‘Perfect storm’ leads to record-high power prices

Wholesale power prices hit a new high over the weekend after low wind output, summer maintenance outages and high gas and carbon prices combined to create a “perfect storm.”

In an occurrence that has become increasingly rare outside of the winter season, a number of coal units were switched on to help keep up with demand.

EnAppSys director Phil Hewitt said power prices in the day-ahead auctions for Monday (6 September) averaged £230/MWh when weighted for volumes across the Nord Pool and EPEX Spot markets – a new record-high for baseload power over an entire day.

Even for overnight hours, power prices didn’t drop below £100/MWh, which Hewitt described as “quite extraordinary”.

The most expensive specific hour was between 6pm and 7pm for which day-ahead power prices averaged £731/MWh – the highest level seen since January.

Hewitt said low wind output coincided with the “shoulder” period between summer and winter when many power stations are still switched off for maintenance and “everybody’s not quite ready.” The Heysham nuclear plant only had one of its four units online and a number of gas plants were also out of action.

In response to the tight margins, National Grid Electricity System Operator (ESO) told EDF to switch on the two coal units at its West Burton A power station, which would otherwise be “sat well outside of the market”. The ESO instructed the unit to start warming up just after lunchtime on Sunday to be ready for the next morning.

“It’s not like a gas-fired power station, which needs about an hours’ notice,” Hewitt explained. “A coal station can need 12 hours if it’s cold.”

One of the units at West Burton ended up tripping but Drax also started up one of the two remaining coal units at its power station in Selby. Hewitt said these additional supplies meant prices were less extreme on the intraday market on Monday itself.

Hewitt said a new day-ahead record would not have been set if it were not for the high gas prices that have been seen this year. This meant high power prices were not just limited to the evening peak in demand and were instead spread across the whole day.

He said margins are looking less tight for the rest of this week: “The wind has come back a little, which has taken some of the more expensive power stations out of the stack because they’re no longer required.”

“We’ve also got Heysham coming back during the week so that’s another 1.5GW,” he added.

Hewitt said the power market is likely to see more high prices like this over the next few years: “The problem is we’re starting to switch off nuclear plants earlier than planned and by the end of next year we’re switching off at least another 2GW of coal – so the two units at West Burton and the two units Drax – so we’re going to have a shortage of big generation but we’re building a lot of small peaking generation to fill that gap.”

He said another 2.4GW of interconnector will also come online this winter to help plug the gap: “The North Sea Link begins commercial operation at the beginning of October. Electralink is just starting commissioning now.”

But he added: “When you get to that tight situation, especially when Germany really starts aggressively switching its coal and nuclear off towards the end of next year, we’re going to see higher power prices generally when things get tight, so there is potential for more excitement in the market.”

Commenting on its decision to switch on coal generation, a spokesperson for the ESO said: “In balancing the electricity system, we take actions in economical order and not on the basis of generation type.

“Depending on system conditions, some power sources may be better at meeting a balancing requirement than others – so the most cost-effective solution to ensure safe, secure system operation will be sought.

“We have a diverse range of generation types available to us to draw on to balance supply and demand, which is one of the reasons Britain has one of the most reliable electricity systems in the world.”