This week’s issue of Current± Price Watch – powered by Enact – explores the summer spike in demand which led to a coal fired power plant being ordered onto standby, the prediction of a falling price cap on household energy bills in Q4 2023, and National Grid ESO publishing its Early View of Winter Outlook report proposing the return of the Demand Flexibility Service (DFS) for the winter period of 2023/24.
Day Ahead: Coal plant powers up to meet a summer spike in demand
Day ahead prices saw another generally stable week, with a spike in the middle and last day which was more pronounced in max prices, which began the week at £111.8MWh and ended at £140.7MWh.
On 12 June, National Grid ESO asked Uniper to warm two coal units at the Ratcliffe-on-Soar power station to help meet a spike in demand due to increasing temperatures meaning increased use of air conditioning, along with a drop in supply due to the North Sea Link interconnector (between Britain and Norway) failing, losing 1.4GW of power.
The need to put coal plants on standby was used by a number of commentators suggesting that the real culprit was inefficient solar panels, as the Telegraph published an anti-solar article declaring that solar panels do not work well in higher temperatures. In reality, the UK energy grid has almost entirely weaned itself off coal, and solar panels produce much more energy in the summer, as days are longer and the sun shines brighter.
On the contrary, electricity prices are remaining remarkably stable because of the amount of wind and solar power built in the past decade. Octopus Energy responded to the use of coal by saying that instead of relying on fossil fuel electricity generation, customer demand flexibility should be used to reduce demand at peak times.
The energy supplier has successfully used Demand Flexibility Service (DFS) to reduce peak demand and even give customers some money back and is publishing a new whitepaper showing that demand flexibility is a “dramatically cheaper and cleaner alternative” compared to the £395 million paid to keep coal power plants on standby last winter.
Intraday: Falling energy prices see Q4 price cap prediction drop by over £100
Intraday prices were at their lowest towards the beginning of the week dropping to £59.01/MWh on 14 June before ending at an average of £82.56/MWh on 18 June.
The falling energy prices saw a decrease in Cornwall Insight release latest price cap prediction at £1,932.59 for the period between October and December 2024.
The Q4 price cap was calculated using market closing prices on 12 June 2023 and predicted that electricity per unit would stand at £0.53/day and gas at £0.29/day.
This means that the maximum price that the average UK household will be for energy would drop by £142 from the current cap.
Cornwall Insight’s latest figure has also dropped from its prediction in February this year of £2,161.09, showing a moderate repose from sky-high energy prices.
“Whilst the falling price cap is a relief for households, this gas crisis will linger, with wholesale price forecasts suggesting that the average household energy bill might not get below £1,700 a year for the rest of this decade – that’s around £600 (about 50%) above where it was before the gas crisis,” said Simon Cran-McGreehin, head of analysis at the Energy and Climate Intelligence Unit (ECIU).
“If we don’t get on with insulating homes, installing heat pumps and building more renewables, gas demand will remain high and that means bills will too.”
A drop in energy prices will also provide welcome relief for non-domestic customers.
New research by Energy Systems Catapult showed that unprecedented energy prices and inflation rates small and medium-sized enterprises (SMEs) based in the West Midlands have seen their energy bills increase by between 167 and 500%.
Although the Energy Bills Discount Scheme (EBDS) aims to offer relief for non-domestic energy customers, gas and electricity prices falling below the baseline threshold set by the EBDS this Spring puts electricity at a price threshold of £302/MWh and gas at £107/MWh – this means that businesses may not benefit from the scheme at all.
Intraday: ESO proposes the return of DFS next winter
Imbalance market prices started the week with a max price of £370/MWh on 12 June before the max price fell to £155/MWh the day after. The minimum prices remained consistent throughout the week starting at £54.24/MWh on 12 June and finishing the week at £62.15/MWh on 19 June.
However, on 16 June there was a significant dip in the minimum imbalance market prices where it stood at £-50/MWh.
Last week saw National Grid Electricity System Operator (ESO) publish its Early View of Winter Outlook report proposing the return of the DFS for the winter period of 2023/24. For intraday prices, this could see higher prices balanced via the use of DFS throughout certain periods of the day.
ESO confirmed that a formal consultation process had now started on the reintroduction of the DFS scheme which will initially determine the final terms of this years’ service. Further announcements are expected to be made in due course following this process.
The DFS scheme had widely been touted as a success with many, including Octopus Energy’s founder and CEO, Greg Jackson, wanting the scheme to stay in place for the coming winter and become a regular part of the electricity system. This could replace the use of coal contingency units which ESO confirmed it is in talks to continue for this winter at the request of the UK government.
To highlight the perks of the DFS initiative, ESO revealed in early May that across the winter of 2022/23, the scheme shifted over 3,300MWh of electricity during peak times.
Alongside the DFS scheme, the report also predicts that the de-rated margin for the Winter period 2023/24 is 4.8GW (around 8%).
This morning we’ve published our Early View of Winter Outlook, to support the energy industry’s preparations for the 2023/2024 winter
— National Grid ESO (@NationalGridESO) June 15, 2023
Check out our website for more information on this report as well as our review of Winter 2022/23 – https://t.co/IYfe71HJn3
The DFS scheme could also be used to reduce the dependency on coal contingency units – which again has been proposed for the coming winter.
With coal units being warmed in the week gone and the impact this had on market prices, DFS has been touted as a possible replacement with Octopus Energy’s founder and CEO, Greg Jackson, wanting the scheme to stay in place for the coming winter and become a regular part of the electricity system. This could replace the use of coal contingency units.
“The grid has shown incredible initiative by moving on demand flexibility so quickly. But its commitment to keeping one foot in the past and sticking with the same polluting coal power plants that we have had for decades is sending mixed signals,” said Alex Schoch, head of flexibility at Octopus Energy.
“National Grid’s new demand flexibility service is already offering a cheaper, more practical and sustainable solution to peaks in energy demand, while putting millions of pounds back into people’s pockets that would otherwise be paid to fossil fuel companies. Even during this cold snap, households can deliver the flexibility that’s needed, get paid for it and reduce costs for everyone.”
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