UK day-ahead power prices tripled to record levels Sept. 13 as tight generation margins combined with soaring power import, natural gas and carbon prices. The UK's accelerated coal phase-out along with reduced nuclear availability and low wind generation have exposed the market to rising gas prices. The following is a breakdown of the major issues being tracked by S&P Global Platts.
¿No está registrado?
Reciba alertas diarias y avisos para suscriptores por correo electrónico; personalice su experiencia.Registro
Power prices have risen strongly across Europe but the UK has come under more intense pressure due to its high dependence on gas and renewables to generate electricity.
- S&P Global Platts assessed UK day-ahead baseload prices at GBP540.15/MWh ($747.56/MWh) for delivery Sept. 14, up from GBP171.15/MWh Sept. 10.
- S&P Global Platts Analytics forecast October baseload power prices to average around GBP122/MWh, with market tightness stretching into Q1 2022, with average prices rising to GBP126/MWh.
- System sell prices in the balancing market hit a record GBP4,037.80/MWh on Sept. 9 as several plants priced themselves at GBP4,000/MWh amid low wind, outages and reduced interconnector availability.
- UK gas prices have soared since the start of 2021, with the month-ahead price on the UK NBP hub assessed by S&P Global Platts on Sept. 10 at just under 146 pence/therm (Eur58.23/MWh, $20.18/MMBtu). That compares with a month-ahead assessment of just 28 p/th a year ago, representing a 420% increase year on year.
The increase in gas price has been replicated across Europe due to low storage stocks, competition with Asia for LNG cargoes, and Russian supply concerns.
- CIF ARA spot coal prices into Europe rose above $170/mt in September from just under $140/mt in late July as volatility and illiquid trade continued.
- Despite higher price levels, Platts Analytics expects continued gas-to-coal switching into Q4 2021 to the limited extent this is possible, both in the UK and northwest Europe.
- In the UK Emissions Trading System, UK carbon allowance (UKA) futures contracts for December 2021 delivery on the ICE Endex exchange hit an all-time high of GBP54.05/mt ($74.75/mt) Sept. 9, compared with GBP45.25/mt when the contract first traded on May 19.
- The carbon price in the UK comes on top of the existing Carbon Price Support -- a domestic tax on CO2 emissions from electricity generation, currently set at GBP18/mt of CO2.
Adding to the strain of coal closures has been the UK's ageing and inefficient nuclear power plants.
- The UK has just two coal plants at West Burton A and Ratcliffe-on-Soar still in the wholesale market, although two officially closed units at Drax are still running for system support. UK coal plant capacity has fallen from 23 GW in 2011 to 5 GW today.
- At 39 GW, UK installed gas-fired capacity is the UK's dominant price-setting generation technology, but available capacity this year remains reduced by the absence of Calon Energy CCGTs.
- The UK's remaining nuclear capacity of 8 GW is increasingly unreliable, running at closer to 5 GW at present due to unplanned outages at Hartlepool and Heysham 11.
Since the closure of the Rough gas storage facility, the UK has no large-scale storage sites and only a limited number of smaller storage facilities, leaving the UK potentially exposed to increased supply security risk than its European neighbors.
- The UK has a number of gas supply options, which the UK government has repeatedly stressed provide gas supply security. It has a significant offshore gas industry of its own, three LNG import terminals, links to Norwegian gas fields, and two interconnectors linking it with Continental Europe (IUK and BBL).
- The UK ETS regulates CO2 emissions from the same sectors as the wider EU ETS. Those include UK-based electricity generating plants, emissions-intensive industries including metals, chemicals, refining and cement, and domestic aviation.
Extensive interconnections with Europe have failed to provide price stability.
- The UK has subsea power cables connecting to France, Belgium, the Netherlands and Ireland and imports around 10% of its annual power needs.
- New links to Norway and France are being commissioned. In recent days Northern Irish system operator SONI has closed the Moyle link to Scotland to exports because of its own supply concerns.
The UK's domestic gas production has been significantly lower year on year due to a heavy schedule of planned maintenance and delays to new projects. According to S&P Global Platts Analytics data, UK gas production in the year to Sept. 10 was 20.2 Bcm -- down by 5.7 Bcm from the 25.9 Bcm produced in the same period of 2020. New fields such as Tolmount have been delayed.
- Competition from Asia for LNG has amplified the UK's storage infrastructure deficit, while the country's regulated carbon costs are higher than elsewhere in Europe.
- The UK has also seen a drop in LNG imports in 2021 as a higher JKM spot LNG price drew cargoes to Asia. In the period Jan. 1-Sept. 10, the UK imported 10.4 Bcm of LNG, 4 Bcm lower than in the same period of 2020.
- The UK ETS is a standalone carbon market, meaning allowances cannot be traded between the UK and EU systems unless they are formally linked. Both regions have committed to giving serious consideration to linking, but no firm policies have yet been put forward by either side.
- UK electricity demand reached a record low of 330 TWh in 2020, down 4.6% from 2019. A recovery is evident this year, with demand to end-August up 5% year on year.