Q4 2016: Price volatility continues rising

by Dr Iain Staffell – Imperial College London 

British power prices are becoming ever more volatile, and peaked at £1,528 / MWh during the quarter, their highest for at least a decade. 

Prices also spent 19 hours at or below £0 / MWh at times of high renewable output.

Britain’s system margin (the amount of spare capacity) was unusually low due to ongoing problems with the French nuclear fleet. National Grid issued their first ‘Capacity Market Notice’ on October 31 ^st, when several plants were off for maintenance and wind output was low. A second Notice was issued on November 7^th when demand plus the safe operating margin was expected to exceed the combined capacity of all available generators. The shortfall was avoided, as prices rose above £750 / MWh (15 times their average) for 3½ hours to encourage additional generation and demand reduction.

Low and negative prices are also becoming more frequent because of growing output from wind and solar farms. Intermittent renewables drive down prices during periods of high output, as inflexible generators are expensive to shut down. The Christmas period saw several hours of negative prices as wind output was high whilst demand was low.

The range of British electricity prices in each month since 2009:

Finally, the design of the electricity market changed in November 2015. Ofgem changed the pricing rules to better reflect the ‘marginal’ price (i.e. the price of the last MW required to meet demand). Prior to 2014 the price was the average of the top 500 MWh of electricity traded, but since November 2015 this was narrowed to consider only the top 50 MWh. The rules will be tightened further in November 2017 to consider only the top 1 MWh.

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