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Current± Price Watch: Johnson points to reform of 'ludicrous' system

Image: Current±.

Image: Current±.

In this week’s Current± Price Watch series – powered by LCP Enact – we take a look at surging winds and rumours of electricity market reform.

Day-ahead: Johnson points to market reform ahead of winter price increase

With the milder weather, day-ahead prices over the past week remained steady. It dropped to a low of £114.2/MWh on Sunday 26 June, just up from last week's low of £104.1/MWh.

The high for the week jumped over £100, from £245.8/MWh last week to £354.4/MWh on Thursday 23 June, as low winds meant gas made up 54.2% of the energy mix.

Throughout this period of relative stability, focus remains on increasing energy security ahead of the winter. Cornwall Insight’s latest prediction for the price cap over the winter was released last week, suggesting that it could hit nearly £3,000/MWh.

This is largely being driven by the recent rise in gas prices, which climbed in response to the latest wholesale market uncertainty driven by flows to Continental Europe markets from Russia. There have been reductions in gas deliveries to Germany, Italy and Austria, among others.

Prime Minister Boris Johnson pointed to market reform that would move Britain away from a system where the price of energy is set by the marginal gas price in an interview with the BBC’s Today programme on 25 June.

“At the moment, one of the problems is that people are being charged for their electricity prices on the basis of the top marginal gas price, and that is, frankly, ludicrous,” Johnson said.

“We need to get rid of that system. We need to reform our energy markets, as they have done in other European countries.”

The comments followed reports that the government could decouple energy bills from wholesale gas and electricity prices as part of a suite of ‘urgent’ electricity market reforms, which emerged earlier in June.

Intraday: The cost of curtailment continues to bite

The intraday price reached a high of £349.66/MWh on 21 June, up from £280.35/MWh for APX MID in the previous week.

As winds picked up towards the end of the week, prices dipped to £46.71/MWh on 25 June, a drop from last week’s £78.01/MWh.

According to National Grid ESO, wind produced 45.7% of Britain’s electricity, followed by gas 22.2%, nuclear 19.4%, solar 7.6%, biomass 2.5%, imports 2.0% and hydro 0.7%. As such, more than three quarters of the electricity mix was coming from low carbon sources.

However, there were high levels of wind curtailment on 25 June, in particular in Scotland. For period 32 for example, the cashout price hit £-69.49/MWh.

Period 32, wind curtailment. Image: LCP Enact.
Period 32, wind curtailment. Image: LCP Enact.

“25 June saw over 21GWh of wind power curtailed primarily due to network constraints,” said Rajiv Gogna, partner at LCP and commercial lead at LCP Enact.

“This was the equivalent of powering over 2 million homes that day. As the UK looks to boost its wind capacity significantly this decade, we must ensure the network and storage solutions are in place to actually use the clean power we generate and allow consumers to see these benefits.”

It follows research from Lane Clark & Peacock at the beginning of June that suggested the cost of curtailing wind generation in 2021 hit a record high, costing Britain £507 million.

Imbalance: Price stays steady as winter plans considered

Like the intraday price, stronger wind generation led to the imbalance price dropping to its lowest point last week on 25 June, hitting -£69.49/MWh. This was slightly below the low last week of -£48.76/MWh.

It hit its highest cost on 21 June of £398.74/MWh, up from £324/MWh last week.

Reports emerged today (27 June) that National Grid ESO is looking to broaden the demand side response market going into winter to provide more flexibility and to help consumers save on energy costs. In an article in The Times, it suggests the operator could pay households to shift their electricity usage, voluntarily rationing the energy they use to protect the grid.

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


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