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UK Power: Margin concerns, cold snap forecast bolster UK prompt prices

Highlights

UK day-ahead power contracts rallied on Tuesday as supply margin concerns in UK and the neighboring French market coupled with the expected onset of a cold snap drove prompt market higher, sources said.

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Baseload day-ahead power price rebounded to GBP69/MWh, up GBP16.50 on the day before the 11am London time market close on Tuesday. The block 3+4 power price was seen at GBP53/MWh and the block 5 power price at GBP184/MWh, which values the peakload day-ahead spot contract at GBP96.70/MWh, GBP34.35 higher on the day.

"We are seeing generally low wind in the past week. There is also a danger of further [nuclear] delays in France and the cold is supportive of higher prices," a trader said.

Supply margin fears in the UK once again came to the forefront a day after system operator National Grid warned the market of a shortage in supply during the peak hours on Monday. Following the notice, power prices in the balancing market surged to GBP1,116.68/MWh on Monday.

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In addition, with the ongoing nuclear reactor problems in France, the UK market has seen price spikes in response to the bullish French prices, which have soared to new highs, in order to incentivize electricity flows in to the UK.

Strong hourly prices were recorded in the UK spot auction where hour 18-19 power price hit GBP399.95/MWh, according to N2EX and APX exchanges data on Tuesday.

"It's crazy in France right now and UK needs to follow up as the tightness in France is H18 and H19 like in UK," another trader said.

Although French hour 18-19 power price remained at a discount to the UK at Eur95.96/MWh, changing wind profile within the day and colder weather expectations propelled the spot prices higher.

"Wind is dropping off and it's the first day with really low temperatures," which are pushing UK spot prices up, another trader added.

Also, the UK week-ahead peak power contract traded at GBP140/MWh on Tuesday, while the French counterpart changed hands at Eur275/MWh.

According to National Grid, peak wind power production is expected to rise to just shy of 5 GW on Wednesday, up from Tuesday's forecast of 4 GW, but wind output is set to decline by half on Thursday and easing further into the weekend.

Furthermore, forecasts for below average temperatures across the UK is expected to boost demand for power as a heating fuel. CustomWeather expects temperatures in London and Birmingham, which are currently 1 degree Celsius above norms, are likely to drop 2-4 C below average from Wednesday, falling further over the weekend.

By Tuesday afternoon, electricity supplies from France and the Netherlands were at near full capacity of 2 GW and 1 GW respectively, while wind power output reached 2.2 GW, the Grid data showed.

Gas-fired power production stood at 21.1 GW, while coal plants produced 3.7 GW of electricity on Tuesday. Nuclear power supplies were fairly stable at 7.8 GW, data showed.