By Paul Gleaves, Head of Risk & Trading
Last weekend saw UK Day Ahead prices hit a negative price for the first time in their history, when the N2EX Auction price out-turned at -£10.13/MWh for delivery on 23rd May 2020.
This landmark was reached due to the ‘perfect storm’ of low demand driven by exceptionally low Bank Holiday demand and high wind level forecasts.
Short-term electricity prices can turn negative when markets are significantly oversupplied. Although a novelty in the UK, it is far more commonplace in countries such as Germany which has a very high proportion of renewables within its generation stack.
Negative pricing could become more commonplace as the UK’s decarbonisation strategy looks set to include significant investment in wind generation. UK offshore wind capacity is set to double to 20GW by 2025, before reaching 40GW in 2030.
The heavy upshift in renewables generation and greater volatility in short-term prices could have a number of longer-term impacts on wholesale markets. This could include lower wholesale costs, higher balancing costs and incentivisation of smart tariffs.
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