Electricity markets

May 2016

Electricity prices

  • The UK is in for a challenging winter this year if the forward curve of the electricity price is to be believed. Whereas the summer-winter spread for the Dutch electricity market is around €4.25/MWh, the UK spread is more than double that. The UK baseload price is projected to rise from its current low for May of around £32.09/MWh to a winter peak of around £41.12/MWh, a rise of 28%. In contrast, the Endex futures strip in May reflected an average seasonal low of €25.45/MWh and it is projected to rally only to €31.62/MWh at the winter peak. This is a rise of 15.6% from the front-month average of €27.35/MWh and 24% up from the anticipated seasonal lows. 
  • The UK is forecast to suffer an electricity gap in the next few years because it is in the process of rapidly removing coal-fired generation capacity while failing to bring new gas-fired capacity online. The transmission system is already feeling the strain – the National Grid issued an alert on 9 May that it urgently needed 1.5 GW of power to ensure a safe operating margin, partially because of a lack of wind generation. Although such purchases are precautionary, it is the first time this has happened outside the winter peak period for years.