Reduced Margins send Shockwaves through the UK Electricity Market


Reduced Margins send Shockwaves through the UK Electricity Market

September 16, 2020

Yesterday, Tuesday 15th September 2020, low wind paired with high demand created system tightness, prompting intraday prices to spike over the evening.

The market had priced tightness at the day-ahead stage, with Monday’s 11 AM auction for delivery Tuesday pricing at £64.9/MWh baseload[1], the highest since January 2019. This was a result of low wind and high demand forecasts.

Source: EPEX Spot Auction Results[1]

The highest hour, starting 6 PM, priced at £171/MWh[1] as suppliers looked to secure their customer demand ahead of time, simultaneously allowing generators to lock in a profit. The bullish sentiment increased throughout Monday with the later half-hourly afternoon auction edging higher at £68.3/MWh baseload[1].

With Hartree’s proprietary forecasting models and analytical expertise, we anticipated tightness in the system and high prices as a base case, with significant upside over several of our sensitivity scenarios.

Source: Hartree Internal Forecasts[4]

Coming into Tuesday, it quickly became clear that the system was tighter than previously forecast on Monday. Firstly, demand was out turning ~2GW higher than the prior day, and wind generation in the UK was underperforming against forecasts. National Grid De-Rated Margin forecasts were decreasing as the day evolved, increasing the possibility of a strong Reserve Scarcity Price over the evening peak. In way of an example, the 8h horizon Loss of Load Probability (LoLP) forecast for the half-hour 18:00-18:30 stood at 0.71[2], which multiplied by the Value of Lost Load (VoLL) £6,000/MWh[3] gives a Reserve Scarcity Price of £4260/MWh. Any short-term operational reserve (STOR) volumes called on by National Grid would be re-priced at this Reserve Scarcity Price, increasing the likelihood of this becoming the final imbalance price. This warning signal kicked the intraday continuous market into overdrive, as market participants looked to position themselves in preparation for high prices at delivery.

Source: National Grid Demand Data[2]

At 1:04 pm National Grid issued a Capacity Market (CM) Notice for 5:30 pm, quoting the low De-Rated Margin. This was the first time such a warning had been issued since November 2016. This had a slight cooling effect on prices, as any CM contract holders were highly incentivised to fire up generation to help cover the anticipated shortfall in power. CM actions have no direct effect on the imbalance pricing mechanism. That being said, by 2 pm the 2-hour period starting 5 pm was trading at £440/MWh[1], far above the day-ahead auction.

Source: National Grid[2] and EPEX Spot[1]

At 2:05 pm National Grid subsequently cancelled the CM notice. This re-kindled the fire in the intraday market, with volumes stepping up alongside prices as delivery approached. By 5:30 pm, the 6:00 pm contract had traded north of £1,000/MWh[1] as the possibility of a £2,160/MWh Reserve Scarcity Price looked ever likely. Although National Grid had published volumes marked as Balancing Services Adjustment Data (BSAD), they were not STOR flagged, meaning that the Reserve Scarcity Price would not come into play in the imbalance price calculation. Instead, it would be the BSAD and Balancing Mechanism actions which set the price through the PAR-1 pricing structure.

This nuance of the pricing mechanism highlights the need for in-depth expertise and understanding of the UK electricity market rules, a market which Hartree has operated in for over a decade. With our experience and market access, we can optimise generation, both grid-embedded and behind-the-meter, to navigate volatile times such as these and deliver both income and savings to our customers – no matter the situation.

More details on the pricing mechanism

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[1] EPEX Spot
[2] National Grid
[3] Elexon
[4] Hartree Solutions

written by
Kit Elliott

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Kansai Electric Power Group and Hartree Partners sign first term contract in Japan coupling LNG supply with carbon investments. 

Japan, 14th December 2023: Japanese power company, Kansai Electric Power Group (Kansai Group), has signed…

Japan, 14th December 2023: Japanese power company, Kansai Electric Power Group (Kansai Group), has signed a binding term agreement with Hartree Partners for the supply of LNG alongside investment in a nature-based carbon project in Australia, the first deal of its kind in Japan. The deal represents Kansai Group’s long-term commitments to decarbonisation and the provision of low-carbon energy for its customers. 

This LNG supply agreement enables KE Fuel Trading Singapore Pte. Ltd (KEFTS) to grow its LNG portfolio which will support Kansai Group’s LNG supply-demand situation and customers around the globe.  

