Current± Price Watch: Day Ahead prices hit record high of £2,585/MWh as winter weather bites

There has been a dramatic start to the week with regards power prices, as EPEX prices hit a new record high, with the biggest spread of Day Ahead prices seen since Brexit. Tight conditions due to the cold weather and low wind in particular, have led to the first consideration of using the contingency coal units as well as the biggest Demand Flexibility Service test to date.

In this week’s Current± Price Watch series – powered by LCP Enact – we take a look at the record high Day Ahead prices, the tight capacity conditions and the positive moves for renewables.

Day Ahead: Record high Day Ahead prices as EPEX hits £2,585/MWh

Local Day Ahead prices jumped to a record high of £2,585.8/MWh today, as the cold weather, low wind and expensive interconnector capacity took their toll.

“We had our first test a couple of weeks ago with an initial cold snap, but a weather system has brought cold temperatures and low wind speeds to much of Northern Europe pushing up energy demand and constraining supply,” said Matthew Deitz, consultant at LCP Delta.

“As is expected, this tight system is proving to be expensive. Today we have observed the highest CCGT offer accepted in the BM at £6,000/MWh, and National Grid ESO has turned to the continent to secure more imports across the interconnectors many of which have been >£1000/MWh as scarcity is being factored into trades. The ability for National Grid ESO to buy this power across the interconnectors has been helped by a number of French nuclear restarts last week.”

In Britain specifically, the impact of Brexit on power prices has once again gained attention, given the N2EX market price hit a high of £1,585.82/MWh, substantially below the EPEX price cited above.

“Since Brexit GB has two Day Ahead wholesale market prices – one from EPEX and one for N2EX,” explained Deitz.

“We saw the biggest spread between the two markets in yesterday’s trading of £1000/MWh. Although this is currently an inefficiency across the market, it’s more indicative of the market dynamics playing out, with France trading at a discount to GB between the two auctions allowing suppliers across the interconnected markets to re-optimise their positions.”

The impact of Brexit on power prices drew concern back in January 2021, when Day Ahead prices in the Nord Pool N2EX auction hit £1,499.62/MWh, the highest hourly price seen on the auction at the time.

Brexit led to the decoupling of Great Britain’s auctions from the so-called Single Day-Ahead Coupling (SDAC) which uses EUphemia (EU + Pan-European Hybrid Electricity Market Integration Algorithm) to trade electricity. As such, the country runs two auctions – Nord Pool and EPEX, as well as participating in the European auction. This creates more liquidity, and with it the potential for higher and lower prices.

Intraday: Renewables celebrate positive policy U-turns

Over the last week, APX Mid intraday prices hit a high of £534.48/MWh for today, and a low of £191.35/MWh on 5 November.

While the dynamics of the energy market today is potentially cause for concern, over the last week there have been a number of welcome announcements with regard to the transition to renewable energy in Britain, which should help lower and steady power prices in the future.

This includes changes to the planning regime to remove the de facto ban on onshore wind, following a campaign led by Simon Clarke MP to amend the Levelling Up Bill.

“The ban on onshore wind has been a seven-year anomaly in UK energy policy, keeping household bills higher and the UK more dependent on foreign gas. Whether deployment speeds up will now come down to the detail of the planning rule changes,” said Jess Ralston, head of Energy at the Energy and Climate Intelligence Unit (ECIU).

Additionally, environmental secretary Thérèse Coffey ruled out expanding land categorisation to include 3B within the Best and Most Versatile (BMV) classification, in a “turning point” for the renewables sector, in particular utility-scale solar.

“Yesterday was a turning point for the entire renewables sector,” said Chris Hewett, chief executive of the trade association Solar Energy UK.

“It will be a great relief to the solar industry to hear that that Thérèse Coffey supports existing planning rules, which have successfully encouraged development away from the best-quality agricultural land while recognising the critical need to expand solar farms in response to the climate and energy price crisis. This looks like a significant shift from the anti-solar rhetoric of her predecessor.”

Imbalance: Contingency measures put to the test amid Dunkelflaute

The imbalance price hit a high of £1,024.8/MWh today (12 December) as the ESO worked to keep the lights on amid tight capacity.

“This winter, National Grid ESO has a couple of additional tools in its arsenal to help address tight conditions, including the coal contingency contracts and the Demand Flexibility Service (DFS),” said Deitz.

“We saw the first warming instruction on Monday to Drax’s coal units which were ultimately cancelled, but surprisingly not even an indication that the DFS was being considered for instruction. As both of these tools are a ‘last resort’ when all other actions have been exhausted, this is perhaps an indication of the confidence that National Grid ESO actually had in the market – particularly as we did not see a Capacity Market Notice, despite some particularly concerning de-rated margin calculations being published between day ahead stage and 11am today.”

Around midday, National Grid ESO confirmed that it had stood down the two coal units – T_DRAXX-5 and T_DRAXX-6 – which had been instructed to warm in the early hours, as the operator was now confident that it had sufficient capacity for the evening peak.

The fifth DFS test is set to continue to run this evening however, calling for 300MW per half an hour for two hours, in the biggest test of the service so far.

At the time of writing, the accepted bids within DFS were as such:

While National Grid ESO puts these additional enhanced measures to use, its everyday measures for balancing demand and generation have continue with the Dynamic Containment price reaching £98.85/MWh for the peak, up from £8.47/MWh before for example.

“This price could have gone higher, had not nearly all storage assets exited the DCL market. Only 141MW of volume was accepted (down from 368MW 1 EFA block before). This is the lowest volume accepted since February,” noted LCP Delta on LinkedIn.

With winds set to pick up again going into the coming week – moving away from the period of Dunkelflaute, or the dark wind lull phenomena – prices should become more stable, although demand will remain high.

“Looking forward into this week, wind output is forecast to increase over the course of tomorrow before reaching just under 11GW Wednesday evening,” said Deitz.

“This additional supply will act to alleviate tightness, but we’re currently still seeing tight market conditions through to the end of this week with high demand expected to continue and some units expected to go on planned outage. The high prices that could be expected over the coming days though could see the operators of these assets reconsider their outage plans to capture the additional revenue.”

To find out more about LCP Enact, click here or follow them on Twitter or LinkedIn for the latest market updates.