This week’s edition of Current± Price Watch – powered by Enact – looks at the causes of negative energy prices over the weekend, Ofgem’s price cap forecast and the effects of the falling imbalance prices.
Current± readers can track prices in real time at enact.lcp.energy using The Energy Current dashboard.
Day Ahead: High wind generation sees prices plummet over the weekend
This weekend high wind generation saw average prices drop to £-16.82 on Sunday 2 July, before rising back to £63.49 today (3 July).
According to Price Watch sponsor LCP Delta, this price trend was seen in almost every European market, as excess solar generation combined with low weekend demand to turn prices negative.
If you want to track prices in real time, you can visit LCP Delta’s enact.lcp.energy platform and use The Energy Current to track prices in real time.
National Grid ESO reported that the energy mix on 2 July was made up of over 50% cheap energy generated by wind, with gas accounting for only 15.5%, significantly decreasing energy prices.
If we want to continue seeing the welcome drop in energy prices as a result of increased renewable energy generation, the UK Government must double-down on its implementation of net zero targets, as highlighted by the Climate Change Committee’s (CCC) report last week.
Intraday: Lower energy price paired with lower consumption sees price cap forecast decrease
Renewable energy dominating the UKs energy mix last weekend saw Intraday price plummeting from a high of £144.57/MWh on Wednesday 28 June to a low of £-69.27/MWh on Saturday 1 July.
These low prices come on the same day (Saturday 1 July) as the introduction of Ofgem’s new price cap at £2,074 – the lowest cap in well over a year.
Cornwall Insight’s latest price cap prediction for Q4 2023 (October to December) has seen yet another decrease of £107.05 as a direct result of Ofgem revising its Typical Domestic Consumption Values (TDCVs).
Following its review – which usually occurs every two years but was temporarily suspended over the pandemic – the energy regulator has decreased the average household’s gas and electricity consumption definition from 2,900 kWh per annum for electricity to 2,700 kWh, and from 12,000 kWh per annum for gas to 11,500 kWh.
As consumer energy consumption patterns evolve throughout the energy crisis, Ofgem’s update has led Cornwall Insight to revise its Q4 2023 price cap prediction from £1,932.59 per annum to £1,871.28.
The revised TDCV also saw Cornwall Insight drop its price cap prediction for Q1 2024 by just under £50 to £1,900.52.
Price cap predictions are continuing to fall, with last week’s forecast standing at almost £300 less than February’s prediction.
Although the lowering energy prices are a welcome sight for many struggling to pay their energy bills, it is worth noting that energy prices still remain significantly higher than pre-pandemic levels.
There is still some uncertainty as what will happen to the energy market over winter 2023, as last week Drax and EDF confirmed that their coal units have begun their respective decommissioning processes.
Both EDF and Drax signed contingency contracts with National Grid ESO between October 2022 and March 2023 to help support demand throughout the ongoing energy crisis.
The decision to close the total of four contingence units came despite the UK Government’s request in March 2023 to stay on over this winter.
Uniper’s Ratcliffe-on-Soar coal unit however has returned to the market having secured a Capacity Market contract.
Imbalance: Imbalance prices drop significantly causing CfD units to switch to the Balancing Mechanism
The high renewable generation rates last weekend also saw Contracts for Difference (CfD) units switched off due to of the 6-hour price rule, which sees difference payments temporarily set to zero if prices remains negative throughout a six-hour period or longer.
As a result, CfD units were accepted through the Balancing Mechanism to offer power at more competitive prices as seen in the table below where purple represents the wholesale position and yellow shows prices through the Balancing Mechanism.
“A sunny weekend, alongside high wind levels, gave us a glimpse into a future European power market with power prices negative in almost every country as markets were saturated with cheap low carbon power. This meant that consumers with flexible tariffs (currently a small proportion of customers) were actually paid to use this excess power, and storage assets were filled with low carbon power at negative costs across the continent,” said Rajiv Gogna, partner at LCP Delta.
“This sustained period of negative pricing exposed interesting dynamics for UK wind operators over the weekend. Recent regulation changes have meant that wind assets lose their CfD top up payments if prices remain negative throughout a six-hour period or longer. Given what was happening this weekend, this meant that many wind operators stopped generating in the UK. However, we saw wind units subsequently make themselves available to National Grid ESO through the balancing mechanism later in the day to offer low-cost power when it was needed by the ESO at lower cost to customers.”