Day-ahead power prices in Great Britain rose to £2,000/MWh in the N2EX auction for 17:30 on 15 November, according to EnAppSys.
The price spike was predominantly due to a sustained lull in wind speeds, EnAppSys said. This meant there was insufficient lower priced margin available, increasing prices for the evening peak.
“When margins are tight it appears market parties withhold capacity from the day-ahead market and intraday markets to participate at high prices in the balancing market at multiples of the marginal cost of production,” Phil Hewitt, director of EnAppSys, said.
“This is a risky strategy as they risk not accessing guaranteed high day-ahead prices on a potential bigger payday in the Balancing Mechanism.”
It follows day-ahead power prices hitting £2,500/MWh on 15 September in the N2EX market for 19:00-20:00, breaking the previous record set only three days prior of £1,750/MWh.
The £1,750/MWh record was partially driven by a similar set of circumstances to the high prices seen yesterday, with a combination of some generators sitting out of the wholesale market to benefit from the higher prices in the Balancing Mechanism along with low wind speeds.
However, yesterday’s high price is expected to be a one-off event for the week, with wind generation returning through today. Additionally, Hewitt said that while next week’s colder temperatures will lead to higher demand, when combined with the expected wind generation, prices are unlikely to be too extreme.
However, EnAppSys’ modelling suggests around a dozen of the sort of events seen yesterday could occur this winter period if current market behaviour continues.
“The market parties that suffer will be unhedged suppliers who will be exposed to high prices at the day-ahead and in imbalance; this winter is a good time to be a generator.
"The previous four winters have been quite benign in the wholesale markets, which has allowed a number of suppliers to grow relatively risk-free and created a prolonged period of pain for generators in the market. To an extent this is a market correction that is long overdue, albeit an extreme one," Hewitt said.
A significant number of energy suppliers have shuttered this year, including Omni Energy, MA Energy, Zebra Power, Ampoweruk, Goto Energy, Pure Planet, Colorado Energy, Daligas, ENSTROGA, Igloo Energy, Symbio Energy, Avro Energy, Green Supplier Limited, People’s Energy, Utility Point, PfP Energy and MoneyPlus Energy. Many of these have ceased to trade in the past few months, with the recent high gas prices creating a challenging environment.
National Grid ESO is also expecting some periods of tight margins this winter, detailing in its Winter Outlook that it expects to issue a similar number of Electricity Margin Notices (EMNs) to last year, when there were six.
Any tight margin days could see significant price spikes in the Balancing Mechanism, the ESO said, with last winter seeing the imbalance price hit £4,000/MWh. This was then repeated in September of this year when the imbalance price reached £4,037.80/MWh.