(ed: this is a very good argument for microgrids and VPPs)
Two gas power station owners will be paid more than £12m to supply just three hours of electricity on Wednesday evening after freezing weather led to some of the highest market prices since the energy crisis began.
Britain faced surging power prices after the grid operator warned it would need power plants to fire up in the early evening to have enough electricity to power homes and businesses within its normal safety limits.
The National Energy System Operator (Neso) – which manages the energy systems in England, Scotland and Wales – said it faced a shortfall of about 1,700 megawatts (MW), roughly the equivalent of the amount of electricity needed to power about 850,000 homes.
The electricity supply squeeze is expected to hand a windfall to the owners of two power plants in Hertfordshire, England, and Flintshire in north Wales, which will each be paid more than £6m to run their gas turbines between 4pm and 7pm when demand for electricity is forecast to reach its peak.
Under the system to balance Britain’s grid when electricity supply is short, Neso encourages energy companies to bid prices at which they would be prepared to power up their plants.
The Rye House gas plant in Hertfordshire, owned by VPI Power, a Vitol subsidiary, will generate electricity for a price of £5,000 per megawatt hour (MWh), which should earn its owner £6.15m over three hours, according to official market data. The larger Connah’s Quay gas plant in Flintshire, owned by Uniper, will earn just over £6m after agreeing to generate power for a price of £2,900/MWh.
VPI Power and Uniper have been contacted for comment.
The payouts are many times larger than the market rates recorded on Wednesday, which reached their highest level in more than three years due to a combination of freezing weather and low wind speeds, according to Karsten Walke, a senior data scientist at price reporting agency ICIS.
The market price for electricity generated during the UK’s peak demand hours surged to highs of almost £1,000/MWh in a pan-European power auction, the highest intraday price recorded in the auction since December 2021 and more than 12 times the average price paid in January last year for the electricity generated the next day. In some cases trades of £2,000/MWh were recorded for certain periods on Wednesday, according to one source.
“These are super-high prices,” Walke said. “Our models show that we don’t have a lot of electricity capacity left in the market; there’s not a lot of wind power available and there’s a lack of [cable] interconnection with neighbouring countries.”
Walke warned that Britain should brace for further market price spikes by the end of the week when demand for electricity and weak wind power levels “look more or less the same as today”.
On Wednesday morning, gas power accounted for 53% of electricity produced in Great Britain, while wind power made up 18%, according to Neso data. Nuclear reactors contributed 12% of the UK’s electricity, biomass burners made up 6% and the rest was imported.
Shivam Malhotra, a senior consultant at LCP Delta, said the grid operator’s options to keep a healthy supply of electricity capacity was “relatively limited” because the UK’s available power import cables and gas power plants are already running at full capacity.
A spokesperson for Neso said: “This is a routine tool that we use most winters, and means we are asking market participants to make any additional generation capacity they may have available. [It] does not mean electricity supply is at risk.”
It is the first winter that the newly nationalised grid operator has been tasked with meeting the country’s power demand by relying more heavily on gas-fired power plants since the UK shut its last coal power plant at Ratcliffe-on-Soar in Nottinghamshire.