This week’s issue of Current± Price Watch – powered by Enact – sees prices remain broadly stable as the industry considers its future direction and goals: the Public Accounts Committee (PAC) has released a report casting doubt on how realistic the government’s decarbonisation targets are, while Ofgem is consulting on cost recovery mechanisms for the transition from National Grid’s Electricity System Operator becomes the Future System Operator (FSO) in 2024, and UKPN announces more grid flexibility opportunities.
Day Ahead: PAC ‘sceptical’ over expansion plans for solar, nuclear and wind
Day ahead prices peaked in the middle of the week at £108.43/MWh before falling to £63.46/MWh and ending the week close to where prices started around the £90/MWh mark. As the year moves forward, gas prices are begin to rise slowly again and wholesale energy prices remain significantly higher than before 2021.
There has been a lot of recent concern that the UK is falling behind in its aim to reach 70GW of solar capacity by 2035 and 50GW of offshore wind by 2030. This worry about future supply as well as the decoupling of the UK’s grid from Europe may be keeping prices higher.
Last week the Public Accounts Committee (PAC) has said it was “sceptical” over whether expansion plans for nuclear, solar and wind were credible. The PAC’s Decarbonising the power sector report released on 21 June, found that “while the government has many separate ongoing power decarbonisation plans, its ambitions are jeopardised by the lack of an integrated and coherent delivery plan”.
According to Politico, the outgoing Climate Change Committee chair John Gummer said that if the UK is going to get to net zero, “we need to face up to three words. It’s not ‘education, education, education … It’s grid, grid, grid.”
The PAC concluded that up to £400 billion of public and private investment in new generating capacity will be needed by 2037 to attain decarbonisation goals and upscale the necessary grid capacity.
There is a widespread lack of confidence and impatience with the government’s legislative intransigence, especially on the Review of Electricity Market Arrangements (REMA) and other regulatory decisions like reforms to Contracts for Difference (CfDs). This lack of clarity is seen as a problem for encouraging investment in the renewables market.
The PAC report warns that “we are not convinced that government is providing enough clarity to the private sector to attract the investment that is necessary to build infrastructure, spur innovation and drive competition to lower costs”.
Intraday: Ofgem opens consultation on FSO separation costs
Intraday prices also stayed stable around £90/MWh before also dipping towards the end of the week to £58.14/MWh on 25 June and rising back to £95.41/MWh today. Again we are seeing the effects of the stable gas prices, with gas making up between 42-54% of electricity used throughout the week.
Yesterday #gas generated 50.9% of British electricity, more than wind 16.0%, nuclear 14.2%, solar 8.3%, imports 6.3%, biomass 2.7%, coal 0.9%, hydro 0.7%, other 0.0% *excl. non-renewable distributed generation pic.twitter.com/rfSbFKU9zM
— National Grid ESO (@NationalGridESO) June 22, 2023
As part of the ongoing efforts to upgrade the electricity grid to speed up the number of renewable projects connecting to it, the government announced in April the creation of a new Future System Operator (FSO) to replace the functionality of National Grid ESO and National Grid Gas.
Ofgem says that separating the ESO from National Grid, transforming the ESO into the FSO, and establishing the FSO’s gas activities will come with associated costs, which National Grid should be able to recover with price controls.
Ofgem recommended in 2021 that a system operator (SO) that is fully independent from the transmission network owner – National Grid – and has enhanced functions, would be required to decarbonise the grid. This is because despite the legal separation of National Grid Electricity Transmission and National Grid ESO in April 2019, potential asset ownership conflicts of interest could act as a barrier to the electricity and gas SOs performing their net zero roles efficiently.
The consultation on recovering costs of between £480 – £600 million for the creation of the independent SO will run until 2 August. Once again, it seems that everything these days is coming back to “grid, grid, grid”.
Imbalance: UK Power Networks’ DSO launches opportunities for 98MW of flexibility capacity
Imbalance prices showed the same general consistency as Day Ahead and Intraday prices, with some fluctuation, particularly a dip in prices on Sunday 25 June, but remaining largely stable with average imbalance prices starting at £86.18/MWh and ending the week at £93.91/MWh.
Imbalance pricing is often influenced by the flexibility of the energy grid, which UK Power Networks’ DSO is aiming to increase through the launch of 98MW of opportunities to provide electricity network flexibility across London, the East and South East.
UKPN has also recently launched a Distribution System Operator (DSO) which it hopes will speed up the uptake of renewable technologies like electric vehicles (EVs) and heat pumps.
UKPN has contracted 37 organisations to provide 1,467MW of flexible electrical capacity over the past financial year. The new opportunities seek providers to support flexibility in 22 zones through the provision of 98MW of capacity.
UKPN hopes to save £410 million on upgrading its network to 2028 through developing and supporting flexibility markets, and these upgrades should eventually feed through to lower imbalance prices.
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