Q3 2016: Volatile power prices are the new normal

by Dr Iain Staffell – Imperial College London 

Average electricity prices over the quarter remained stable at £37/MWh, but from hour to hour they are becoming more volatile.

Negative power prices are happening more frequently, and this quarter saw the highest power prices for several years.

The price of electricity on the wholesale spot market has been falling gradually from a high of £56/MWh in 2013, whereas the cost of balancing the system has doubled over the same period to £2.75/MWh this quarter.

Britain saw its first negative power prices during the summer of 2015, following in the footsteps of Germany and Denmark which have seen negative prices since 2008 and 2009. This quarter saw 45 trading periods with zero or negative prices – twice as many as during the whole of 2015. These ranged down to –£99/MWh, and mostly occurred on weekend afternoons with high wind and solar output.

At the other extreme, Thursday 15th of September was notable as it saw the highest peak prices in 3 years. Evening peak prices rose above £200/MWh for three days in a row, culminating in a price of £802/MWh on the 15th. Such prices are not unheard-of; they were a regular feature in the 2000s, and are a signal to investors to build more capacity.

The likely cause: difficult circumstances coming together at once. Demand was high due to the unexpected Indian summer, wind output was low, and several thermal plants were offline for maintenance. The cost of bringing on extra coal and gas units to meet evening demand was higher than usual, as they were required at short notice and for only a short period of time.

Generation mix and electricity prices during the September mini heat-wave:

Authors: Dr Iain Staffell, Professor Richard Green, Dr Rob Gross and Professor Tim Green