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“A day later, the new system would have come into play”
Commodity markets have always run on a combination of educated predictions, savvy and luck. But few would have predicted that the National Grid’s first notification of inadequate system margin (NISM) since 2012 would emerge on a balmy Wednesday in November.
It wouldn’t be the first time that a string of unrelated outages and low wind generation combine to leave the system tight and prices high. But this winter, when every megawatt counts, National Grid was forced to pay highs of £2,500/MWh to make ends meet.
Nonetheless, luck was still at play for the generators. Wednesday 4 November was the last day of the old cash-out regime, which averages the top end of Grid’s market actions to determine the penalty price for being out of balance. Had the NISM been called a day later, the new system would have come into play. First, this would mean that generators might have faced a far higher price for those unplanned outages if caught short against their contracted volumes. And once the supplemental balancing reserve was used, the cash-out price could have soared to £3,000/MWh – a huge hit for any smaller market participant with a less than reliable generating asset.
Then again, perhaps that’s where savvy comes in. Generators knew the new rules were coming and the time for maintenance is definitely before then.
National Grid expects further NISMs in the months to come, so all luck, savvy and careful predictions will no doubt be at the ready.
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