APEx logo
View All Industry News

Record electricity imbalance prices in GB – what does it mean for the future?

BY Omer Haroon Malik, Head of Strategy & Market Development , Central Power Purchasing Agency (CPPA-G)

ON June 1, 2021

Originally published in APEx Newsletter Volume XVII – June 2021

Last year a new record was set for Britain’s longest ever ‘coal-free’ electricity generation period, totalling 67 days between April and June. It is an example of the progress the sector needs to make to meet the UK Government’s net zero commitment. As the manager of the Balancing and Settlement Code, one of the key commercial arrangements for companies operating in the GB energy market, Elexon fully supports this commitment.

Transitioning to a decentralised system with much more intermittent generation results in major challenges for the electricity system operator, National Grid ESO. The high imbalance prices on several days in January 2021 illustrate the scale of that challenge.

The spare capacity margin for Britain this winter (the safety cushion of available generation compared with demand) has been tight at times. Coal plant has previously helped to provide this cushion. However as coal’s share of the generation mix has dropped to around 1.75%, on cold, windless days there has been more reliance on gas plant to provide adequate reserve.

Imbalance prices (calculated by Elexon) act as incentives for Suppliers and Generators to ensure that they have bought, or produced enough electricity. The higher the price the more it encourages generators to make themselves available. Our Balancing Mechanism Reporting Service (BMRS) is the go to source for information on the wholesale market and our monitoring shows that the highest spikes in imbalance prices since 2001 occurred between 6 and 8 January 2021, coinciding with a cold snap and several plant outages.

Imbalance prices reached or exceeded £1,000/MWh on seven occasions over those two days, topping £4,000/MWh on 8 January. These spikes were preceded by notifications from National Grid ESO that more spare capacity was needed. The call was heeded by gas fired generators.

The market did its job, therefore should we be concerned, and what does this mean for the future? Britain has a resilient electricity system, nevertheless the electricity system operator (ESO) has to adapt to increasingly complex supply and demand scenarios. Another illustration of this challenge was the power cut affecting more than a million British customers in August 2019.

The Government and the market regulator (Ofgem) want to reform the ESO role. Elexon strongly supports this because it is also an opportunity to consolidate and simplify the 11 codes governing the system. In January Ofgem recommended that the ESO role should be carried out by an independent body, completely separate from National Grid. In our latest Policy View we put forward options for how the gas and electricity system operator roles and the codes could be reformed in tandem.

As a sector, if we encourage more demand-side response (DSR) it can help with management of supply and demand. Innovators, electric-vehicle to grid schemes, aggregators and other participants need access to granular information on the wholesale market so they can more easily see when DSR is required. Elexon is helping new business models to enter the market and we are working to make all data that we hold openly available unless there is a specific reason not to.

We have also proposed the set up of nation-wide flexibility markets where DSR offers and spare capacity can be openly traded between market participants.

Having more DSR available can help the ESO deal with peaks and troughs in demand. The ESO also needs to consider how ‘inertia’ provided by turbines at large power stations to maintain system frequency can be secured in the future, when more renewables are connected, and fewer traditional power stations may be available.

Elexon looks forward to working with the ESO and our customers to meet challenges such as this, to ensure that the energy transition happens smoothly for companies, and customers.