Following a couple of weeks of relative calm for gas, carbon and forward power prices, this week we have seen another sharp rise across the board. UK Baseload Winter 21 power prices increased by £6.35/MWh between Monday and Friday, rising from £94.25 and smashing through the £100/MWh ceiling. This has been driven by an even bigger rise in gas prices, increasing from 95p/therm to 102.5p/therm.
There have been very bullish fundamentals and a tightening gas supply across Europe. First of all, the overall gas picture has been very tight due to unseasonably cold weather in the spring. This has led to gas supplies continually being reduced at a time where they should be refilled in order to have sufficient stock for the winter. A second factor behind the bullish sentiment is the lack of supply coming into Europe to cover this increased use. This has been due to a combination of geopolitical curtailing of supply as well as planned and unplanned maintenance on important gas pipelines into the UK, from both Norway and Russia. Kremlin-influenced ‘Gazprom’ has consistently supplied the minimal contractual volumes and failed to bid for extra flows for the rest of the year. It is argued that this is in an attempt to pressure Europe to speed up the commissioning of the globally controversial Nord Stream 2. Planned and unplanned maintenance on gas pipelines isn’t unusual, but, it has been a factor for this week’s rise as there have been further unplanned works on Norweigian facilities. Normally the UK and Europe could restock with Liquid Natural Gas (LNG), however, there has been an even bigger surge for LNG in Asia, driven by China, and has led to all LNG cargo ships skipping Europe and selling at the higher Asian price. These factors have all combined to see a surge in gas prices in the last couple of months unlike any we have seen for over a decade. These high gas prices have been bringing the UK power prices with it and it seems like remaining above the £100/MWh mark could be a critical moment. Exciting times await.
The low pressure system over the UK at the beginning of the week meant we experienced extremely low wind generation. Therefore, a significant proportion of CCGT’s and gas peakers were being called upon by National Grid to balance the system. As the gas price is so high at the moment this meant that these assets were pushing day ahead prices to a peak of £155/MWh. This also resulted in Limejump traders capturing these prices and higher within the Balancing Mechanism for our gas generators. Wind had a rapid ramp up on Wednesday, increasing from 3GW and reaching 10GW on Thursday. This has caused slight suppression of prices as National Grid was no longer reliant on these gas generators, until an even sharper ramp down on Thursday evening.
State-backed China General Nuclear (CGN) is the lead developer in the £23bn Hinkley Point C project in Somerset, which is set to supply around 7% of the UK’s electricity from mid 2026. However, rising tensions between China and the UK surrounding the clampdown of democracy campaigners in Hong Kong and allegations of human rights abuse in Xinjiang has raised expectations to reduce CGN’s involvement. Following the early closure of Dungeness B, there are only 3 operational Nuclear plants in the UK. Hinkley Point C is the only Nuclear Power station currently under construction in the UK, which asks the question: Does Nuclear have a future in the UK?
Temperatures have dropped this week and will remain below seasonal norms going into next. As has been the case for this week, wind generation is forecast to be very low for the first half of the week and then see a sudden ramp up to as high as 12GW by Friday. We also see similar solar conditions to this week, staying around seasonal expectations. There is an increase by 580MW in availability in both Biomass and Nuclear, with Heysham 12 and Hartlepool 1 nuclear plants the key differential, but CCGT availability is predicted to drop by 500MW. Overall the system will continue to have a long outlook.