Also, through its expertise in global carbon markets and its project portfolio in Australia, specifically focused on nature restoration, Vertree Partners, Hartree’s global carbon market arm, will support The Kansai Electric Power Co., Inc. (Kansai Electric) to access future supply of high-integrity carbon credits to support its Zero Carbon Vision.  

Both companies will explore potential opportunities to support Japan’s national net zero targets in areas such as LNG, renewable energy, environmental products and carbon capture and storage (CCS). 

Hartree Partners is a well-established global energy and commodities firm with decades of experience in the physical and financial energy and commodities market. Its wholly-owned subsidiary, Vertree Partners, is focused on decarbonisation and environmental markets.  

“Carbon credits have an important role to play in realising a zero-carbon society,” said Hideaki Ikai, Executive Officer, Operation and Trading Division in Kansai Electric. “Kansai, as a leading company of zero-carbon energy, is proactively studying ways to create a carbon neutral society, and I believe that this collaboration with Hartree Partners will accelerate our activities to achieve the goal of carbon net zero by 2050.” 

Shinichi Kudo, Chief Executive Officer, KEFTS, added “The combination of LNG and carbon credits will give us a promising option to attain our mission to provide our customers with stable energy supply and decarbonization solutions.” 

Ahmed S Al-Awa, Managing Director of Hartree Partners Singapore Pte. Limited and a Partner of Hartree Partners, said “this forward-looking move by Kansai Electric Power Group sends an important signal that carbon markets are likely to become a key component of the natural gas/LNG value chain as the sector moves to decarbonise.” 

Ariel Perez, Managing Partner of Vertree Partners added “We are committed to supporting Kansai Electric Power Group to make credible investment in the carbon market. The market is evolving rapidly, and companies may be increasingly exposed. Investments such as these support future preparedness whilst also directing finance to nature-based solutions, without which we face continued environmental degradation and eco-system loss and increase the risk of missing our global climate goals.” 


About The Kansai Electric Power Co., Inc. 

Kansai Electric Power Group, as a Japan’s leading electric power company, is aiming for carbon neutrality throughout the entirety of its business activities by 2050 to limit global warming, while increasing energy independence to secure energy supply for its customers, Kansai Group can be found at https://www.kepco.co.jp/english/ 

About KE Fuel Trading Singapore Pte. Ltd 

KEFTS, a 100% subsidiary of Kansai Electric, was established as an LNG trading arm of Kansai Group in April 2017. KEFTS has been supporting Kasai Electric’s LNG supply-demand balance and providing LNG portfolio for customers around the globe, and now enhances its activity to support Kansai Group’s carbon neutrality at its base in Singapore.

About Hartree Partners  

Hartree Partners, LP is a leading global energy and commodities firm with an international reputation for integrity developed over decades. Our expertise enables us to capitalise on the transition from fossil fuels to a low carbon economy. Hartree’s global breadth and reach provide a competitive presence in a comprehensive range of commodity markets, enriched by the firm’s employees who add deep insight, expertise and innovative thinking. More information concerning Hartree can be found at www.hartreepartners.com 


About Vertree Partners 

Vertree Partners enables leading companies and institutions to invest in both nature and innovative climate technologies to assist them in reaching their decarbonisation goals. Founded in 2020, Vertree is focused on driving positive environmental and social impact, and providing its customers access to existing and future supply of high-integrity environmental commodities. It does this through directly financing quality emissions reductions and removals projects; partnering with renowned project developers; investing in innovative organisations and technology-based solutions; and providing its expertise in voluntary and compliance markets, trading, market analytics and risk management. Vertree is wholly owned by Hartree Partners. 



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“With the Federal and State goals for accelerating the energy transition, the US will be one of the fastest growing solar markets in the world and a core strategic priority in realizing AMPYR’s ambition of becoming one of the largest independent renewables developer and operator globally,” said Saurabh Beniwal, Partner at AGP and Board Chair for AMPYR USA.

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“We are excited to take another step forward with AGP into the US market,” said Stephen Semlitz, Managing Director of Hartree. “This new venture allows us to further demonstrate our decades of experience in finding investment solutions, consulting, and generating sustainable and commercially viable strategies for energy renewal and regeneration.”

To learn more about the new US venture visit: www.ampyrenergyusa.com

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