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CCGT activity driving market volatility

The continued warm weather has created consistent market environments for the past week. High temperatures and high levels of solar have resulted in low demand, meaning, a healthy supply of volume has remained available in the generation stack. On the face of it, this should suggest a stable system with stable prices. However, high Day Ahead prices, driven by carbon and gas prices, and suppressed intraday prices, due to a healthy generation stack, have resulted in a different opportunity for CCGT’s. With high levels of solar and low levels of demand, the system has been opening up long every day since the 26th of March. This long system suppresses intraday prices, pushing them well below Day Ahead prices. CCGT’s who lock in their Physical Notification at these higher Day Ahead prices, can then reverse their original Physical Notification and still make a profit buying back their position. This reduces supply within the system and flips it short, which results in a spike in intraday prices. CCGT’s are then able to resell their power at this new artificially raised price.

 

 

EDF announces the closure of Dungeness B nuclear 7 years early, following 3 years of failed maintenance.

EDF has announced the immediate defuelling and early closure of Dungeness B nuclear station. This announcement follows 3 years of an extended outage due to significant and ongoing technical challenges. This means that by 2024, there will be only 3 nuclear power stations operational in the UK. There is currently just one Nuclear Power station under construction in the UK at the moment, which brings into question the future of Nuclear power in our country.

 

However, a spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS) has tried to reiterate the government’s commitment to ‘the future of nuclear energy’, with the potential for 16 small modular reactors planned by Rolls Royce and a deal looking close with EDF in regards to another new Nuclear plant in Suffolk.

 

The forward market rebounds from last week’s losses.

The price of carbon has been steadily increasing this week, within both the UKA and the EUA. The price of EUA’s has risen by 7% so far this week, to €53.5/mt whilst UKA’s have risen at a slower rate at just above 1% to £47/mt. This means the spread between the two carbon trading schemes has reduced even further to just over  €1/mt.

 

The uncertainty caused by EDF’s announcement yesterday to close down and decommission Dungeness B nuclear station in Kent has resulted in a further spike in gas prices. As Tom Greatrex from the Nuclear Industry Association noted, “If this base of firm power is not replaced, we will have to rely on gas to stabilise the grid”. Gas prices for Win-21 have increased by 4.75 p/th, compared to Monday, due to a significant outage in Norway.  Wind generation as low as 0.28GW during the evening peak on Monday also resulted in an increase in gas demand, further pushing up the price. There was a drop in gas prices on Thursday due to Kollsnes station (which provides gas to the UK via the Norway-UK interconnector) coming back online, whilst a forecasted fall in demand could further exert downward pressure on these gas prices.

 

The rise in both gas and carbon has led to power prices reaching a new peak in 2021, with Winter-21 now trading at £85.50/MWh, an increase of £5.30/MWh so far this week. This has been brilliant for our customers currently on our Track and Trade product.

 

UK Baseload Winter-21

 

 

Outlook for next week:

Solar generation is forecast to remain high into next week, whilst wind is set to return to seasonal norms. The temperature will be dropping by a couple of degrees but demand should still be below the average for June. There will be a drop off in Biomass by 780MW (de-rated supply), the amount of excess supply above peak demand, should remain above 10GW all week.

Weekly Dashboard

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