There was a total of six price spikes, known as Electricity Margin Notices (EMNs), issued by the National Grid during the winter months between November 4, 2020, and January 13, 2021. Whereas there were only two issued in winters between 2011-2019.
Electricity margin notices are issued to send a signal to the market that there is soon likely to be a tightening in energy supply often leading to increases in energy prices. However, as these notices warn that we are approaching volatile supply levels, they simultaneously act as a signal to the market that more power plants may need to be ‘turned on’ at short notice to ensure the country has sufficient energy supply.
As a result, in the UK, suppliers are in a sense incentivised to build ‘dirtier’ peaking plants and gas fired power stations that can quickly be turned on when energy is most in demand.
Importantly, the implications of the increase in ENMs point to the need for more reliable green energy storage capacity - for energy generated by the likes of solar and wind - to supply enough energy to consumers to combat demand peaks.
“These spikes often happen when weather conditions aren’t favourable, especially during winter with high power demand, shorter sunlight days and periods of low wind availability” said David Henderson, MD of Energy Transition at px Group. “More traditional forms of generation are then called upon which are more expensive and often more emissions intensive. This points to the need for more investment in our energy system which can support the ever increasing connection of higher intermittency renewable generation.”
px Group says that little has changed in the market this year to suggest that the UK market will not face a similar situation in the Winter of 2021/22.
On top of varying weather conditions, which can dictate how much weather-related energy is produced (e.g. wind and solar), underlying factors which affect volatility and supply include gas storage capacity and gas prices. Gas prices have been unusually high for this time of the year, and this could be driven by low storage volumes and a stronger reliance on gas imports.
“The current situation hasn’t changed, so it’s almost impossible to predict what will happen this winter” added Arran Train, General Manager of px Group’s Energy 24 business. “The country may again face tight energy margins and even more warnings from the National Grid and sustained higher winter power pricing. We are seeing this sentiment in the market at the moment with winter pricing higher than we would generally expect as a result of a number of factors. As we move forward, we need a strategy that balances conventional, renewable and new technologies to achieve consistent and reliable sources of electricity. Only through investment will we see an improved system that is cost-effective, works for everyone and provides energy when most needed.”
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