In the final Price Watch of this series – powered by Enact – we explore imbalance prices dropping to -£18.81 as the Electricity Storage Network (ESN) highlights concerns on National Grid ESO’s bid to run the GB electricity system for periods at zero carbon.
This feature also explores new government statistics on UK 2022 renewable generation figures which show the price-crunching effect of increased renewable energy generation and the release of Cornwall Insight’s latest price cap predictions.
Day Ahead: Renewable generation continues to lower UK energy prices
Day ahead prices during last week remained similar to the preceding week, with average prices peaking at £83.86/MWh on Thursday (27 July). Prices then fell during the weekend with an average of £40.22/MWh on Sunday (30 July).
The week-on-week similarity of day ahead prices illustrate how much the energy wholesale market has steadied when compared to last summer where day ahead prices shot from a high of £350/MWh week commencing 4 July 2022 to £553.7/MWh in the next week beginning 11 July 2022.
Comparing last summer’s energy prices also illustrates how far prices have fallen as the UK learns to better cope with the energy crisis. There are several reasons for this significant fall in prices, one being the UK’s increasing renewable generation capacity.
Last week (27 July) the Department of Energy Security and Net Zero (DESNZ) released new statistics which showed that renewables generated a record 41.5% (135TWh) of electricity in the UK last year.
This meant that renewables outstripped gas which generated 40.8% (132.8TWh) of the UK’s electricity.
Wind power – which broke a number of the technologies’ own records – was a key player in this statistic, generating 80.3TWh collectively in 2022.
Solar installations have also increased by 6.7% since June 2022, according to the government’s statistics, resulting in a total solar capacity of 15.2GW.
Increasing levels of cheap renewable generations within the UK’s energy mix translates into lower energy prices. Wind generation has been particularly prominent in lowering energy prices this year; for example, in the week beginning 20 March 2023, wind generated between 46% and 56% of the UK’s energy mix for three days, resulting in a day ahead price low of £12/MWh on 25 March.
Renewable generation also affects other markets, as demonstrated last week which saw high wind and solar generation – paired with lowered demand – result in the “lowest” system price ever at -£185.55/MWh on 17 July.
Commenting on the newly released statistics, Rajiv Gogna, partner at LCP Delta said: “Looking behind these headline numbers of renewable generation is what this means for consumers. In recent weeks we have witnessed the UK break into negative intraday and day ahead pricing due to the abundance of renewable energy available on the grid, including a day where prices were negative for most of the day.
“These instances will becoming increasingly frequent in the future, especially while storage can’t pick up the surplus, and means that consumers who can gain exposure to these prices through innovative tariffs can take advantage of these low prices at home. Renewable energy is not only a greener and cheaper form of energy and cuts bills for consumers but will increasingly result in negative pricing scenarios which create opportunities for people to save money.”
Intraday: Cornwall Insight price cap prediction; Sizewell C receives Gov funding
Intraday prices started the week at a high of £108.42 on 24 July before stabilising and dropping to a low of £54.59 on the weekend (30 July).
The generally steady electricity prices are projected to continue for the time being, with Cornwall Insight predicting that Ofgem’s energy price cap would remain stable this winter, with a typical duel fuel household paying an average of £1,860.66 on energy between October and December 2023. This is only a small change from Cornwall Insight’s previous prediction of £1,871.28.
The predicted price cap for Q1 2024 however has increased by just over £58 to £1,958.8. Although they are stabilising, consumer energy prices remain well above normal, and are not likely to return to pre-2020 levels for some time.
Volatility in the gas sector is obviously one of the causes of these raised prices, which explains why the government has gone ahead with granting new oil and gas licenses today. The UK needs more baseload energy to provide more long term stability for consumer energy prices, and the government is aiming to invest more in nuclear infrastructure to increase the UK’s nuclear baseload.
The government announced last week that they would spend another £170 million on the Sizewell C nuclear plant, having already announced a ‘historic’ £700 million investment in November 2022.
The 3.2GW nuclear power plant, which is being developed by EDF Energy and situated in Suffolk, will help increase nuclear’s share of the UK energy mix and reduce long term energy prices.
Imbalance: Prices dip to £-18.81 as ESN pens open letter on the Balancing Mechanism
Imbalance market prices started the week (24 July) with a high of £141.86/MWh before turning negative four days later, with a low of -£18.81/MWh. Prices then finished the week (31 July) with a high of £130/MWh and a low of £15.1/MWh.
It is worth noting that although the imbalance prices saw a low of -£18.81 last week, this is still much higher than the “lowest GB system price ever” recorded on 17 July when it stood at -£185.33/MWh. This was primarily set due to high solar generation, over-performing wind generation, low demand and increased imports from continental Europe.
Last week saw the Electricity Storage Network (ESN) pen an open letter to National Grid ESO highlighting concerns surrounding its bid to run the GB electricity system for periods at zero carbon. One of the main factors continues to be surrounding the Balancing Mechanism (BM) with the organisation revealing an average skip rate of 80% for batteries between November 2022 and May 2023.
In the open letter, ESN said that investment decisions on UK storage projects “depend on efficient dispatch of electricity storage assets in the BM as a crucial segment of the revenue stack”.
Providing analysis on the open letter and the BM as a whole, Shivam Malhorta, consultant at LCP Delta, stated the below on LinkedIn.
The trade association highlighted that clear and accurate data must be published from the ESO on the dispatch of batteries in comparison to other technologies. ESN asked that this include metrics such as Accepted MWh vs Available MWh for bids and offers in addition to the percentage of BM dispatch volume per technology.
ESN has also called for a meeting between its members and the ESO Balancing Transformation team, control representatives and market development teams to discuss the current BM dispatch issues, dispatch transparency dataset and reason codes to lead to collaborative work on solutions.
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