In this week’s issue of our Current± Price Watch series – powered by LCP Enact – we take a look at what drove the rare Capacity Market Notice (CMN) issued by National Grid ESO, and whether these could become a common sight over the summer?
Day Ahead: High temperatures once again strain capacity
The local day ahead prices for Britain remained steady last week, with a high of £451.7/MWh today (15 August) and a low of £208/MWh on 8 August.
Last week saw the country again gripped by a heat wave, with temperatures jumping to 34°C in some parts of Britain.
Whilst not as dramatic as July’s heat wave, when temperatures topped 40°C, the weather still had an impact on the electricity system, as generation was strained and demand grew.
As a result, National Grid ESO issued another CMN, an unusual event in the summer months at all, let alone two within a month – the system operator issued one during the last heat wave on 18 July.
Last week’s CMN was issued for 6pm on 11 July, as capacity was set for a 173MW shortfall. It was cancelled three and a half hours after.
“The automatic trigger for a CMN being issued is when there is less than 500MW of spare generation capacity above the ESO’s operational reserve requirement for that period. When a CMN is automatically triggered but the control room are confident that there is sufficient margin (as was the case on Thursday), then NGESO like to reassure people over twitter,” expanded Tim Sparks, energy consultant at LCP.
“High temperatures were once again a factor in the tight system margins on Thursday, but the temperatures weren’t as extreme as on some of the days we saw last month, and the scarcity was less severe as a result (with lower demand outturn and less impact to the efficiency of thermal generation).”
Intraday: Concerns over winter energy security continue to grow amid summer shocks
APX (mid) intraday prices spiked to £600.9/MWh on 11 July as temperatures jumped, more than three times its low of £178.81/MWh last Monday (8 July).
Given the impact of the heat waves on the electricity system, concerns are growing for the impact of extreme weather events over the winter period, with baseload power prices continuing to surge on the back of geopolitical uncertainty.
Forward prices for baseload power are now trading at worryingly high levels of over £600/MWh for November to December, LCP Energy noted in a post on LinkedIn.
As such, this implies that scarcity value equivalent to Loss of Load Expectations – the periods when demand exceeds supply and prices reach Value of Lost Load of £6000/MWh – for around 100 hours will need to be factored into winter power prices.
Imbalance: Batteries set to see strong revenues as winter approaches
Imbalance prices similarly surged on 11 July, hitting £760.05/MWh, up significantly from the previous week’s high of £527.37/MWh. It hit a low of £ 44.42/MWh, also on 11 July.
Battery energy storage continues to see strong revenues on the back of market volatility, as it is increasingly called on to support electricity system.
“During the last 12 months, we have seen a notable improvement in market conditions for energy storage,” said Alex O’Cinneide, founder and CEO of Gore Street.
“Exacerbated by greater renewable energy penetration in the energy mix, changing energy policies in light of the current unfortunate geopolitical conditions, and changes in supply/demand patterns, high power price volatility has caused grid operators to increasingly rely on energy storage assets to balance their networks. We are seeing the market demand for batteries grow at a faster rate than the grid operators are facilitating them.”
While there is an element of seasonality to revenue patterns in Britain, continued O’Cinneide – as mentioned earlier with CMN’s being likely in winter and unusual in summer due to the demand and generation patterns – but he does not envisage material changes for battery energy storage revenue over the remainder of the year.
“This is largely due to a battery’s ability to stack its revenues across multiple streams, including grid balancing and trading revenues. By seamlessly optimising batteries across different streams, they can opportunistically benefit from volatile energy prices through trading, or high balancing prices resulting from generation intermittency, all of which can help insulate overall revenue from a downward trend of one source of revenue,” finished O’Cinneide.