All Time High: How UK Power Prices Jumped to Record Levels


All Time High: How UK Power Prices Jumped to Record Levels

January 22, 2021

This winter has seen record prices for UK power and frequent alerts about supply shortages as the National Grid scrambles to avoid blackouts. All this despite the country still being under the same lockdown with restrictions that caused plunges in demand in spring and summer.

Here at Hartree Solutions, we’ve been following the market’s every move providing insights, analysis and warnings of upcoming supply shortages that ultimately led to some extraordinary prices and volatile swings.

Hartree scenario price forecast. The z-axis represents different fundamental inputs and associated price forecast

The day-ahead price of UK power surged to just under £1,500 on January 12th on the N2EX auction1, which is the highest price ever recorded. This comes against a backdrop of a winter in which the Grid has already been forced to issue six urgent calls for suppliers to provide extra capacity with much of winter still ahead of us.

We have long disagreed with the National Grid’s assumption5 of peak demand falling by 4% this winter and have expressed our concerns that the UK was more vulnerable to blackouts than their modelling suggested. Far from falling, peak winter demand this season first surpassed last year’s level on December 7th before climbing further to reach a fresh high earlier this month.

With the wind now making up a much larger proportion of the UK’s energy supply, at times of low wind the UK is much more vulnerable to periods of tight supply margin, something we have seen played out numerous times already this winter.

Generation by fuel type from National Grid data

In early November, we witnessed National Grid issue two notification of insignificant system margins on consecutive days. Yet even at the peak of this apparent supply crisis with wind contributing the lowest amount of power for 17 days, 12.5% of that wind was curtailed by the system operator. In fact, payments to constrain wind farms in November reached a new record, totalling over £49m and adding up to £220m for the year to date2.

This counterintuitive action is the function of a system that still favours price over carbon when deciding the order in which to acquire power supplies. That’s why we’re calling for the UK to widen its priorities and consider the carbon impacts when balancing the system.

Throughout that unusual period in November, we were providing blow-by-blow analysis of the developing picture (on Twitter), including the switching on of rarely used gas turbines, with our forecasts proving accurate. We also made some interesting observations as the UK entered its second lockdown.  Our granular analysis identified an unexpected 200MW demand bump at 10:27 pm on November 4th as people enjoyed ‘tea and toast’ after returning home from their last evening of freedom!

National Grid Demand Data

The market has already thrown up some wild price imbalances this year with Uniper’s Connahs Quay power station being paid £2,750 /MWh on January 8th, which temporarily set the highest imbalance price ever recorded. However, that record lasted a matter of minutes with EDF’s West Burton gas station being paid a scarcely believable £4,000 /MWh and setting the highest imbalance price ever seen. Yet just a couple of days before that Beatrice, a wind farm, paid £781 /MWh to turn off its generation.

Maximum monthly half-hour imbalance price. National Grid data

2021 has also seen the decoupling of the UK from European power auctions leaving two separate, independent UK day-ahead hourly auctions post-Brexit. These auctions have seen differences of £500 in their results even though they are just 40 minutes apart. The delta between the two, although not as extreme, has continued throughout January and we have been promoting the reimplementation of a single UK auction post-Brexit to spare consumers having to bear the added costs, risks and inefficiencies of having two unnecessary separate auctions.

Nord Pool N2EX UK1 Auction result and the EpexSpot UK3 Auction results

These extreme power prices have been limited to the UK while neighbouring interconnected markets have shown a limited reaction to the UK’s volatility. While Belgium, France and the Netherlands have been able to enjoy relatively benign prices this winter, the UK’s reliance on interconnector flows has left it more vulnerable to periods of cold weather and low wind generation.

EPEX3 Spot European day-ahead auction results

Gas has also endured a volatile few weeks with huge price spikes as cold snaps in Europe and Asia have coincided with LNG liquefaction facilities around the world being plagued by unplanned or extended outages. This has resulted in Asian utilities battling to buy any cargo they can lay their hands on, seemingly irrespective of price. JKM, Asia’s benchmark LNG contract, surged to its highest on record at $32.50/MMBtu while on the physical market, cargoes have been sold at high $30s.

ICE4 NBP and JKM front-month prices

This is in stark contrast to the situation we had in the summer when JKM was below $5/mmbtu. With Asia willing to pay so much for LNG, Europe has had to rely on storage withdrawals for such an elongated period that the very healthy storage levels at the start of winter are fast disappearing. Last week saw prices across Europe rocket amid fears of storage being almost empty, long before the end of the winter.

With so much volatility in the energy markets, Hartree Solutions’ trading expertise can not only protect your company but ensure you benefit in this unprecedented transition to net-zero. By building, owning and operating low-carbon assets, co-located with your business, we guarantee you cheaper, low carbon power with zero capital investment.

