Limejump

Low wind creates volatility within the market yet again

The forward market charge continues

Another week, another increase in the price of carbon. Another increase in the price of gas. Another increase in UK Power Prices. It seems to be absolute dreamland for our renewable generation customers who are successfully locking in at these high power prices. We have signed 52MW of Solar alone this week. The current June-21 power price is £75.70/MWh, with a jump of £3.50/MWh on Tuesday alone. The price of Carbon has set another record, reaching a high of €55.47/mt. This rise is still associated with investor confidence and continues to show no sign of slowing down. This rise in the cost of carbon directly translates into a rise in the price of gas, but there have been additional external influences also. 

  1. Unplanned Norwegian gas outages, which are expected to reduce exports to Europe this week, are the main reason behind this increase. 
  2. The largest fuel pipeline in the US, the Colonial Pipeline, which carries 2.5 million barrels of fuel each day was the victim of a cyber attack which forced its shutdown for nearly a week. This led to an increase in the price of gas because it raised slight concern surrounding the security of global pipelines and the mass disruption that these cyber attacks can cause. 
  3. Slight disruption to delivery of LNG supplies, whilst weather forecasts also continue to predict lower than seasonal temperatures increasing demand. 
  4. The cold weather in April resulted in aggregate gas storage inventories in Europe having fallen to around 30% full, compared to 60% last year. This means there is added pressure on winter gas supplies due to added volume of gas required as well as a shorter period of time to refill these storage levels.

 

The rise of carbon and gas prices has meant that power prices for Winter-21 have increased by an incredible 49% since January 7th, which is amazing news for our customers who are on our Track & Trade PPA. 

On Sunday evening, wind generation was at a very healthy level, just over 11GW and even resulted in negative system prices. Winds stayed above monthly expectations up until Tuesday night where we witnessed a rapid ramp down of generation, dropping from 11GW to 4GW in less than 12 hours. Since then winds have gradually been dropping lower and lower, forecasted to crash to 0.6GW on Friday afternoon. Solar generation has also dropped off due to more overcast conditions, whilst temperatures have remained below seasonal norms resulting in pressure on demand. This has had a significant impact on the markets this week, with both Day Ahead prices peaking at £132/MWh on Thursday evening. This has had an impact on the stability of the system because these high prices attract the majority of CCGT’s and means that only the more expensive assets, such as gas peakers and certain CCGT’s, were available to be called upon in the Balancing Mechanism if needed. This has led to system prices being extremely volatile, peaking and crashing in correlation with a short or long system even if very marginal, as can be seen in the graph below.

Excitement for the very first UK Allowance auction happening next week

The eagerly anticipated first UK Allowance (UKA) auction will occur on Tuesday 19th May. Following Brexit, the UK has created its own carbon emissions allowance scheme. It has been very difficult to predict what may happen here, and there are many conflicting views from market commentators. We expect there to be a minimum price but it is not clear whether there will be any pegging to the EUA’s. We also expect the overall carbon allowances to be the same which would suggest prices to be the same per metric tonne… but it is very difficult to tell.

 

Outlook for next week

Wind generation is expected to pick up from its current low, but will still be around 1GW below seasonal expectations or possibly lower. Temperatures will remain below yearly averages due to the continued presence of a high pressure system above the UK. This means that for next week, the system is looking fairly short. We do see improvements in availability across biomass, CCGT’s and Nuclear particularly from next Tuesday so this may alleviate some of the pressure on the system.

 

 

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