Rollercoaster prices highlight changing energy system

Our energy system is in the midst of significant change and prices are becoming increasingly volatile. Chris Smith, Head of Renewable Sales, discusses recent spikes in the cash-out price.

Increased intermittent renewable capacity on the network and reduced conventional fossil fuel generation due to closure or planned and unplanned plant outages, has led to significant power price volatility in the balancing market.

This gives an indication of future cash out price volatility as we move to PAR 1 and further reduction in the traditional baseload generation.

The impact of the changing power generation stack has been evident over the last 7 days where prices have swung from the third highest cash-out price peak to near zero in the middle of the afternoon.

Last Wednesday, the cash-out price - also known as the electricity imbalance (or system sell) price – hit £1,509.8/MWh, as low solar and wind generation, reduced interconnection capacity and a series of plant outages tightened margins.

Although it had hit £1,528.7/MWh in November 16, that was during a period of European-wide price pressure linked to the French nuclear fleet and a traditional period of higher demand.

This combination of factors led to the high prices seen under the cash-out system and increases the financial case for responsive and flexible generation.

On Sunday, fluctuations renewable generation levels were also a factor in the very high levels of volatility seen in system prices. They fell to £6/MWh for three half hour periods before swinging back up to £50/MWh. This has significant implications for both generators and users of power.

Many power buyers are looking at more active purchasing strategies, handled either internally or by working more closely with their supplier. In this increasingly volatile world, no one size fits all in terms of electricity contracts.

The more innovative suppliers in the market like SmartestEnergy are already reacting to the changing landscape by developing new products and services for both energy buyers and generators.

Given price volatility is only likely to increase in the years ahead as more renewable generation comes on stream, it is an issue businesses will need to embrace in order to help control budgets.

> Watch our ManagedPPA video