‘Suppliers spent a long time ignoring spot markets’

Average power prices over the past two weeks have been eight times higher than the average in 2019, according to data from EnAppSys.

The figures highlight how turbulent September has been, with this morning’s (15 September) fire at the IFA interconnector adding to the problems.

Phil Hewitt, director of the energy market analyst, said further supplier failures were inevitable and that retailers should be lobbying Ofgem to give them some relief from the price cap. He said many suppliers had been far too relaxed about actively trading in the intraday and advanced markets.

In the latest day-ahead auctions for tomorrow, there was a new record peak price of £1,860/MWh on the EPEX market, although Nordpool’s £1,500/MWh was lower than the previous day. Similarly, EPEX’s baseload price was a record high of £422.46 but Nordpool’s £414.88 was slightly lower than the heights of the day before.

Hewitt described the interconnector fire as a “major event”, adding: “With margins tight anyway for this winter, as exposed by National Grid ESO’s early winter outlook publication this year, it puts the GB market in a risky position for the winter and especially if we suffer from periods of low wind and cold temperatures.”

Speaking to Utility Week, he said he did not expect the four suppliers that have exited the market so far in September to be the last ones.

He added: “A number of suppliers may not be properly hedged, some will be borrowing from their customers’ credit balances. I think we’ll see more go.

“They really need to go out in the market and hedge their position. The problem they have is that the price cap is lower than the market price, so they’re stuck. One of the things they are probably desperately asking Ofgem is to give them some relief from the price cap, whether that is raising it or suspending it.”

He went on to say: “A lot of suppliers spent a long time ignoring the spot market because it was relatively benign, ignoring intraday and the advanced market. It has usually just been treated as a manageable cost item. It is no longer manageable unless you actively trade it.

“A lot of small suppliers are overwhelmed with the job of just being a supplier – billing customers, handling complaints, managing meter operations, data aggregators. They just don’t have the bandwidth to manage the front office risk. They are the ones who are likely to get into real trouble.”