Tight margins mean harsh winter would be ‘very expensive’

Tight supply margins will mean balancing the market will be “very expensive” if the coming winter is harsh, according to analysis by consultancy firm EnAppSys.

There will be roughly twelve and a half hours of negative supply margins over the season, the analysis predicted, with seven hours falling during National Grid’s winter period, and another five and half hours falling in the ‘shoulder’ months of October and March.

EnAppSys also forecast 85 hours of supply margins below 2GW, with more than half coming in the shoulder months.

By comparison the firm calculated last year that the margin would be greater than 2GW all the way through the 2015/16 winter, apart from during just two hours when it would average 1,500MW.

The analysis was conducted by taking last year’s availability figures, modifying them to take account of the opening and closing of plants this year, and then matching them against last year’s demand profile.

Among the losses are Longannet and Ferrybridge, which were both shut down in March; Eggborough, which has exited the market but has a supplemental balance reserve (SBR) contract; and Rugeley, which Engie has confirmed is being closed down this month.

The two gains are Carrington combined cycle gas turbine (CCGT) plant, which is currently undergoing commissioning and is expected to come online over the summer, and Keadby CCGT plant which was reopened in November after being mothballed.

EnAppSys said the negative supply margins do not equate to blackouts as they do not take account of up to 2GW of smaller plants potentially available through the Short Term Operating Reserve or the roughly 3.5GW of capacity available through the SBR.

A number of new small-scale distributed generators which received capacity market contracts may also be available, it said, although they are likely to provide no more than 300MW of additional capacity.

Despite this, the analysis said the tight margins are likely to make keeping the system in balance “very expensive” if there is a harsh winter.

It noted that system prices tend towards £1,000/MWh when margins drop below 1GW and typically reach £2,000/MWh when margins are negative, and said margins going negative by more than 1GW will lead to the SBR being called up and the system price hitting £3,000/MWh.

Estimated monthly hours of low margins over winter 2016/17

Source: EnAppSys

The research said: “These high system prices will feed back into the wholesale market. High prices are not a bad thing – they encourage people to build power stations and engage with demand response. However, some small suppliers may not survive the winter.”

Last month National Grid issued a Notice of Inadequate System Margin (NISM) – the second time it had done so in a year. The highest price paid to a supplier during the NISM period was £1,250/MWh.