UK 2Q clean sparks slump on low demand outlook

The UK power market is pricing in much lower gas-fired output in the second quarter of 2020 as a result of sharp declines in power demand.

The second-quarter clean spark spread for a 55pc-efficient gas-fired plant fell to just £3.98/MWh yesterday, down by £2.63/MWh since the beginning of last week (see chart). The third-quarter clean spark spread has fallen by £1.20/MWh over the same period.

UK power demand has fallen sharply this week after the government instructed all non-essential businesses to close and citizens to leave their homes only for food, health reasons and essential work. On 24-25 March, demand including embedded wind and solar power averaged 31GW, down from 34.3GW in the same period a week earlier, data from Drax and Imperial College London show.

Demand should remain low well into the second quarter. Restrictions on movement initially will be in place for three weeks, but could be extended for longer, as has already been seen in Italy and Spain.

Clean spark spreads are much lower on the year. In March 2019, front-summer clean spark spreads averaged £8.50/MWh for 55pc efficiency. The working day-ahead clean spark spread averaged £8.44/MWh in summer last year.

Nuclear shutdown extensions and delays to an interconnector project announced earlier this month have had little impact on the summer contract.

The 1GW Eleclink interconnector with France has been delayed by a year until mid-2021.

The Hinkley B nuclear station will be off line for most of the rest of this year, remit posts from 12 March show. UK nuclear availability for summer 2020 is scheduled at present at about 6.5GW.

While this is higher than the average output of 5.7GW last summer, it assumes that Hunterston B and Dungeness B return on schedule in April and July, respectively. Both have been off line since 2018 and seen their closures repeatedly extended. Availability would drop to 5.3GW if they were to remain off line for the duration of this summer.

By Killian Staines

UK clean sparks, 55pc efficiency £/MWh