This week’s issue of Current± Price Watch – powered by Enact – explores the record Dynamic Containment High (DCH) price set by Anesco, the UK Government’s pledge to rebalance electricity and gas prices, as well as Cornwall Insight’s price cap predictions for Q3 and Q4.
Day Ahead: Government commits to rebalancing electricity and gas prices
Day ahead prices remained stable throughout last week with a high of £155.1/MWh on Monday 27 March and a dip to £70.25/MWh on Thursday 30 March.
On Thursday 30 March – the UK’s ‘Green Day’ – the Government published its revised net zero strategy, Powering Up Britain, alongside 43 supporting documents.
Within the paper, the Government pledged to outline a clear approach to gas and electricity rebalancing by the end of 2023/beginning of 2024, as recommended in Chris Skidmore MP’s energy market review.
So as to ensure a clear short-term price signal and make it easier for consumers to switch to low-carbon energy technologies, the Government has said it will remove distortions between electricity and gas prices.
Significant progress in affecting relative prices should be made by the close of 2024 according to the paper.
Other announcements included in the paper relating to energy prices include the publication of the 2023 Green Finance Strategy, which – recognising that UK industrial electricity prices are amongst the highest in Europe – pledges to address the issue.
Steps the Government has so far taken include the British Industry Super Charger and the Energy Intensive Industries Compensations scheme.
“The Energy Security plan is a critical milestone in setting out details of how government will meet its ambitions in reaching a Net Zero future. Crucially though this plan lacks the clear and detailed signals required for investors in essential electricity storage capacity which will be a vital technology as we transition to a low carbon power system,” said Head of Market Insight at LCP Delta.
“Analysis undertaken last year by LCP Delta of the generation capacity outlined in the government’s energy strategy showed that in 2030 over half (53%) of hours the UK’s energy grid is expected to have an oversupply of renewable power.
“The UK needs to accelerate its infrastructure investment to capture this spare energy by providing the right signals to bring about low carbon, long-duration storage technologies such as pumped hydro storage, and the emerging flow batteries. Failure to provide signals now means that the UK could potentially be wasting gigawatts of excess energy by delaying their deployment by 2030, as well as increasing the cost of transitioning to a net-zero energy system.
“Decarbonising the electricity system is essential, and long duration storage is a key enabler of the UK’s growth in renewables while maintaining a stable grid. It also has a dual purpose of reducing reliance on volatile gas prices, which could ultimately lead to cheaper energy bills for consumers (another key target set out in the new Net Zero strategy).”
Intraday: Cornwall Insight releases latest price cap prediction
The Intraday market price saw a tip during the middle of last week, dipping to £69.06/MWh on Friday 31 March before stabilising towards the end of the week a an average of £128.77/MWh on Sunday 2 April.
Cornwall Insight has released it’s first prediction for the July and October Default Tariff Cap (price cap) predictions for July (Q3) and October (Q4) 2023.
The July price cap forecast for a typical household shows a £1,256 drop from the current £3,280 price cap, which came into effect on 1 April, before experiencing a slight rise to £2,076.12 in October.
This means that from July onward, the cap will drop below the Energy Price Guarantee, which has been extended at £2,500 until the end of June, resulting in household bills reverting to the price cap level.
The standing charge for electricity is predicted at £0.53/day in Q3 and £0.54 in Q4.
“The energy market has been on a difficult journey over the past three years, with consumers having faced energy bills at levels never experienced before,” said Dr Craig Lowrey, principal consultant, Cornwall Insight.
“Our forecasts for the second half of 2023 show the prospect of a more stable energy climate, which all being equal, will see energy bills continue their downward trajectory. However, in the short-term they still remain well above historic highs.”
Imbalance: Highest ever DCH price set and a BritNet trip
The imbalance market price hit a high of £195/MWh at the start of the week on 27 March and reached a low of £0/MWh on the final day of the month (31 March).
On Wednesday 29 March, the highest ever DCH price had been set for delivery in an Electricity Forward Agreement (EFA) 2 standing at £60.15/MW/h. An Anesco managed unit set this price.
Dynamic Containment (DC) launched on 1 October 2020 as a low frequency response service, significantly boosting National Grid ESO’s ability to respond rapidly to disturbances in the flow of electricity around the grid – specifically those caused by large generation losses.
“We saw prices peak last week in DC-High to £60.15/MW/hr over EFA block 2 on Thursday. This was largely driven by scarcity in the auction with only 2MW excess volume for this period. The biggest winner for this period was Gresham House, successfully dispatching 279MW/hr in EFA-2 – optimised by Arenko,” said Matthew Deitz a consultant for LCP Delta.
“The small amount of excess volume for this period was most likely driven by units exiting the DC-High market over EFA-2 to dispatch themselves in the wholesale power market. This was out of hope of capturing higher revenue, by exporting power rather than charging off high frequency events at a set availability fee into the morning demand peak.”
“In our analysis for the ESO on the market design and performance of its balancing services (available here) we found that when performing Herfindahl–Hirschman Index (HHI) that the market concentration of DC-High (and therefore liquidity and competition) was less than 500. Generally, if a market’s HHI calculation is less than 1500, then it is deemed a competitive marketplace, but if it is greater than 1000 concerns of imperfect competition exist.
“In recent days, we have observed increasing levels of concentration in the DC-High market (signalling lower competition). Over the course of 28 March, DC-High HHI peaked at 1394. This is despite growing participation in the dynamic response markets which usually brings with it increasing competition, but the opposite was exhibited on Thursday.”
Jack Christie, commercial manager at Anesco Optimisation added: “The optimisation team at Anesco is constantly viewing and analysing all markets available to energy storage, to ensure we set an optimal strategy in terms of returns for our customers.”
“The ancillary markets, while saturated, can still offer good commercial returns if you know how to predict them. In this case, we saw a shift in National Grid’s procurement strategy and bid accordingly to maximise returns – with this being in DC it also comes with a low cycling rate and therefore is great for ongoing asset health! The result being we were able to capitalise on the highest ever DCH price set for delivery in EFA – £60.15/MW/h.”
“With the right forecasting and analytics Anesco was able to see the shift in procurement intent and bid accordingly resulting in the high priced EFA block. Making sure we capitalise on opportunities such as these is important and helps sure up the investment case, driving continued investment in battery energy storage in the UK.”
In addition, Friday 31 March saw the BritNed interconnector between the Netherlands and Great Britain experience a trip between the hours of 10:00 and 15:00. The trip was labelled “unplanned” and caused by an “emergency situation”.
A spokesperson from the National Grid has confirmed that the outage was “a preventive measure due to a third part issue.”
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