ICIS outlines winter challenges to UK wholesale market

Market information provider, ICIS, is reporting a consistent influence on the UK wholesale energy market from factors such as the ongoing Ukraine conflict and legislation such as the Large Combustion Plant Directive.

The data being compiled by the independent agency also indicates the squeeze on spare power capacity, which the UK government must confront, as winter fast approaches.

Zoe Double, Head of Power at ICIS, told Power Engineering International that this year’s mild weather is also having an impact.

“So far this year we’ve seen much lower gas prices because we’ve got much more in storage (due to last year’s mild winter) and we’ve also seen additional Liquefied Natural Gas (LNG) deliveries from Asia, so we’re pretty much over-supplied. For the year to date there’s a general downward trend but also with a lot more volatility because of the risk premium associated with Russia and the Ukraine.”

“(The dispute) has had a big impact on the UK gas price, not directly as the UK doesn’t actually import gas from Russia, but the danger of the UK having to export to Europe to cover any gas shortage in any EU markets should Russia turn the gas off. That Ukraine tension has led to some quite significant day-on-day price rises. About six or seven of the ten biggest price moves this year were related to Russia and the Ukraine.”


Nuclear power plant
closures, due to safety checks, have further reduced capacity and the ICIS Power Index notes also the effect of enforced coal-fired power plant closures.

“The UK power market itself is relatively short of spare capacity at the moment partly because of the Large Combustion Plant Directive which turns off the older coal-fired plants and partly because of an awful lot of coal-fired plants going into maintenance.”

Besides coal and nuclear, gas prices are still a risk premium due to the Russia-Ukraine crisis, according to Double.

“It hasn’t been resolved yet and both parties haven’t reached agreement on how Ukraine pays Russia for its gas. But besides that we’ve also got a certain amount of risk premium in the power market itself because there is a lot less supply margin in the market.”

The other bigger reasons for that declining supply margin, and subsequent pressure on wholesale prices, are well documented and a source of real concern for power utilities.

Energy efficiency and the increasing spread of renewable power have conspired to create lower demand for power, causing prices to fall. Some of that is down to the more efficient use of energy in the commercial sector, which accounts for about 50 per cent in the UK, with the other 50 per cent accounted for by the household sector. Households have been using 9 per cent les power now than they were at the turn of the millennium due to the proliferation of more energy efficiency appliances.

Meanwhile subsidised (wind and solar) electricity is meeting more and more of demand of what is left.

“To give you some idea, Elexon market data shows that for the first three quarters of this year we got 7 per cent of generation from wind alone and that compared last year with 4-5 per cent,” says Double. “This year hasn’t been particularly windy but we’re seeing more and more installed wind power capacity. It’s not even operating at maximum level yet.”

Another contributing factor in seeing the wholesale market picture is the growing extent of embedded generation in the UK.

According to Jamie Stewart, Editor, European Daily Electricity Markets for ICIS, wholesale prices are going down but it’s a smaller and smaller part of the total bill.

There is a lot of generation of smaller scale that never actually hits the transmission grid in the UK. What that does is lessen the amount of demand that we see in the wholesale market and at the same time people are getting that supply directly to their distribution group. These things are pulling down the prices that consumers are going to be paid in the long run in the wholesale market.”

In terms of the winter ahead Stewart says the closure of nuclear capacity “makes the start of winter a little tighter than you would normally expect for the UK.”

Although no notable temperatures dropped have been experienced so far, Littlebrook oil-fired power plant (which is due for closure in the Spring) was forced to ramp up for a couple of hours this week.

“That would only really come on when what’s called intraday prices, the very short term half hourly prices reach a very high level, but it does give you an impression of how tight the system can get for short periods, when we’re lacking all this nuclear capacity,” says Stewart. “That’s something worth keeping an eye on over the next month or so.”

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