How as the recent cold spell affected the market?
With the first spell of cold weather for this winter, the UK’s National Grid electricity system operator (ESO) has forecasted electricity supply margins to be tighter than normal this evening and therefore has activated the demand flexibility service (DFS), where designated households reduce their consumption during a particular high demand period. Eligible properties with smart meters will be offered cash and other rewards in return for reducing their usage between 5pm and 6.30pm on Wednesday. This is a precautionary measure and does not mean electricity supplies are at risk. The ESO are required to maintain a buffer of spare capacity. In addition, only yesterday, Centrica announced it has released stored gas from its largest storage facility into the national grid for the first time this winter.
With temperatures a couple of degrees below seasonal norms and lower renewable generation we are seeing higher gas for power demand. It also comes at a time when there are some units on an outage and the UK is not getting as much through the interconnector due to colder weather on the Continent as well. Whilst this has supported prompt prices it has done little to support the rest of the curve. In fact, front month NBP at the time of writing was down 1.5% from Tuesdays close with the rest of the curve following suit. Similar moves have also been seen in the UK electricity market.
Why are prices trading lower in that case?
With storage levels remaining at record highs and stable supplies, the market is gaining more confidence we should be able to meet demand this winter. Even with colder weather Europe and the UK should come out of this winter with reasonable levels in storage which will provide further downside in 2024. Weaker gas prices have also led some power generators to switch from using coal to using gas, easing carbon prices and therefore in turn electricity prices.