High prices and a tight market for Monday: What’s causing this?

Latest forecasts are predicting unseasonably low wind generation on Monday and Tuesday next week (7th & 8th December).

The chart below shows the embedded wind forecast for the next 12 days, with this unseasonable dip showing clearly.

For reference, this assumes there is 6.5 GW embedded wind capacity, so for generation to only be 250 MW over the evening peak is very significant and rare.


Coupled with this, we see very low temperatures with this forecast. This includes the possibility of snow in some areas of the UK next week – on top of this Friday’s flurries.

So, to summarise it is the perfect (snow) storm.

Why do the prices increase?

Prices for Monday traded up to £110/MWh baseload in the OTC market. It’s worth noting that  December-20 baseload power was actually trading at £49/MWh prior to the start of the month.

Of course, it’s not uncommon to see more volatility in prompt power markets. This is driven by plant availability, temperature and varying renewable generation.

This prompt volatility is one of the main ways that flexible assets capture value.

Next week, with reduced supply due to low wind generation coupled with increased demand we are seeing prices rise as less efficient generation is in merit. Prices rise as you go further up the supply stack, to get 1GW of CCGTs to run is much cheaper than to get 1GW of coal to run. The less efficient units are incentivised to run as the prices move up. We expect to have close to 4GW of coal running on Monday, with this being likely the marginal unit sold in the wholesale markets. A key thing to watch will be coal generation availability, with only 1.9GW available on Thursday 5th December.

Dark spreads (coal cost + carbon cost x plant efficiency) give an indication of the prices required by these units and sit around the £75-90/MWh mark. At a price level of £110/MWh we expect to have nearly the full coal fleet to be running.

But that’s where it gets complicated. In some cases, units haven’t sold prior to the Day Ahead for a variety of reasons and the system can outturn well supplied and within-day prices could trade discount to the auction.

These market conditions highlight the importance of having Limejump’s 24/7 trading team to dynamically manage your asset. If conditions change over the weekend, we will react accordingly to maximise revenue for our customers.

View the Market Pulse Dashboard here.

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