Rather unsurprisingly, the UK saw record-breaking power prices in Q3, with margins of generation versus demand squeezed ever tighter due to very low wind output.
These are the findings from EnAppSys’ latest report into the UK electricity market, which saw system prices, day-ahead prices and within-day off-peak prices all shooting up dramatically over previous quarters.
However, what was causing all these issues? Well, it was predominantly due to the high cost of gas, but the UK was hit by a perfect storm of other problems.
While wind power is becoming an ever-increasingly important source of electricity, it’s also an intermittent source. Unfortunately, the weather decided not to play ball as gas prices skyrocketed, and as such wind speeds were rather low – causing a drop in the generation of electricity from wind turbines.
However, the blame cannot be placed purely on a drop in wind power generation, as nuclear power plants were also not pulling their weight during the crisis. In fact, several reactors across the UK were enjoying some unplanned downtime at the peak of the crisis, with many reactors not coming back online until later this month.
Of course all these factors, as well as a fire at IFA1 and unfavourable conditions for solar, meant that the UK found itself in a perfect storm – just not a physical one that could have spun those wind turbines.
Paul Verrill, Director of EnAppSys, commented, “High wholesale electricity prices throughout the quarter were driven by gas prices, which were already high at the start of the quarter at £31.37/MWh and continued to rise further as the quarter progressed. The price passed £50.00/MWh on September 13 and closed the quarter at £72.01/MWh, showing no signs of easing. A major contributor to this is the global gas shortage, with total European stored gas reserves not yet replenished after a long winter and being around 25% lower than the same period last year. Indeed, these reserves were lower than in any Q3 since 2015.
“Carbon allowance prices were also at an all-time high, rising consistently from August onwards and peaking at £75.57/te on the penultimate day of the quarter. This also fed into the high level of wholesale electricity prices seen throughout the quarter.
“The break-even cost of gas generation increased to such a degree that by mid-September, at times it became cheaper to generate using the least efficient coal units than the most efficient gas units.
“The record prices were also driven by lower wind output, which was 28% down on levels seen in the same period last year, while low nuclear utilisation and unfavourable conditions for solar further reduced supply margins.
“Looking ahead to Q4, if levels of renewable generation remain low, trends of high prices are likely to continue into the winter.”
Due to the low levels of renewables and nuclear, interconnectors from the continent saw record level import volumes, although a fire at the IFA interconnector in September reduced capacity in the last two weeks of the quarter.
Gas and coal made up the majority of the generation (42.5%), while renewables accounted for 29.1%. Imports (12.4%) and nuclear (16.1%) made up the rest of Britain’s power mix during the quarter.
Verrill continued, “Average APX prices reached £128.59/MWh, a 78.1% increase from Q2. System prices peaked at a record £4,037.80/MWh on September 9. This was the highest imbalance price seen since the £5,003.33/MWh in June 2001, shortly after NETA Go-Live, breaking the next highest for this year that had been set on January 8 2021 at £4,000.00/MWh at 19:00 and 19:30. The average system price was £126.14/MWh, the highest of any quarter back to the start of our dataset in Q4 2011, with the next highest being an average of £74.85/MWh in the previous quarter.
“Auctions for the UK Emissions Trading Scheme allowances launched in May 2021, with clearing prices initially higher than those for the EU scheme that it replaced, amounting to £48.01/te for GB compared with £42.37/te for EU. They had converged to within around £2.00/te from June until September, but then diverged with GB prices peaking at £75.57/te on September 29, while EU remained under £55.00/te.”
The third quarter of 2021 also saw 10 energy suppliers cease trading amid the surge in wholesale gas prices, most notably Avro, Green and People’s Energy. In total, more than 1,840,000 customers were affected.