As has been well publicised in the news, over the past few weeks energy prices have increased drastically, due to unexpected pressure on the UK’s energy system. Day ahead auction prices for energy (N2EX) have reached record highs of £2,500 per MWh1, compared to averages of £50 per MWh this time last year2.
SO WHY HAVE ENERGY PRICES BEEN SO HIGH?
There are various factors contributing to the current pressure on the system, leading to volatile energy prices.
Firstly, the UK has experienced one of the least windy summers on record3, meaning less wind power has been generated than usual. It has also not been particularly sunny or bright, so overall we have had considerably less renewable energy generated in the system than we would normally expect at this time of year. In addition, some power stations that usually provide capacity are currently offline, due to planned maintenance and servicing. And a recent fire at an electricity interconnector in Kent has unexpectedly reduced access to European generation capacity. This means that we have been limited in terms of switching on other generators to replace the missing renewable energy.
As a result, gas and coal-fired electricity plants have been called upon to make up the shortfall. However, gas prices have recently soared, due to additional demand for Liquid Natural Gas (LNG) from Asia creating a global shortage, and historic low levels of gas in storage ahead of winter causing the UK to rely on expensive imports. This has in turn pushed up electricity prices in the UK.
The return of coal to help meet demand is disappointing news after celebrating record-breaking coal-free periods last year, especially in the run up to COP26 – the Glasgow Climate Summit.
THE OPPORTUNITY FOR BUSINESSES
Whilst the current market situation presents some challenges, it also highlights the importance of flexibility and the rewards businesses could gain for supporting the system.
As we transition away from fossil fuels towards renewable energy, we will be more reliant on intermittent generation affected by weather, such as the period of low wind we are currently experiencing. The resulting volatile prices are a signal that the system needs support in balancing supply with demand.
With the right set-up and market access, consumers can be paid for supporting the system in times of need, by shifting their usage away from the expensive periods. For example, last week we were able to sell some of our customers’ energy back at the £2,500 auction price referenced above. This allowed our customers to generate revenue whilst directly supporting the energy system, offsetting coal emissions in the energy mix along the way.
Increasing business participation in demand flexibility will be crucial in the transition to net zero and will help reduce the system’s reliance on fossil fuels, one KWh at a time. If you’d like to learn more about how our optimisation solutions can help your business, get in touch with our team of experts at email@example.com or on 0121 726 7575.