There has been another week of rising prices in the UK’s gas and energy markets as further concerns were added to a tight supply for Winter this year. An initial reduction in the energy price at the start of the week occurred amidst increasing cases of the Delta variant in China. However, the expectation that regional lockdowns would reduce demand were outweighed and we have since seen bullish growth of around £5.50/MWh. The price hike originated earlier in the week with two outages at major power stations, Troll and Oseber in Norway. Although, more significant was the announcement coming out of Russia on Wednesday that gas supply to Eastern Europe would be vastly decreased as a result of a fire at the Novy Urengoy power station in the Yamal region. As a result we have seen gas prices reach an all time high of 116.75p/therm this week surpassing the previous record set in November 2005. For context, the UK imported just 1 LNG Cargo last month compared to 7 in July 2020, the only cargo set to arrive in August is scheduled for Saturday. As we approach Winter 2021 with gas storage levels around 45% full, the market is extremely sensitive to impacting events and we could see steep spikes and falls in the coming weeks.
The price of Carbon is also up from last week, with UKAs increasing by £1.64/mt to £47.24/mt. The price of EUAs has increased slightly by €0.35/mt to €54.93/mt. This is the highest carbon price in over a month. Market Analysts are now predicting that the UKAs may trade above the EUAs soon, although, there is no fundamental reasoning behind this, and is led by investor confidence.
Wind continued to perform below seasonal norms and forecast for the majority of the week, around 1.4GW short at peak underperformance. This, alongside overperforming demand throughout the week, has led to an often short system and the market trading high, resulting in an increase in the use of physical notifications. In addition, as a result of short wind supply, the national grid called upon CCGT’s and gas peakers throughout the week and towards the beginning in particular. The highest price achieved by a Limejump optimised flexible asset in the Balancing Mechanism was £151.99/MW. In the latter part of the week, wind has ramped up to a high of around 11GW generation, despite this uptick, the system has remained largely on the short side as many conventional CCGTs have reduced output due to low prices.
High wind performing above seasonal norms is expected over this weekend before returning towards expected seasonal levels for the remainder of next week. Solar should continue to perform in line with seasonal norms for August, whilst temperatures should meet seasonal expectation at the beginning of the week before declining somewhat in the latter part of the week. Supply should remain strong throughout with a healthy generation stack as we see a return of Biomass, strong availability of CCGTs and incremental availability of nuclear.