Market Pulse
The UK’s Cost-Containment Mechanism has been triggered, this is due to the monthly average UK Allowance (UKA) carbon prices in September, October and November all being above the December trigger price of £52.88/mt. The Cost-Containment Mechanism was introduced as a measure to counter elevated UKA prices for a sustained period of time. This is an attempt to try and suppress power prices within the UK, as gas is still the dominant form of generation and therefore the price ‘influencer’. If the price of carbon credits remains high, it results in elevated power prices as gas generators have to pay this premium. The UK ETS Authority is meeting to consider what intervention, if any, to make. The most probable action would be to bring forward carbon credit allocation from future auctions in order to curb these high prices. With power prices already at unprecedented highs and thousands of people already facing unaffordable energy bills this winter, this could provide some much needed relief. The decision as to what action will be taken will be communicated to the market no later than after trading hours on 14 December. Current UKA prices sit at above £70/MWh following a relentless charge throughout November, trading ~£5/mt premium to the European equivalent.
There has been a much edgier forward market this week, with much more subdued moves throughout. There was an initial upwards move due to low temperatures and low winds on Monday, however, Russia has began to flow a steady amount of gas into Europe i, which was unexpected by the market, leading to a sell off occurring after the announcement. Overall, Q122 NBP prices have increased by 4.5p/therm, whilst Q122 power prices increased by £8/MWh.
Very high levels of wind generation midweek have been sandwiched between periodic drop offs and wind, resulting in high Day Ahead prices. Monday saw the highest demand of the Triad season, resulting in EPEX Day Ahead prices peaking at £1000/MWh. With very cold temperatures, and Monday’s usually experiencing high demand, it peaked at 45.6GW. Wind was below forecasts and seasonal norms, dropping to 5.2GW, which combined with 2GW of trips to see a spike in system prices to £750/MWh. However, with wind ramping up and the tripped assets returning, the intraday market was suppressed throughout the evening. These suppressed market prices were a result of ‘Triad risk’. National Grid measure maximum demand readings three times a year and use the average of these readings to calculate Transmission Network Use of System (TNUoS) charges. Those who consume energy during these periods pay an additional fee (Triad charge), whilst generators receive additional revenue. As a result, consumers reduced their demand in order to try and avoid these costs, whilst we saw the vast majority of generators running to benefit from the possible Triad.
Wind dropped to 3.2GW on Friday evening, and even led to a Capacity Market Notice being issued for 5:30 pm. A Capacity Market Notice is a signal four hours in advance that, when taking into account additional operational reserve requirements, there may be less generation available than National Grid Electricity System Operator (ESO) expects to need to meet national electricity demand on the transmission system. As a result we saw system price immediately spike up to £2,140/MWh, before crashing back down when this Capacity Market Notice was cancelled around about half an hour later.