Plant availability responsible for high electricity prices in January

The non-availability of plant was found to be a key driver in record high electricity prices observed in January, according to analysis.

On 22 February, LCP published an article, exploring what caused power prices in January to exceed £1,000/MWh on multiple occasions and reach the £1,500/MWh market cap for the day ahead auctions twice. High prices were also seen in the Balancing Market with West Burton B CCGT accepted at £4,000/MWh across several periods. It attributed wind speeds, demand and plant availability as the main factors behind this.

Higher price days were concentrated on days with lower wind load factors however, despite lower wind generation than average, January 2021 was noted as not being an extreme case. Similar, while high demand periods saw higher prices, once more peak demand levels were not found to be unusually high for January.

In contrast, non-availability of plant was determined as the key driver. There were long-term outages with 3.3GW of nuclear capacity unavailable in January, along with 2.3GW of plant made unavailable due to Calon falling into administration and its three gas plants being mothballed until a new buyer was found. The difference between capacity observed on the system and capacity used in Capacity Market (CM) contracts saw a further 1.9GW unavailable. The coal fleet operated at an average availability of 52% against its CM derating factor of 87%, while the BritNed 1GW interconnector only came back online on 9 February, having suffered an unplanned outage from 8 December.

Looking ahead, it suggested that in terms of the CM, there could be a temptation to reassess some of the parameters, especially when it comes to the assumed availability of older plant. This is already playing out with the capacity requirement for the T-1 auction, for delivery in winter 2021/22, being increased from 0.4GW to 2.4GW. It includes an adjustment for the risk of non-delivery from other contracted plant and the unavailability from coal and biomass conversion plant. This should dampen peak prices, it said.

Ahead of next winter, older coal and nuclear plants responsible for the high prices will soon be off the system. Intermittent renewables will offer an increasing proportion of generation which will see more variation, year on year, with weather patterns driving system margins. This will leave the remaining thermal generation and new sources of flexible generation having to increasingly recover costs over relatively few and infrequent periods. This means that a power system with high prices as seen this winter could be more common.

However, it did stress that while there have been high prices and tight margins, winter has been yet to see any actual system stress events.