UK power sees most expensive baseload deal ever amid system squeeze

The UK power market recorded its most expensive ever baseload trades amid a roller-coaster session on Wednesday driven by a steadily tightening system, according to ICIS historical data.

Three individual offers of power to be delivered all day on Monday, priced at £200.00 (€235)/MWh – almost six times higher than September baseload at expiry just a fortnight ago – were lifted over a 40-minute spell late in the afternoon, capping a session that also saw:

• Offers up to £1,500/MWh accepted by system operator National Grid on the balancing market, and some major plants paid up to £1,250/MWh for relatively small physical volume generated to balance the system
• The fundamental risk spill over to the front week, which was last assessed at £105.00/MWh in line with trades seen prior to the close – it then gapped down by £10.00/MWh in a single deal after the 16:30 London time close
• A  major reassessment of adequate risk premium going into October, which jumped more than £11.00/MWh on the peaks, up 22%, and 12% on baseload
• The UK’s exchange-based day-ahead auctions forced into a second run, triggered if a price above £500.00/MWh is recorded in a given hour

Volatility

The trio of £200.00/MWh deals indicated that the volatile, risk-laden dynamics that have gripped UK power over the past few days may be set to continue beyond the weekend.

But traders were stuck for a reasonable fundamental explanation behind the depth and suddenness of the increases beyond the day-ahead, coming on top of huge gains seen the previous day.

One source’s opinion that “everyone wanted to join the party”, was the most accurate offering, with the intense volatility reflecting a disconnect between tight but seemingly manageable fundamentals and the market’s movements.

For example, the intra-day bidding up of the front week – from £50.00/MWWh to £105.00/MWh – and subsequent gapping down was not driven by physical indicators, but was a case of the market gaining its own momentum and running with it, with major profit and loss to be made intra-day.

Another example of the disconnect between pricing and physical reality was the October closing price, which carried a premium over both December and even January.

Day-ahead

Day-ahead Baseload traded close to an all-time record of £160.00/MWh, three-and-a-half times higher than the average ICIS closing assessment of the product so far this year.

Most of the premium on Thursday’s delivery was evident in blocks 5 and 6 products, which cover the last eight hours of the day. The former was trading at £270.00/MWh while the latter, covering 20:00 to 00:00, hit a peak of £400.00/MWh in morning trade.

High summer demand and a succession of outages, some planned with few expecting demand to spike, and others unplanned, drove the day-ahead increases.

In terms of the day-ahead, one trader said: “The risk is very real.” (See UK power market comment).

There was little upside on the country’s NBP Day-ahead contract, with ICIS assessment keeping it near seven-year lows. As a result, gas-fired generators stand to make very hefty returns on Thursday.

The events could herald an eventful winter ahead for UK power traders, with system margins at their lowest for years amid mass coal-fired plant closures seen earlier this year. jamie.stewart@icis.com and henry.evans@icis.com