Power Market Prices - 2018 Review

2018 was a volatile period for power prices. Head of Renewable Sales, Chris Smith, reviews some of the significant trends and key market drivers. He goes on to consider the current market changes and considerations at play early this year.

In the UK last year, we witnessed a sustained period of power price growth across the summer. We also observed plenty of extreme price levels, with Winter 18 baseload power prices peaking close to £75/MWh on 10 September 2018 (£49/MWh: 2017). While Summer 2019 baseload peaked at £62/MWh, increasing from £40/MWh 11 months previously. The price spikes were partly driven by high carbon prices and a low output from both wind and hydropower facilities.

Solar power in the UK saw record generation, largely due to the prolonged heat wave throughout the summer months, which provided extended periods of sunshine that benefited solar generators. Notably, high air conditioning loads pushed up the day-ahead price across the weekday lunchtime periods.

Overarching 2018 trends

Analysis from Carbon Brief showed that overall electricity generated in the UK last year fell to its lowest level in a quarter of a century. The reduction was driven by more efficient appliances and lighting, as well as the continued shift away from heavy industry.

Output from renewable sources rose to a record high of overall capacity, generating an estimated 33% of the UK’s total generation in 2018. The expectation is that this trend will increase in 2019 with further offshore wind deployment and a continued reduction in UK demand.

A look back at the ‘Beast from the East’

The cold snap on 1 March 2018 last year saw UK gas prices surge in response to both power and heating demands. System prices reached £990 with extreme price volatility across half hours.

Coal filled the generation gap on 1 March 2018 to meet supply requirements. However, with only 10GW of coal remaining in the UK, and most expected to close by 2021, opportunities to switch on coal assets will be greatly reduced. In the future, gas generation will be required to meet the gap in periods of ‘significant system stress’.

Price movements over the festive season moving us into 2019

Due to wind generation remaining low over the festive season, day-ahead power prices were relatively strong. Day-ahead N2EX auction prices saw a well-supported maximum of £175 (17:00 – 18:00 on 26/11/18) and a minimum of £9 (04:00 – 05:00 on 8/12/18).

Meanwhile, the system price saw a larger spread. Settlement period 19 on New Year’s Eve delivered negative pricing (-£65) due to low demand. However, it soon bounced back on delivery for 1 January 2019, as the overnights delivered at a system price of £22/MWh due to high wind and low demand.

Related to negative pricing, it’s interesting to note that there were 33 number settlement periods that delivered negative pricing from 1 October to 31 December 2018 (66: 2017).

Peak demand has also remained low this Triad season, the peak demand is still at 45.2GW (17:00 to 17:30 on 22/11/2018) for the period so far. Over 3GW lower than 2017/18’s peak figure of 48.5GW.

Current Market trends ‘Winter 18’

Winter 18 has seen the UK well supplied with gas this winter due to the number of liquefied natural gas (LNG) cargoes available and the new supply pipeline from Norway. Temperatures have been above seasonal norms, with demand continuing to fall particularly over peak periods. Further increased embedded ‘peaking generation’ has come online this winter.

So far in 2019, gas is being imported to the UK to a greater degree than mainland Europe. This is due to the National Balancing Point-Title Transfer Facility (NBP-TTF) spread remaining above the UK import charge.

The period of cold weather has seen Feb 19 trade up £2 per MWh across recent days.

In summary, we saw a lot of volatility throughout 2018. If these trends continue in 2019, it will become ever more important for industry players to keep a keen eye on price drivers and related insights.

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