Record High Power Prices in GB - A sign of things to come? 16 Sep 2016

It’s been a challenging week for the GB market, with tight margins and high market prices all week culminating in record-high day-ahead auction prices of £999/MWh, seen yesterday (Thursday 15th September).

Unseasonably high levels of demand coincided with very low wind generation levels throughout the week, dipping under 500 MW yesterday (on a system with nearly 9 GW of onshore generation).

The GB system was already short on generation capacity as several gigawatts of plant are on scheduled outage for the summer months.

Compounding this, both Irish interconnectors were unavailable for the week. The Moyle interconnector has been on outage since 6th June (however it is expected to be back to full operation over the course of the coming week). The 500 MW East-West Interconnector was on planned outage from 6th – 9th of September, however a technical fault which occurred upon re-energisation has left the interconnector on forced outage until the start of November at the earliest. This outage is ill-timed as it means that the Irish market will have limited opportunity to export power into the short GB market.

Then on Tuesday, the IFA interconnector between France and GB tripped while importing 1.5GW of power into GB, sending Imbalance Prices above £400/MWh. The interconnector has since returned to partial operation but uncertainty remains over its reliability, which impacted on market sentiment further into the week.

On top of this significant outage, the 645 MW Drax coal plant and the 620 MW Hartlepool nuclear plant were both made unavailable due to forced outages.

All these compounding factors clearly left the market fearful of catastrophic system events on Thursday, reflected in the day-ahead market spiking to a record highs of £999/MWh at 7pm and £799/MWh at 8pm, before recovering to more normal prices overnight. These record day-ahead prices also triggered the auction book to be re-opened for the first time last night (as required when prices exceed £500/MWh), another first in a tumultuous week.

However, this is a good example of how market sentiment can have as much of an impact on prices as underlying fundamentals, as the market’s calamitous expectations appear to have been over-stated. While imbalance prices did spike as high as £801/MWh at 7pm, system margins did not outturn as tight as some forecasted, reflected in intraday prices which traded significantly lower than the day-ahead (demonstrating the value of having access to intraday trading!)

The Forward OTC (“Over The Counter”) market was also left skittish by this week’s events, with the next weeks’ GB power baseload product trading at highs of £110/MWh, compared to traded prices of £40/MWh for the same product last week. Fears are subsiding and prices returning to normal today as high levels of wind are forecasted for next week.

The question of GB’s security of supply in the winter months has long been looming over the industry, clearly demonstrated in the market’s fearful reaction to this significant capacity scare.

From October 2017, the Irish market will also be faced with a more open, dynamic market which is free to react to system conditions. As shown by our neighbours this week, understanding market sentiment will be just as important as understanding forecasts, market rules, etc.