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UK power supply forecasts push September above October

05 Jul 2017 16:03 (+01:00 GMT)
UK power supply forecasts push September above October

London, 5 July (Argus) — The risk of a repeat of the tight power supply margins seen in September last year has lifted the month's base-load contract for this year to a premium to October in recent weeks.

Warm weather conditions over the past month have heightened cooling demand expectations for the remainder of the summer and the September base-load contract has gained a combined £2.25/MWh since the beginning of June, ending yesterday's session at £44.25/MWh. And with October having recorded only moderate gains over that period, September has risen to a premium of nearly £1/MWh.

The effect of cooling demand tends to be partially offset by solar power supply during the months of high summer. But by September, solar intensity begins to decline and output is limited by the time of peak demand during early evening. Lighting demand is also stronger during September evenings than in July and August.

And with a large amount of generation capacity still typically off line for summer maintenance in September, the power system is left susceptible to periods of extreme tightness during any period of warm weather.

Last year, the N2Ex base-load price auction for 15 September spiked to £123.61/MWh, when temperatures in London peaked at close to 30°C. And the price settlement for block 6 (19:00-23:00 BST, 18:00-22:00 GMT) on that day, during which period demand tends to peak but there is minimal solar power supply, settled at £482.85/MWh.

September is also the final month before the government's capacity market regime comes into force in October, meaning that it has tighter supply margin forecasts than most of the winter delivery months.

Transmission system operator National Grid's latest 52-week ahead supply margin forecasts show expectations for the minimum generation surplus to average only around 8.3GW during September, before rising sharply to 15.4GW during October.

The minimum supply margin during the first week of October is forecast at around 16.6GW, compared with just 10.6GW in the final week of September, as the capacity market regime comes into effect. But the surplus is forecast to narrow to around 12.6GW following the clock change back to GMT from BST on 29 October.

The capacity market aims to ensure security of power supply by offering generators an additional financial incentive to make their capacity available to the grid during any system stress events in winter. National Grid procured 54.4GW of de-rated generation capacity in the auction for winter 2017-18, which was held in early February. Winter system demand is currently forecast to peak at around 50GW in mid-December.

Periods of summer system tightness have been more likely to result in power market price spikes in recent years, as the grid is forced to call on coal plants that may be starting from cold and have expensive start-up costs.

With coal units now effectively acting as peaking facilities during summer months, plant owners have to recover their fixed costs within much shorter periods of generation than in the past, resulting in higher offers in the spot and balancing markets to incentivise operation.

But coal units with capacity market obligations for winter 2017-18 must be ready to operate if called on by the grid during any tight periods from October or plant owners will face strict financial penalties for unavailability when required.


UK power front three months base load £/MWh

UK power minimum supply margin forecast MW