In this week’s edition of our Current± Price Watch series – powered by LCP Enact – we chatted to KrakenFlex about what the low demand due to mild weather and surging wind generation mean for power prices, and what the flexibility requirements are likely to be in the coming months.
Day Ahead: Mild weather keeps demand – and therefore prices – depressed
Day Ahead prices have continued to be bolstered by mild temperatures and strong wind generation over the last week, hitting a high of £156.40/MWh today (31 October) and a low of £39.90/MWh on 26 October
“October has provided some respite for the turbulent energy markets,” said Charlotte Johnson, chief of staff at KrakenFlex
“Power prices over the past month have been less volatile and have on average been lower than prior months. For October, Day-Ahead prices hit a high of £358.40/MWh on the 3 October, and a low of -£40/MWh on the 1 October.”
The knock-on impact of the mild weather has been to keep demand low, as up and down the country households and businesses wait to put on their heating.
“Even moving into the winter months, demand has remained low – up to 8% lower than 2021. This could be due to a number of factors, including milder weather and the higher price cap set at the beginning of this month, both of which are leading people to use less electricity,” said Johnson.
Intraday: Wind generation hits new record high
Similar to day ahead, the APX mid intraday prices remained fairly steady over the last week, hitting a high of £149.99/MWh today and a low of £24.7/MWh last Monday (27 October).
Mild temperatures throughout October helped recent price stability offering some respite for the short-term gas supply. We can not rely on mild weather for the rest of the winter. The Met Office long range forecast is currently predicting temperatures will come down to something more in tune with the season over the next few weeks, Johnson explained.
During the milder than usual weather, Britain also experienced record breaking levels of wind generation. On October 26, wind generation peaked at 19,936MW of power, 20MW greater than the previous record which was on May 25 earlier this year.
“High renewable generation leads to low inertia forcing NGESO to spend more on managing (or Balancing) the system,” said Johnson.
“Earlier this month, Ofgem approved a temporary cap on Balancing Services Use of System (BSUoS) charges to protect liable parties from an unexpected surge in costs this winter due to the ongoing energy crisis. Since then, in at least three half hourly periods, the BSUoS cap has come into force.”
“There were very low levels of Inertia again on Sunday 30 October due to low demand and high levels of wind,” explained Tom Bowcutt, global product lead, Tradenergy, Reactive Technologies.
“We observed a high level of constraint actions in the balancing mechanism:
- Settlement Period 19: System Price of £0/MWh set by the Sell (Bid) stack. There were over 120 Actions in the Sell (Bid) Stack, including 99 System Operator (SO) Tagged Actions up to prices of -£89/MWh. Buy (Offer) Stack included a SO tagged action at £745/MWh
- Settlement Period 20: System Price of £134/MWh set by the Buy (Offer) stack. There were over 100 Actions in the Sell (Bid) Stack, again including 99 System Tagged Actions up to prices of -£89/MWh. Again, the Buy (Offer) stack includes SO tagged actions at £745/MWh”
Imbalance: West Burton test pushes prices to zero ahead of Demand Flexibility Service going live
The imbalance price was slightly more volatile over the last week, although still well within expected limits. It hit a high of £250/MWh on 25 October, as well as a low of £0/MWh, also on 25 October, as well as on 30 October.
One potential reason for this dip was a test of the West Burton A coal power station, one of National Grid ESO’s contingency coal units. These have been kept online due to concerns around the security of supply in the midst of the energy crisis at a cost of between £340 million and £395 million, subject to the procurement and use of the coal.
The period of £0/MWh cannot be conclusively attributed to West Burton A tests however, noted Tim Sparks, consultant at LCP Delta.
“The system was long for each of these periods, with bid actions for wind or pumped storage units setting the price,” he added.
“The testing on the coal units potentially had an impact on the system price, if it meant that more bid actions had to be taken than if the test runs weren’t happening. However, it’s also possible that if the coal units weren’t running then NGESO would have had to take offer actions to bring on an equivalent volume of CCGT (to maintain sufficient inertia, for instance). If this is the case, then the coal contingency testing had no impact on the system price.”
What does this mean for flexibility?
The relative stability of October has been welcomed by many in the energy sector, after months of bracing for the worst as winter approaches. But what was the impact on the flexibility market?
“Whilst Dynamic Containment low remains the most profitable ancillary service, the weekly average price has decreased by nearly 80% since the start of October and this is likely to reflect the falling opportunity in the wholesale market,” explained Johnson.
“As the installed storage capacity continues to grow, ancillary services will become oversupplied. Therefore, being able to stack ancillary services with balancing and wholesale markets whilst optimising the cost of state of charge management will become more important. We have already started to see examples of this over the last 12 months.”
“For batteries trading in the wholesale market, October revenues will be below previous months. A 1 MW 1C battery arbitraging opportunities in wholesale markets and NIV chasing could have made £7,581, a decrease of over 25% compared to October 2021.”
What’s coming next?
The contingency coal contracts are just one in a suite of tools available to National Grid ESO to manage the coming winter. Additionally, it launched a world-first flexibility service, which is set to go live on 1 November.
“Tomorrow, National Grid ESO launches the new Demand Flexibility Service which will see households being paid to turn down consumption during periods of system tightness,” said Johnson.
“Estimates project that there could be as much as 2GWs of demand flexibility, greater than the current installed battery storage capacity. Additionally, this winter marks the last triad season (triads are the top three half-hourly peaks of national energy demand, separated by ten calendar days between 1 November and 1 March).
“Whilst reducing your consumption during a triad can offer significant savings, they are becoming more challenging to forecast,” according to KrakenFlex.
“A combination of milder weather, demand destruction and the demand flexibility service could add more complexity. Last year, only 6MW separated the peak on 2 December from a few days earlier.”