus, presumably as all of the country’s boilers are running somewhere close to maximum capacity.
Almost half of French residential heating still comes from gas-fired boilers, and so demand is still reactive to temperature, albeit less so than in the UK. French gas demand has ranged from just over 40mcm/day in mid-August to just under 300mcm/day in January 2017, although this has not exceeded 270mcm/day outside of January in the last three years.
Since 2015, each degree downwards between 17°C and 19°C has equated to a 5mcm/day increase in French gas demand. The relationship is more linear than in the UK at colder temperatures, with a ramp-up of French gas-fired power generation potentially offsetting some of the heating losses seen in the UK on the coldest days. A 1°C decrease in temperature equates to a 13mcm/day increase in gas demand until temperatures fall below 0°C, where, like power, gas demand has also plateaued on the few days in the sample.
Energy prices are much less correlated with temperature than demand, due to supply-side drivers that can be unrelated such as available capacity, flows, other fuel prices and renewables output.
Nevertheless, since 2015 French power day-ahead prices at the EPEX SPOT exchange have fallen into a number of separate categories.
• Prices have plateaued between 9°C and 14°C, likely as a result of the French nuclear fleet meeting demand increases.
• Until temperatures reach 4°C there has been an inverse, linear relationship with prices as other forms of generation ramp up. A 1°C decrease in temperature has resulted in a €2.80/MWh increase in power price at this level.
• At temperatures below 4°C, prices have tended to spike, most likely as fuel demand picks up and increasingly expensive forms of generation must be switched on to meet additional heating demand, both in France and across Europe via exports.
The same breakdown for UK N2EX is as follows:
• UK power day-ahead prices have been fairly steady between 9°C and 16°C, indicating a marginal cost difference between gas-fired generators ramping up to meet relatively small increases in demand
• Prices then gain in a linear fashion as more expensive coal-fired generation ramps up (these generators must pay an additional fee due to the carbon price support). Power prices have tended to increase by €1.07/MWh for temperatures below 9°C
Due to greater ease of storage and transfer, gas prices are far more correlated between countries than power. At mild temperatures in both countries, there is only a small relationship with prices, due to the ramp up of storage injections over the summer. Below 9°C in the UK and 8°C in France, NBP and PEG Nord prices start to rise. In the UK, a 1°C decrease in temperature equates to around a €0.40/MWh increase on the NBP. In France, a more connected grid means that a 1°C decrease in temperature equates to around a €0.59/MWh increase in PEG Nord price. email@example.com