UK capacity mechanism effective so far

Whilst it is still very early days for the Capacity Mechanism, the GB power market saw much less extreme pricing activity in September and October 2017 against the levels seen in the previous year, according to EnAppSys.

This has come as the price at which power has been sold via day ahead auctions has declined by 7 per cent against the average in 2016, with peaks over à‚£100/MWh declining from a total frequency of 29 hours over this period in 2016 to a total of just two hours in September and October 2017. The peak prices in this auction have also declined from à‚£305/MWh to à‚£150/MWh.

Capacity Market graphic
Rob Lalor, senior analyst at EnAppSys told Power Engineering Intnernational, “The highest price peaks in winter 2016/17 came in November 2016, so the system is yet to navigate the period that was most expensive last year – with some extreme price activity being likely – but with these extreme events as a whole being far less common in winter 2017/18 than they were in winter 16/17. This activity appears to stem from bothà‚ the impact of the Supplemental Balancing Reserve in 16/17 (3.5GW of required margin held as a last resort, but not used commercially) ending and from the stability provided by the Capacity Mechanism now it is active. Strong levels of wind generation have also supported lower prices over this period.”


Whilst the system prices that parties are charged (or paid) for any shortfall (or oversupply) in their position – a key metric for the underlying cost of balancing supply and demand in the system – saw peaks decline from à‚£1,117/MWh in winter 16/17 to à‚£177/MWh, the market has retained volatility due to the continued underlying nature of the market. Peaks above à‚£100/MWh haveà‚ only droppedà‚ from a frequency of 48.5 hours to 43.5 hours -à‚ indicating a similar frequency of peaky activity, but without the same extremes occurring due to these events.

“This leaves a market that still provides opportunities à‚ for both traders and generators, but not quite to the extremes seen previously,” says Lalor. “There remains plenty of positive opportunities going forward, but overall the market appears to have re-stabilised with the introduction of the Capacity Mechanism. This winter period has seen very strong wind levels so prices should still be slightly more extreme in future years, but the Capacity Mechanism does appear to be having one of its desired effects in returning stability to the market through a healthy margin.”

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