Early November tight system margins
This week National Grid has issued two Electricity Margin Notices (EMN) for the hours between 16.30 and 18.30 on Wednesday 4th November and Thursday 5th. These were the first EMNs since 2016.
The first was issued on Tuesday night at 8pm due to a forecast shortfall in the system margin of 740MW between 16.30 and 18.30 for the 4th of November.
At 8pm last night, another EMN was issued, with the 12:00 forecast showing a Loss of Load Probability (LoLP) of 99% in SP37 (18.00–18.30) and a de-rated margin of -1.8GW. The updated 8 hour forecast illustrates the market response and subsequently the LoLP has fallen to 2.3% in SP37 with the margin now up to 1.56GW (the equivalent of half a million homes [1]).
An EMN is issued when the Electricity Control Centre is concerned about the available margin for operating the system and is an indication to the market that the ESO would like more spare capacity to manage the system (note this is not the same as a capacity market warning[2]). The notice last night and more recently updated this morning indicated between 16.30 and 18.30 on November 5th a 316 MW (approximately a third of the Front-of-the-Meter battery storage capacity in the UK) shortfall in projected margin. As such, a Maximum Generation Service[3] may be instructed.
The low margin on the evening of Wednesday 4th was likely to be caused by a number of factors, such as falling wind output (just over 3GW — Fig. 1) and planned and unplanned outages at major thermal power stations (Drax 4). To meet this shortfall we saw an increase in generation from available CCGTs and coal (Fig. 2).
The cause for the low system margin tonight is likely to be a combination of continued plant outages, a high-pressure weather system, suppressed wind generation and increased power demand.
How does this impact electricity prices?
Yesterday evening, day-ahead hourly prices for the time period peaked at £132.0/MWh and the spot price peaked at £109/MWh (Fig. 3). Initially the Loss of Load Probability (LoLP) for 5–5.30pm rose to 62.0%, with a de-rated margin of -203MW. However, more recent forecasts showed the LoLP at 0.2%, with a de-rated margin of 2,430MW. The market response to the EMN drove the system price down to £3.85/MW/h at SP37 (Fig. 3). For context, the average system price during SP 37 and 38 in 2019 was £54.5/MWh and £53/MWh respectively, and £28.2/MWh and £29.2/MWh in 2020.
Today, the day-ahead hourly prices for the same time period have peaked at £192/MWh.
What does this mean for our asset owners?
Yesterday there were a few lucrative opportunities for traders to exploit across the day-ahead and intra-day markets and these included charging up during low price periods overnight when the SIP was as low as £16/MWh and discharging on the day-ahead market when prices were up to £132/MWh — a spread of £116/MWh. We expect to see a similar story tonight with the day-ahead price already higher than yesterdays.
This gives consumers the opportunity to reduce their demand during these periods, avoiding expensive power and curtailing expensive and dirty generation.
Author: Charlotte Johnson, Commercial Analyst
[1] Assuming a 3kW domestic household load.
[2] A Capacity Market Notice is a signal four hours in advance that there may be less generation available than National Grid, acting as System Operator, expects to need to meet national electricity demand on the transmission system taking into account additional operational reserve requirements.
[3] “Maxgen” allows generators to offer capacity outside an asset’s normal operating range in emergency circumstances.
