System price peak highlights UK power generation market complexity

A system price peak of à‚£1,510/MWh was reached on May 17th, according to energy data analyst EnAppSys ” 30 times the normal market wholesale price.

On that particular day, low output from solar and wind power saw flexible generation called into action, however the peak wholesale price did not have a huge effect on energy bills as May was a mild month overall.

May is usually consistently mild with system prices never rose above à‚£133/MWh in May in the six-year period running from 2010 to 2015, however higher activity has followed in more recent years.
These system prices ” the prices charged to parties for any undersupply over a half hour period ” are used to discourage any shortfalls in generation during particularly tight periods by imposing a large charge upon any shortfall. Pumped storage plants regularly provide small volumes of power at à‚£140/MWh to fill brief power shortfalls and so system prices up to this level indicate normal market conditions.

In contrast to the lower prices up till 2015, May 2016 saw system prices peak at à‚£480/MWh and May 2017 saw prices peak as high as à‚£1,510/MWh, showing how the market is becoming more complex as new generation sources have been introduced into the system ” with solar peaking at record generation levels in May 2017. Solar and renewable generation brings low unit price generation to the market and with subsidies the result can be negative prices (May saw negative system prices of minus à‚£73/MWh). The high prices in May demonstrates price volatility in the market where flexible generation that balances the system commands a premium and those that cannot balance suffer a high penalty.

Overall, the high prices have a limited impact upon bills because for most of the month of May system prices were very low as solar and wind ensured a very well supplied system. However, on the May 17th, 2017, the system saw one brief day of high priced activity as solar and wind generations were much lower than during the rest of the month and non-renewable generation commanded a premium to fill the gap.

Rob Lalor, senior analyst at EnAppSys, said: “As levels of renewable generation had previously been higher throughout the month, levels of availability at fossil fuel generators were reduced and this meant that the system had a scarce supply of fossil fuel plants to bring online to boost margins and ensure a stable evening of supply. This resulted in the application of a scarcity premium to account for the challenges faced by the system on this day, encouraging increased levels of availability in the market.”

“The day generally passed with no major incident and even saw day ahead prices ” the value at which a large volume of the market is priced ” peak around à‚£80/MWh on this day (a low value versus winter prices) despite margins being tight ahead of delivery.”

“This activity is extreme and is a strong indicator of the changing nature of power markets as levels of renewable penetration rise, but also an indicator of how the market adapts and responds based upon price signals to correct for any imbalances in supply that open up. On this day, the challenge to the system arose and the system responded accordingly.”

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