More Market Insights

1 Nord Pool N2EX
2 National Grid Monthly Balancing Services Summary
3 Epex Spot
5 National Grid Winter Outlook

written by
Adam Lewis

More market insights

Wildlife Works Ranger Overlooking Kasigau Corridor REDD+ Project in Keyna (Photo Credit Lisa Kristine)

Unprecedented private sector finance deal to generate over $2bn to protect threatened forests, wildlife, and improve community livelihoods

Hartree Partners and Wildlife Works sign landmark voluntary carbon market deal Over 20 new high-impact…

  • Hartree Partners and Wildlife Works sign landmark voluntary carbon market deal
  • Over 20 new high-impact projects will be implemented in collaboration with forest communities to protect threatened landscapes in Africa, Asia, and Latin America
  • Project portfolio to generate 20 million tonnes of Verified Emission Reductions (VERs) each year for the 30-year life of the projects

Hartree Partners and Wildlife Works announce a ground-breaking deal that will generate over $2bn of private sector investment to enable communities to protect biodiversity and forests at risk from deforestation.

13 million hectares of tropical forest, an area the size of Greece, is currently lost to deforestation every year. But, to keep the increase in global temperature below 1.5 degrees in line with the Paris Agreement, more than three quarters of deforestation must be stopped by 2030. Thousands of companies are addressing the climate emergency and, with voluntary carbon markets playing an increasingly prominent role, the demand for Verified Emissions Reductions (VERs) is forecast to outstrip supply.

Hartree Partners, a leading global energy and commodities trading company, and Wildlife Works, an innovative global conservation company, will help meet this surging demand by partnering to invest, develop, manage and market one of the world’s largest portfolios of avoided deforestation projects. Hartree’s investment is effective immediately, with the projects expected to begin delivering VERs by 2023.

The deal, which will increase the availability of high-quality, verified, avoided deforestation projects by approximately 40%, will reduce emissions from deforestation by 20 million tonnes each year and 600 million tonnes over the 30-year life of the projects – equivalent to taking 4.3 million cars off the road.

The partnership will develop more than 20 high-impact projects in collaboration with local communities to improve livelihoods while preserving and protecting forests and wildlife.

The ground-breaking deal was facilitated by Everland, the exclusive marketing partner of Wildlife Works. The portfolio will be marketed by Everland and Vertree, a joint venture formed between Hartree Partners and sustainability leaders SYSTEMIQ.

Ariel Perez, Partner at Hartree Partners, said:
“The scientific community agrees that the world cannot keep the increase in global temperature below 1.5 degrees without significant support from global businesses. Hartree Partners is proud to be providing substantial long-term investment in nature-based solutions through this partnership. We’re delighted to be working with such experienced partners as Wildlife Works to ensure that these projects reduce emissions, protect highly threatened species, and enhance the wellbeing of thousands of people in these forest communities who hold the key to stopping deforestation.”

Mike Korchinsky, Founder and CEO of Wildlife Works, said:
“While those in the Global North continue to debate what they want from climate action, our partners in the Global South urgently need just and effective solutions now. With Hartree Partners’ financial backing and carbon market expertise, we can implement our just and inclusive climate, community, and biodiversity solutions in many more forest communities where they’re desperately needed.”

Wildlife Works’ proven approach addresses the drivers of deforestation in last-chance ecosystems while rewarding communities for protecting forests and biodiversity.

The portfolio of projects announced today will meet global best practice standards for nested projects under VERRA, including: the Voluntary Carbon Standard (VCS); the Climate, Community and Biodiversity (CCB) standard at the gold level; and the SD Vista standard to verify project contributions to the UN Sustainable Development Goals, and can make a significant contribution to host country Nationally Determined Contributions (NDC) under the Paris Agreement.

Gerald Prolman, CEO of Everland, said:
“Hartree’s financial commitment to Wildlife Works will help give forest governments, landowners, and communities long-term financial confidence as they consider valuing their standing forests under REDD+. The VERs will be offered to businesses as an essential tool they can use as part of their transition plan towards a low-carbon future. It is our hope that this partnership’s bold commitment to rapidly scale REDD+ projects will inspire more private sector action at the critical speed and magnitude that is so desperately needed.”

Read Article

Additional grid capacity arrives at Peterlee

As the energy revolution advances, the UK grid continues to transition towards a more sustainable…

As the energy revolution advances, the UK grid continues to transition towards a more sustainable future. Until the UK is at the point where it can run 100% of the time on 100% renewable energy, it needs some additional support as it moves further and further away from large scale coal-fired plants. During this time of transition, additional resources are needed to support the National Grid to ensure businesses can continue to operate and domestic consumers are not impacted. The need for grid flexibility has increased in importance with so many people working from home during the Covid-19 pandemic.

This week our Peterlee site took delivery of two 2MW units that will be available to support the National Grid. The onsite generation units will provide balancing services and flexibility as the UK grid continues to try and balance the growing renewable assets available. By setting up another site, we ensure we are playing our part in keeping a consistent power supply to the UK. Once fully commissioned this site will be able to provide an additional 4MW of power to the grid when it needs it most.

Unit arrives and is offloaded at Peterlee.
Read Article