As temperatures again dip across the UK, National Grid ESO has announced the first Demand Flexibility Service (DFS) live events as well as warming coal units. However, as yet the tight capacity hasn’t pushed power prices beyond the expected winter highs.
In today’s Current± Price Watch – powered by Enact – we take a look at these measures, as well as the cut in generation from EDF amid strike action in France and the growth of Dynamic Containment.
Day Ahead: Cold snap leads to first live DFS event
Day Ahead prices hit a high for the last week today, reaching £260.4/MWh driven by the tight margins being seen.
In response to these, National Grid ESO has taken a number of key actions including the first live Demand Flexibility Service event over the evening peak.
“Our forecasts show electricity supply margins are expected to be tighter than normal on Monday evening,” said an ESO spokesperson.
“We have instructed coal-fired power units to be available to increase electricity supplies should it be needed tomorrow evening. We are also activating a Live Demand Flexibility Service event between 5-6pm tomorrow. This does not mean electricity supplies are at risk and people should not be worried. These are precautionary measures to maintain the buffer of spare capacity we need.”
This tight capacity has been broadly driven by weather, as temperatures dip and demand increases, as well as low wind and reduced imports from France. As such, the operator has taken the decision to run the first live DFS to reduce demand.
Additionally, it did instruct some of its Winter Coal Contingency units to warm yesterday, but later cancelled this. According to Rajiv Gogna, partner within the technology and analytics team at LCP Delta, this action in itself shows confidence that the electricity system will be manageable throughout Monday, “and relatively modest day-ahead prices reiterate that there are not particular concerns around margins.
“For today (23/01) we are also expecting to see the first activation of the Demand Flexibility Service (DFS) after National Grid ESO indicated its use for this evening. This service pays electricity consumers to reduce their demand during pre-defined periods of tightness on the electricity system. For today, that is between 17:00 and 18:00 and participants could receive up to £6.00/kWh – depending on their provider. This, for example, could mean that a household that uses their oven typically during this period could save up to £12 for not doing so and changing their use to either before or after the period (Oven calculation based on an average 2kWh oven).”
Despite the significant actions from National Grid ESO to manage the tightness in the system, there has been a limited knock-on impact on power prices.
“Market trading prices havent really reacted to the tightness that has been reported on in many parts of the media, with an N2EX peak day-ahead price today (23/01) of £291.19/MWh, and for tomorrow (24/01) of £254.34/MWh,” said Matthew Deitz consultant at LCP Delta.
Looking ahead into the week, margins are likely to remain tight as the weather conditions remain similar.
“DFS has been instructed once again for tomorrows evening peak, with a maximum requirement of 341MW demand reduction requested – with a tight margin from around 16:00,” continued Deitz .
“As it stands, we are forecasting a high possibility of a Triad for the evening peak on 24 January, but moving further into the week we are expecting increased wind output (forecasting transmission connected wind to increase to 12GW from midday 25 January) and slightly warmer weather to improve the short-term market outlook.”
Intraday: French strike action limits interconnector potential
APX Mid prices hit a high of £247.84/MWh for last week on 19 January, and a low of £83.9/MWh on 16 January.
This was up a fair way from the previous week’s low of £-12.99/MWh, predominantly due to wind generation falling and its knock-on impact on pricing. This follows a record breaking start to 2023 for the technology, with the wind generation record once again smashed on 10 January when it generated over 21.62GW.
Along with the reduction in wind generation, there has been lower interconnector potential with France over several days during the last week thanks to strike action over pension reforms in the country. This led EDF to cut its power generation capacity by 8.5 GW for 18-19 January.
“Last week we saw the curtailment of electricity generation in France in response to the planned strikes in response to proposed retirement ages – EdF in particular cut its French power generation by around 8.5GW,” said LCP Delta’ Deitz.
“Notably, nuclear generation was cut to make way for more flexible supply including imports to enable RTE to manage the electricity system securely. In fact, to make up for this GB exported significant volumes across the interconnectors into France at the back end of last week against the norm, driven by the French power market trading at a premium to GB. Thursday’s half-hourly interconnector flow average showed France importing almost 1.5GW from GB, compared to Monday’s average export to GB of of 2.6GW.”
Imbalance: DC prices fall as market becomes increasingly saturated
Imbalance prices hit a high of £290/MWh on both 19 and 21 January, and a low of £21.85/MWh on 21 January. Like both Day Ahead and Intraday this was an increase on last week’s low of £-73.09/MWh, given the lower renewable generation on the system.
It marks a return to normal with regards negative pricing, which are broadly rare over the winter period in Britain, but have been a significant feature in recent weeks due to the mild weather and strong wind generation.
As these periods of dramatically low prices become more common as increasing amounts of intermittent renewable generation comes online, the opportunity for battery energy storage system (BESS) assets in particular is increasing. Along with this growth, the ESO is adapting and expanding its range of markets to keep the system balanced.
“With increasing new BESS capacity coming online during 2022, we began to see signs of saturation in the dynamic containment (DC) market and resulting price declines,” said Mark Futyan, non-executive director at Origami.
“As a result, optimisers are switching away from DC and into the other frequency regulation services (DM, DR, FFR) and wholesale trading. The strongest performing assets are now those which are able to dynamically switch between revenue streams to achieve the maximum value. Intelligent trading algorithms, underpinned by enabling technology are increasingly vital to success in a highly complex and competitive market.”
Recent months have further highlighted the value of flexibility within the energy sector, from domestic scale demand side flexibility to utility scale BESS. With gas prices – and therefore power prices – expected to remain high throughout the year and beyond, there is likely to be increased opportunity within flexibility markets.
“2022 was a tumultuous year for energy markets, with volatility and market uncertainty in excess of anything I’ve seen during my 25 years working in the energy business. It was, however, an excellent year for renewables and energy storage with records for new asset deployments being set in the UK and globally. I look forward to another rollercoaster ride ahead in 2023,” said Futyan.