The UK Energy Market Report for the third quarter of the year is now available. Download and find out more.
Even in the second quarter of 2022, the energy market continues to feel the effect Ukraine war: although this quarter is usually quiet, the prolonged conflict affected energy prices, which remained high, mainly due to the reduced flow of natural gas in Europe, the main driver of power generation. Not even higher renewable generation and more stable demand have mitigated this exponential rise in prices.
The beginning of 2022 was quite turbulent, with few days of tight margins, very high renewable penetration, and the huge impact of the Ukraine’s invasion on the gas and coal markets and consequently on the electricity one. In January, we have experience two days with system prices over 2000£/MWh, due to low wind penetration, temperatures below the average and high level of CCGTs unavailability during the entire day. Excluding few days of tight margins, the first two months of the year was characterized by very high wind production and temperature above the average: Q1 2022 has been the quarter with the highest wind generation ever recorded.
The expectations about a Q4 full of extreme events in UK were very high and they have not been disappointed. After a relatively calm October, in November we experienced few days of very tight margins, with some settlement periods delivering a system price over 3000 £/MWh. In December, during the period of greatest supply crisis, the price of gas reached 450 GBp/Therm. Also the Renewable Energy Guarantees of Origin (REGO) market has seen a considerable increase in prices in the last few months.
All-time records, fire and trips are only few of the features of the UK Power Market in the third quarter of 2021. After a relatively calm July and August, in September the market experienced several days of high prices driven by the global rise of gas and carbon prices. Very low level of wind generation and planned maintenance of conventional assets were the final touches for an explosive end of Q3 2021!
In the second quarter of 2021 the Power Market started experiencing the signals anticipating the current situation. The Demand recovered in response to the relaxation of the measures against the pandemic and the Renewable Generation, Wind in particular, remained low. This tightened the capacity margins and drew the System Price to very high values for several times. Finally, The LNG Cargo Diversion added stress to an already struggling supply of gas.
In the first quarter of 2021 the UK Power Market experienced deep modifications and fluctuations. The price of Carbon Allowance exceeded 30€/ton and drove upward the value of the related commodities, in particular the gas price. In addition, the low renewable generation and the outages of thermal plants caused the increase of the energy price in the Day Ahead and Balancing Mechanism. Also Brexit played a role, since the decoupling from the EU power Market led to explicit auctions on the Interconnector and to speculation.
June closes the first half of the year with results exceeding all expectations in the energy segment. The price of energy has almost quadrupled, due to higher EUA and gas prices. In fact, gas saw significant growth towards the end of the month, reaching new highs. Renewable production has lost ground to traditional technologies and there has been a drop in wind production in particular.
In May, temperatures began to rise, although they remain lower than historic levels. Italy has high levels of renewable generation, particularly from wind power, despite May not being a particularly windy month. The EUA recorded a new high, before falling back following the results of the first UKA auctions for procurement of CO2 quotas in the UK.
Also in April, electricity prices are at record levels across Europe due to limited French nuclear availability and low temperatures that have led to a high consumption of gas for domestic heating. The harsh climate has affected the entire Natural Gas supply chain, eroding European gas storage and bringing them to the lowest levels of the last 5 years. Hydropower undergoes a slight decline but continues to dominate renewable production.
Also in February, energy prices confirm the upward trend compared to 2020. CO2 continues its run reaching a new record level, mainly thanks to the action of hedge funds. Hydroelectric also remains at excellent levels, while wind slows down and gas stabilizes due to the return of seasonal averages.
After hitting historical lows in 2020, in the new year the market marks a clear reversal of the trend, thanks to the optimism generated by the vaccine. In addition, the low temperatures recorded and the phenomenon of Cargo Reversion between Asia and Europe could contribute to the restart of energy prices. With regard to renewable production, hydroelectric and wind power have recorded new records in the levels of injection into the grid.
In November, the electricity market trend reflects, although to a limited extent, the optimism generated by news of a possible Covid-19 vaccine. Renewable production, however, decreased significantly, particularly generation from wind power. Futures show a significant increase, due to cold weather on the way.
In October, the recovery in the energy price seen in previous months was interrupted. Generally speaking, the current period is marked by a climate of uncertainty on the markets, above all due to Covid-19 and the American elections. In Italy, there was an increase in renewable production, particularly hydroelectric production, which impacted on prices. Calendar 21 forecasts for next year show a loss.
In September, France recovered nuclear availability, guaranteeing refuelling in the winter months. Consumption levels continued to recover, while #renewableproduction recorded a drop, leading to a peak in prices on European #power markets. Prices of #gas and #CO2 continue to rise. The EU has declared that it wants to further reduce emissions targets by 2030.
The electricity market is heavily influenced by sector-specific endogenous factors and exogenous events that inevitably affect trends. The Covid-19 pandemic, for example, has heavily impacted the energy market, creating great uncertainty and instability, and only now showing signs of recovery.
The impact of Covid-19 on the European electricity market is lessening, although energy consumption continues to drop compared to 2019 figures. CO2, on the other hand, continues to rise, driving up power prices for 2021, which have returned to pre-pandemic levels. Renewable production continues to remain stable at excellent levels.