MPs question National Grid on Calon Energy’s £2.5k/MWh windfall

The Energy and Climate Change Committee (ECCC) questioned National Grid on its plans to keep the lights on, after a generator secured a £2,500/MWh payout hours after removing its plant from the market amid a National Grid supply crunch alert.

The one-off hearing examined the transmission operator’s plans to keep the lights on this winter and the next, including spiralling payments for generating assets at times of peak power demand which earlier this month reached £2,500/MWh.

Bloomberg market analysis shows that Calon Energy began to reduce output from its plant in the mid afternoon after National Grid issued its first Notice of Inadequate Supply Margin (NISM) since 2012, but then agreed to return the unit during peak demand hours for a market-topping price of £2,500/MWh.

But National Grid’s head of real time market operations Duncan Burt told the Committee that it is not unusual for generators to reduce power output depending on the amount they have sold into the market.

In a separate statement after the hearing Calon Energy said its Severn power plant “was contracted to run until 3pm. Accordingly, at 3pm it started to ramp down as is consistent with normal market procedure”.

National Grid’s director of UK market operations Cordi O’Hara told the Committee that it has given a large amount of data to Ofgem relating to 4 November market activity, and that a “constant feedback loop” is in place to ensure appropriate use of its market balancing tools.

“If not used efficiently we won’t be funded to use those tools,” O’Hara said.

A spokesman for Ofgem told Utility Week that there have so far been no allegations made against Calon, but it would “take enforcement action if needed”. 

Calon has denied any wrong doing saying in a statement to Utility Week that it “did not act outside the rules” on 4 November.

Calon’s market activities may add to concerns first raised in Utility Week last month that UK generators could exploit a regulatory loophole to inflate market prices this winter.

National Grid has removed three power plants from the market this winter to form a backup reserve to prevent blackouts, and has also contracted firms to reduce their grid demand when needed. But the operator can only call on these units after all available plants in the market have been ramped up, leaving generators free to name their price.

Supply margins for this winter are expected to be the tightest in seven years, and National Grid admitted that imminent coal-plant closures means it will need to contract “at least” as much reserve supply as it has done for this year.

O’Hara said the UK may lose another 4-5GW but it continues to analyse market data as it becomes available.