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Considerable challenges for generators

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The new electricity market pricing system that came in to effect on Thursday 5 November will place even more responsibility on generators to improve the management of their supply imbalances or face much higher pricing penalties.

That’s the view of energy data analyst EnAppSys, who believes the impact of the new mechanism will raise the stakes considerably for generators that fail to produce what they forecast – and those who fail to manage the balance between supply and demand.

Large power producers will have to finalise their generation profile one hour ahead of time and cannot then deviate from this. If a power supplier has a problem within this hour period it cannot generate at another station or else buy power from the market to bring itself into balance. 

National Grid balancing manages supply and demand on a real time basis with payments made to and from generators and large demand sites, to increase and decrease their supply or demand, with the net volume position determined by whether the system is undersupplied or over supplied.

Under the new system there will only be one price for imbalance, based on an average of the highest priced net 50MWh of energy volume trades made by National Grid.

The new system also incorporates a default ‘penalty’ price of up to £3000/MWh (50x market price) to apply at times when significant system actions have to be taken to ‘keep the lights on’ with this price rising after 2018 when the first capacity market delivery year commences.

The result could be much higher volatility in prices, with those on the wrong side of the supply equation potentially being penalised much higher than previously and those on the right side of any imbalance receiving payments potentially well in excess of the normal market prices. 

The expected outcome of the changes will be a greater emphasis on accurate forecasting output of intermittent generation, better forecasting of demand and ensuring the reliability of generation.

Paul Verrill, director of EnAppSys said: “All of this comes at a time of traditionally high prices and tight supply margins which will increase the pressure on power companies to get their forecasting right.

“Introducing this change in November, at the start of the winter season, is certain to make electricity industry market credit and risk managers very nervous.

“We therefore expect a very conservative approach in the market initially, but with the existing complexities of the GB market, working with the new mechanism will undoubtedly be very challenging.

“We believe this will be a positive move in the long term, helping to deliver increased value for those demand sites and generators that can offer flexibility in the GB electricity market to balance its supply and demand issues without the System Operators intervention, and should also allow greater renewable generation going forward”.

I would be very interested to hear your views.

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