The imbalance price reached a high of £4,000/MWh on Friday evening, capping off a dramatic week in the energy market.
For the price periods 39-40 – between 19:30 and 20:30 on 8 January – the imbalance price soared to a high equivalent to 400p a unit, the like of which hasn’t been seen since 2001.
It followed a dramatic jump during price period 35 as well on Friday, hitting £2,750/MWh. At the time, this was the highest seen for nearly two decades but this was beaten just two and a half hours later.
The first week of 2021 was particularly volatile for the energy markets, as tight margins and low temperatures pushed National Grid ESO, leading it to issue two Electricity Margin Notices (EMN). Both were followed by periods of high prices in the Balancing Mechanism, with prices jumping to £3,000MWh on Wednesday 6 January as EDF’s West Burton B was called on, allowing NGESO to cancel the first EMN.
The second ENM was issued for Friday evening, and although it was subsequently cancelled, it led to EDF’s West Burton B2 and B3 successfully having their bids accepted at £4,000/MWh on Friday.
For the previous high period on Friday, Uniper’s Connahs Quay 3 CCGT plant was accepted at £2,750/MWh.
The last time prices were as high as they have been in Great Britain’s Balancing Mechanism was in 2001, when the New Electricity Trading Arrangements (NETA) were first introduced. The NETA Go-Live on 27 March that year created a new wholesale market, with a number of minor problems with the simplicity of the algorithm used for the Balancing Mechanism leading to two records being set that year that have yet to be broken.
On 5 May 2001, during period 32 the price soared to £4,993.88/MWh, before this record was broken on 19 June 2001 during period 32 with a price of £5,003.33/MWh, according to EnAppSys.
These high prices can be seen as a positive according to Phil Hewitt, director of EnAppSys, as “they encourage the building of new assets and the development of innovations such as demand response that allow the electricity system to decarbonise”.
“In the future prices will become more extreme at certain points – either super-high prices like this week or super-low prices when renewables are running at maximum output and this will encourage solutions via the market to smooth generation and demand.”
Price volatility is likely to become increasingly common, as Great Britain relies increasingly on intermittent generation such as offshore wind. Additional factors that have driven high prices so far in 2021 also include the BritNed interconnector with the Netherlands remaining down, as well as the decoupling of the UK’s electricity markets with EUphemia – a consequence of Brexit that has added a level of complexity to energy trading.
As well as driving up prices in the Balancing Mechanism these also led to record N2EX auctions prices last Wednesday, when it hit £1,000.04/MWh for the period 17:00 to 18:00 on 6 January, the highest hourly price seen on the auction.
“Looking at the demand/supply stack for UK power moving forward, we see limited baseload generation coming online so this tightness is likely to be more acute in future years,” expanded VEST Energy’s Aaron Lally.
In order to manage it, more flexible assets such as battery storage will need to be integrated into the mainstream power system, he continued. “The highest prices we have seen in the BM for decades on Friday could have been avoided if GWs of flexible assets were confident that making themselves available in the Balancing Mechanism would have led them being dispatched by the TSO.
“This is really a competition issue; large plants exercising market power because the current market framework does not allow smaller (more dynamic) assets to participate. This needs to change.”