Record-breaking wind generation and forward market volatility
New wind generation record
On Friday 21st of May, we saw two wind generation records broken. There was a new record set for overall wind generation, which peaked at 17.7GW between 3.30-4:30 pm. Wind also recorded its largest share of the energy mix earlier that morning, meeting 62.5% of Britain’s demand.
There was high volatility over the weekend, with generation crashing to below 2GW on Saturday, and then ramping back up to 12GW by Sunday evening. Since then it has been gradually decreasing, moving below seasonal expectations and crashing to below 1GW on Thursday and Friday, which combined with high demand has shaped the market for this week. Day Ahead prices have remained high, with daily peaks floating around the £100/MWh mark.
The forward market has rebounded from last week’s losses
There has been retracement across EUA’s, UK ETS and NBP this week. The UK ETS has moved back above the starting £50/mt, reaching £51.55/mt on Wednesday. This due to the UK’s ‘drip-feeding the allowances’ strategy, creating a bottleneck in demand. The current price is considerably above the proposed Cost Constraint Mechanism at £44.74/mt, and if it remains above for more than three months then the Treasury can intervene. With a second auction occurring next Wednesday, it will be interesting to see how an increase in supply affects the UK ETS price. The European carbon (EUA) price has also climbed back up from last weeks drop but is still below its record price, currently trading at €54/mt. UK gas (NBP) prices climbed for the first half of the week off the back of continued strength in wider commodities as well as strong demand driving the system short. On Thursday it dropped back down slightly due to warmer forecasts. Gas has been going through a period of volatility that our traders haven’t seen for a couple of years, which is a result of how low the levels of gas storage are – considering how late in the year it is. Continued cold temperatures and low winds have meant that refilling gas storage is about a month behind normal, this could have knock-on effects if we have a cold start to winter next year.
These changes across the board have meant that power prices have also been rising and falling by a few pounds each day. The UK Winter 21 Baseload climbed by £4.40/MWh between Monday and Wednesday, meaning it peaked above the previous year’s high from last week, but then dropped back down by £2.40/MWh.
UK Baseload Winter – 21
P399 has been approved and set to go live in November
P399 – ‘Making the Identity of the Balancing Services Party known in the Balancing Service Adjustment Data (BSAD)’ was approved by OFGEM and will go live on the 4th November 2021. This means that trades made outside of the Balancing Mechanism must be made visible. Currently, it is not possible to identify who parties entering into non-BM trades are. We responded in favour of this Modification in November 2020, lobbying for better insights for modelling the UK power system and understanding where assets are running uneconomically due to an instruction.
Outlook for next week
Finally some good news, the weather is getting milder! Forecasts are suggesting that next week will be hotter and sunnier due to a high-pressure system moving towards the UK. This means that we expect suppressed demand both in terms of less people requiring heating as well as solar generation further offsetting demand. This high-pressure system does mean that wind forecasts will be lower than seasonal norms. Compared to this week we do see a drop off in terms of Biomass, Nuclear and CCGT’s reducing by 300MW, 100MW and 2300MW respectively.