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The power price spikes in September brought massive windfalls for gas and coal generators, with a number of power stations each raking in tens of millions of pounds in profit during the month, according to analysis by LCP.
Rajiv Gogna, a partner at the consultancy, said its monthly ranking of estimated profits by generators was “completely dominated” by combined-cycle gas turbines (CCGTs) and coal plants.
Power prices reached record highs in September as a period of exceptionally low wind coincided with maintenance outages ahead of the start of the winter season – a situation, which was exacerbated by surging gas prices, which have continued to break records since then.
“We’ve seen a lot of news that particularly for consumers and suppliers this has been a very bad month but there some real winners on the generation side of things,” said Gogna at a virtual event hosted by LCP earlier this week.
He said large, flexible thermal assets “were being regularly being accepted at those very high balancing prices we saw – up to £4000/MWh.”
“As an anecdotal example for the scale of that – it’s true for a number of assets – one asset, Rye House, we estimated made £42 million of profit across the wholesale and balancing options in September 2021 versus £11 million in profit in the whole of 2020, so this was a pretty exceptional month for certain generators.”
LCP presented a list of 36 top-earning assets – all of them coal and CCGT units – with the lowest in the ranking estimated to have generated profits of nearly £15 million in September.
Gogna said September was also a very good month for batteries: “Most batteries have been operating in Dynamic Containment which is a frequency response service – that’s a very stable and lucrative revenue stream – but we did see over those first couple of weeks of September up to 75 per cent of batteries leaving that market to chase the wholesale market opportunities.”
When asked power prices should be prevented from reaching such heights, fellow partner Chris Matson said: “The argument for allowing prices to spike to these levels is to encourage new entrants and encourage investment.
“So, if you’re in a situation where you don’t have a capacity market and you want to make sure that you don’t have blackouts, then you need those high price events to incentivise new batteries; to incentivise demand-side response; to incentivise new gas peakers to be built.
But he added: “I guess the issue and the reason why it might not make sense to be allowing them to bid up well above what we think are their fundamental costs is that we do have a capacity market and the Capacity Market is in place to deal with the fact that those really high prices are not very bankable.
“That’s one reason for it anyway – to ensure that we’ve got enough capacity on the system to deal with these really tight periods and to give investors some revenue certainty by giving them 15-year contracts.
He continued: “If you’ve got them in place, and you’ve given them that revenue stream, and the Capacity Market is working – it seems to be working, we’ve haven’t actually had any blackouts – then from the point of view of the consumer and the point of view of the system, do you actually need those high price spikes anymore when they’re going above and beyond the costs of those units? Probably not.”
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