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Increased demand and a drop in renewable generation saw average day-ahead power prices soar by 235% in 2021, research by EnnAppSys has shown
In its GB electricity market summary, the firm said a colder than normal Q1 and low wind generation across Europe in the summer, along with increased global demand, meant the average day-ahead price across the EPEX and Nordpool auctions was £118.29/MWh, compared to £35.26/MWh in 2020.
Meanwhile, the previous record day-ahead price of £350.00/MWh was easily surpassed by a new record high of £2500.01/MWh, a 614% increase.
Additionally there were also significant increases in system prices, with 2021 seeing a high of £4,037.80/MWh, the highest imbalance price seen since £5,003.33/MWh in June 2001.
Following prolonged periods of lockdown in 2020, last year saw demand increase by 4% to 247.8TWh. The seasonal pattern of demand also looked more akin to those seen prior to and during 2019, without the sharp dip around March that was seen in 2020.
Demand in 2019 was 256.7TWh, meaning there was a decrease of 3% from 2019 to 2021. However, EnnAppSys explained demand has been decreasing year-on-year prior to the pandemic, meaning the decrease from 2019 holds this trend.
Paul Verrill, director of EnAppSys, said 2021 was characterised by high commodity prices, which fed through into wholesale prices and then into higher bills for consumers.
He added: “A cold winter from December 2020 to February 2021 reduced Europe’s gas reserves, which were then further depleted over the summer months by extended periods of low wind generation; this required more gas and coal generation across Europe.
“All of this has occurred against a background of increased demand for LNG and geopolitical issues around gas supply. The overall effect of these factors drove gas prices to extreme heights in the second half of 2021. These have continued in 2022 and the market indicates that they are set to stay high for some time.”
As well has soaring gas costs, he explained that electricity prices have also been driven by a scarcity of generation brought about by issues such as the 1GW IFA interconnector fire, as well as nuclear outages.
Verrill added: “The design of the GB capacity market, which aimed to keep a healthy generation margin in the market, has led to some of the problems.
“This ‘capacity crunch’ against a background of lower wind has led to generating assets seeking very high prices to assist in balancing the grid, leading to Ofgem expressing concern about market participant behaviour.”
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