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High power prices expected to continue following record-breaking Q3

The high wholesale prices caused ten suppliers to fail, affecting 1,840,000 customers.

The high wholesale prices caused ten suppliers to fail, affecting 1,840,000 customers.

High power prices are expected to continue into winter following a record-breaking third quarter in the UK.

Wholesale power prices started the quarter high at £31.37/MWh, but continued to grow passing the £50.00/MWh milestone on 13 September before finishing the quarter at £72.01/MWh, according to analysis from EnAppSys.

Day-ahead wholesale prices averaged at £126.14/MWh, up 69% from the previous record of £74.85/MWh set in just the previous quarter.

This was largely driven by a global gas shortage, with Europe’s total stored reserves of gas around 25% lower during the period than last year owing to a particularly long winter. This meant that reserves were lower than any Q3 since the start of EnAppSys’s data set in 2015.

On top of this carbon allowance prices drove up prices further for gas, contributing to greater amounts of coal being on the system.

“Carbon allowance prices were at an all-time high, rising consistently from August onwards and peaking at £75.57/te on the penultimate day of the quarter,” said Paul Verrill, director of EnAppSys.

“The break-even cost of gas generation increased to such a degree that by mid-September, at times it became cheaper to generate using the least efficient coal units than the most efficient gas units.”

On 9 September during the evening peak, system prices hit a high of £4,037.80/MWh on 9 September. The imbalance price has only been higher once, in June 2001 shortly after the NETA Go-Live when it hit £5,003.33/MWh. It also beats the high of £4,000/MWh set on 8 January 2021.

Over the course of Q3, there were 252 half hourly settlement periods where system prices were higher than £200/MWh, a dramatic jump from the already high 21 periods seen in Q2.

Despite the tight supply of gas it still represented the greatest share of the country’s energy mix, contributing 40.6%, followed by renewables at 29.1%, nuclear at 16.1%, imports at 12.4% and coal at 1.9%.

This represents a significant jump in coal generation from last year, with 1.15TWh across the quarter, a 335% increase on Q3 2020. Drax, Ratcliffe and West Burton – the UK’s only remaining coal generation plants – all ran during the period.

By the end of Q3, the breakeven price of gas was £140/MWh – £195/MWh, almost double the price at the start of the quarter, meanwhile coal was at around £80/MWh – £110/MWh.

Compared to last year, the share of generation from renewable generation was down 20% largely due to unfavourable weather conditions, in particular low wind speeds.

Given these challenges, Britain relied more heavily on imports than generally. The quarter saw imports up 202% compared to Q3 2020, and up 24% from Q2 2021 even. This meant that net imports were at their highest ever at 7.6TWh, up 18% from the previous record set in Q1 of 6.4TWh.

This was despite the impact of a fire at the IFA1 interconnector on 15 September, which forced it to go offline, taking 1GW of capacity off the system.

“Auctions for the UK Emissions Trading Scheme allowances launched in May 2021, with clearing prices initially higher than those for the EU scheme that it replaced, amounting to £48.01/te for GB compared with £42.37/te for EU,” added Verrill. “They had converged to within around £2.00/te from June until September, but then diverged with GB prices peaking at £75.57/te on September 29, while EU remained under £55.00/te.”

The overall record high power prices have sent shockwaves through the sector, with ten suppliers ceasing trading over the period affecting over 1,840,000 customers. This has continued through October with Goto Energy, Pure Planet, Colorado Energy and Daligas all ceasing to trade, with more expected to follow in the coming months.


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