Power curve weakens, as supply concerns ease
The Haven Power market report brings you up-to-date on weekly changes in the energy market. Here’s what happened over the last 7 days, starting 3rd December:
- Prices fell at the front of the UK curve, as mild temperatures and high winds reduced supply concerns.
- Brent Crude Oil dipped below $58/bbl. before lifting again after production cuts announcement.
- Day-ahead contract retreated to summer level.
- The UK power curve lost value over the week, following the weakening of wider commodities
Once again, wind output had a heavy hand in directing prices in this part of the market. High day-ahead prices for delivery on 4th December, when wind output was predicted to be low, were followed by a slide in prices as wind output was expected to increase.
The highest price for day-ahead baseload power was for delivery on 4th December, when forecasts for cold weather heaped premium into the corresponding National Balancing Point (NBP) gas product. Along with the lower temperatures increasing gas for heating demand, low wind forecasts also added value to the gas contract. In addition, wind output was expected to fall from 10GW on 3rd to around 2GW for much of the 4th.
The price for delivery on Saturday 8th December - £50.60/MWh - wasn’t only the lowest of the week; it was also the lowest for day-ahead power delivery since the end of July. Rising temperatures towards the end of the week, and the expectation that wind output would average around 9GW across both weekend days, removed considerable premium from the power price.
Reasonably dramatic rises and falls in wind output contributed to spikes and troughs in imbalance prices during week 49. The intermittent nature of wind generation caused National Grid to take fast, and sometimes expensive, actions to keep the UK system balanced.
The highest price for the week was for settlement period 34 (16:30-17:00) on 9th December, when the final price reached £170/MWh. The UK system was over 1000MWh short of being in balance, forcing the system operator to buy extra output from generators. The final price was set by Peterborough gas-fired power station, which increased output by 8MW overall and contributed 4MWh during the settlement period. Other notable contributors were Carrington, Severn Power Unit and Langage, all Combined Cycle Gas Turbines (CCGTs).
The week’s lowest price of -£64.66/MWh was the final one for settlement period 8 (03:30-04:00) on 7th December. Demand at this point was just 26.7GW and wind contributed 10.8GW, or 40%, of the generation stack. National Grid accepted negative bids from numerous wind farms to turn down generation output, resulting in the negative final price.
Renewables and other
Wind output bottomed out at just 1.5GW during the early evening of 4th December, contributing just 3.1% to the generation stack at the time. In contrast, when wind output was at its highest - 14.8GW on 7th December- it was contributing over 32% of the UK fuel mix.
The combination of mild temperatures for this time of year, generally bearish (falling) gas prices, and relatively high wind output mean there’s less concern than normal about supply during December. This led to the price slide at the front of the power curve.
Secure and promote* (Seasons +1, +2, +3, +4) baseload contracts all lost value during a generally bearish week of trading. The front season, the summer-19 contract, lost the most value - a decline of over £1.40/MWh between the market opening on Monday and closing on Friday. At its lowest point on Thursday, this contract was trading at a discount of over £2.50/MWh although it recovered some value on Friday 7th.
For most of the week, power prices tracked downward movements in the wider fuels complex. European carbon, coal and the Brent Crude Oil benchmark were all on a generally bearish trend over the week. Brent Crude dipped to below $59/bbl. during trading on 6th December, ahead of the Organisation of Petroleum Exporting Countries (OPEC) meeting in Vienna. Following OPEC’s agreement to cut production, the oil benchmark then saw relatively large gains, climbing back over $60.50/bbl. and dragging the wider fuels, gas and power contracts up with it.
*For more information about Secure and Promote, please consult this Ofgem web page.
The annual power graph shows how the value of an annual power contract changes over time. The annual contract value is the average of the front two seasons, currently Summer 19 and Winter 19.
To help you make sense of the industry, you can also use our jargon buster and handy guide to Third Party Costs (currently 60% of your bill). And for interesting articles and useful insights, look out for our blog.
Report written by Thomas Stebbings and Ben Symonds, Haven Power’s Portfolio Analysts. To speak to them, or the rest of our Flex & Portfolio Management team’s analysts, on 01473 707755 quoting reference HP250.
Although we’ve made all reasonable effort to verify the information in this report and provide the highest possible accuracy, Haven Power Limited gives no warranty - express or implied - in respect of this information. Furthermore, our provision of this report does not constitute advice of any kind and readers should not take it as the basis for any commercial or financial decisions. You should make any such decision based on your own records, knowledge and perception of power market data, supplemented with appropriate independent expert advice when required.