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London — There are good levels of surplus UK electricity generation for winter 2018/19 with peak demand expected to be 2.5 GW or 5% lower than last winter, transmission system operator National Grid said Thursday in its annual Winter Outlook publication.

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Based on current fuel prices, the TSO expected coal to run above the least efficient gas stations in the generation merit order "although this could change if it gets colder", it said in its annual Winter Outlook publication.

The view was in line with the assumption by S&P Global Platts Analytics of 4.1 GW of coal running for the balance of the winter, similar to winter 2017/18, while gas generation was set to decline 2.9 GW year on year to 12.2 GW.

Meanwhile, National Grid said it expected the 1 GW Nemo Link to Belgium to come into commercial service late January, with flows likely to fluctuate during a commissioning period. Full commercial operation was expected in April.

De-rated capacity margins have improved year on year to 7.1 GW, the TSO said, up 0.9 GW on the forecast margin for winter 2017/18.

As a percentage of underlying demand the margin equated to 11.7%, with a "loss of load expectation" of just 0.001 hours per year -- compared with the requirement on National Grid to limit LOLE to three hours.

The TSO said it saw a greater role for coal-fired generation this winter as a result of the relative strength in gas prices.

Winter peak demand was put at 48.2 GW, down from 50.7 GW forecast and actual last winter, with the lowest level of operational surplus expected at the end of October and in the first half of December.

Minimum demand was forecast to be 20.8 GW over Christmas.

Forward electricity prices in Continental Europe were expected to be lower than in Great Britain, with a net flow of power into Great Britain expected peak demand periods, although occasionally not at full import.

Outages in the Belgian nuclear fleet, however, could increase Continental prices and create uncertainty on interconnector flow direction, National Grid said.

Meanwhile, National Grid expected Great Britain to export to the island of Ireland during peak times on both the Moyle and EWIC interconnectors, and anticipated some price volatility, driven by the weather dependency of renewables and changes to cash-out arrangements in the electricity balancing mechanism.

From November 1, the energy imbalance (cash-out) price calculation is to move from (price average reference) PAR50 to PAR1, while the value of loss of load (VoLL) is to increase to GBP6,000/MWh ($7,930/MWh) from GBP3,000/MWh.

The reform makes cash-out prices 'fully marginal', based on the cost of the final 1 MWh called to balance the system instead of the average of the last 50 MWh.

The intention is to sharpen imbalance prices when the system is tight and ensure the value of flexible supply and demand is correctly signaled, National Grid said.

That should encourage: take-up of demand response; interconnectors to import during very tight margins; and market participants to provide, maintain and invest in flexible capacity, it said.

--Henry Edwardes-Evans, henry.edwardes-evans@spglobal.com

--Edited by Daniel Lalor, daniel.lalor@spglobal.com