This week: High solar generation and the second UKA auction clears at £44.75/mt
Here comes the sun
Solar generation has been the leading story in the energy mix this week. We didn’t quite see a new record for overall solar generation, which stands at 9.68GW, however, for the first three days of this week solar reached above 9GW, peaking at 9.42GW at midday on Monday. Demand is always lower on a bank holiday, therefore, solar generation was accounting for about a third of the energy mix. The large majority of solar power is embedded generation, acting as a demand offset for National Grid forecasting as the Grid does not have sight of this generation. Demand dropped below 20GW in the early afternoon due to a combination of both solar offset as well as people consuming much less energy whilst enjoying the sun. Overall, the power system has been well balanced this week with reasonable levels of wind and high solar suppressing prices slightly. However, these suppressed prices have frequently led to Physical Notification removal as CCGT’s can remove their original Physical Notification and still make a profit buying back their position. This means that despite a well supplied system, there was still a reasonable amount of system price volatility, frequently peaking and crashing from over £100/MWh to as low as £18/MWh.
The forward market goes backwards
This week we have seen drops in UKA’s and EUA’s. There was a second UKA auction this week which cleared at £44.75/mt which, at the time of writing, UKAs are trading at £46.25/mt for Dec 21. This is still 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. The drop this week could be due to a combination of the warmer weather and steady renewable generation which has added some bearishness to near term fuel and power markets. As was the case with the last UKA auction, the price of EUA’s also dropped and is just below the €50/mt mark, which is most likely due to traders selling their EUA’s to be able to buy more UKA’s. Interestingly, the UKA and EUA spread appears to be narrowing. Last week the UKA’s were trading at almost a €9/mt premium, whereas this has now halved.
Gas has still increased this week, despite these drops in carbon. Although solar generation levels look to remain high for the next 10 days or so, wind generation is forecasted to fall below seasonal normal levels for the same period. Gas fundamentals are looser across the EU, but lots of countries are injecting to try to recover storage levels, which are still below the 5 year average, from such a cold start to the year so there is still plenty of demand. Supply is also relatively tight due to ongoing maintenance works which is why gas hasn’t followed carbon this week.
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Outlook for next week
You’ll all be pleased to hear that the sun will continue to shine throughout next week, resulting in very healthy levels of solar power with higher temperatures suppressing demand. As mentioned, wind is forecast to drop below seasonal norms next week, predicting an average of just under 5GW. However there will be an additional 1GW of available supply due to the Netherlands Interconnector returning from maintenance next week. Availability across Biomass, CCGT’s and Nuclear stay very similar to current levels, with a slight increase in Nuclear of 300MW.