A colder than normal Q1 2021 and low wind generation in the summer across Europe exacerbated Britain's energy crisis, according to energy market data analyst EnAppSys.
In its report into GB’s electricity market in 2021, EnAppSys highlighted how the cold winter between December 2020 and February 2021 reduced Europe’s gas reserves, which were then further depleted by the extended periods of low wind generation.
“All of this has occurred against a background of increased demand for LNG and geopolitical issues around gas supply,” said Paul Verril, director of EnAppSys.
These factors all combined to drive gas prices to the highs seen across the second half of 2021. These prices have continued into 2022, with EnAppSys stating the market indicates they are set to stay high for some time.
Both day-ahead and within-day prices increased dramatically during the year in peak and off-peak settlement periods, with day-ahead and system prices seeing record high averages. Indeed, system prices peaked at a record £4,037.80/MWh, with this the highest imbalance price seen since the £5,003.33/MWh recorded in June 2001.
High electricity prices across 2021 were partly driven by the high gas and carbon prices. “However, there has also been a scarcity of generation supply brought about by issues at interconnectors and nuclear plants combined with some large generating assets leaving the market following poor revenue performance in previous years,” Verril said.
Following a fire at a convertor station in Sellindge in September, 1GW of the 2GW IFA1 interconnector with France went offline, with this originally expected to come back online in March 2022. However, it was then pushed back, with the full 2GW interconnector to not be back online until October 2023.
“This ‘capacity crunch’ against a background of lower wind has led to generating assets seeking very high prices to assist in balancing the grid, leading to Ofgem expressing concern about market participant behaviour," Verril said.
In December, Ofgem stated it is ready to use its powers to change market rules if necessary in light of balancing costs doubling between September and November 2021, with over £1 billion spent on balancing the transmission network during that time.
The regulator also detailed how it had been closely monitoring the accuracy of the information submitted to National Grid ESO by generators, stating that it "will not hesitate" to take action if evidence of market manipulation is found.
During 2021, demand for electricity also increased as COVID-19 restrictions were relaxed, although the 247.8TWh of demand recorded was still a 3% decrease on levels seen in 2019, with EnAppSys stating this indicates a continuing trend of lower demand and an increase in embedded generation.
Gas-fired generation totaled 107.5TWh across the year, the same level as wind, solar, hydro and biomass combined. While this was a 13% increase from gas’ record low level of generation in 2020, it was still lower than 2019.
The combined total of renewables of 107.5TWh, meanwhile, was lower than that in 2020, when there were high levels of wind and solar generation.
This is due to the reductions in windspeeds in the first three quarters of the year, with wind output falling by 5.9TWh during the year. This is the largest year-on-year decrease in wind generation in history for Britain. However, renewables’ total was still higher than the 103.7TWh recorded in 2019, which EnAppSys said reflects an increase in installed wind and solar capacity.