UK winter clean spark spreads rise

Market: Electricity
30/09/20

UK winter clean spark spreads have picked up sharply in recent months amid a run of strong day-ahead power prices.

Working day-ahead clean spark spreads for 49.13pc efficiency have averaged £8.67/MWh this month, using over-the-counter power prices, the highest level since July 2017. This is up from £8.12/MWh last month.

Weak imports and nuclear generation have in general boosted the call on gas-fired stations this quarter, lifting prices and spark spreads. And combined-cycle gas turbine (CCGT) availability has also been low, leaving the system tight on days of low wind output — most notably when a capacity market notice was issued on 15 September.

These factors are set to continue into the winter. UK nuclear availability is currently scheduled at 6.6GW. This is higher than output of 4.7GW during the third quarter of 2020, but in line with average output during the fourth quarter of last year and well below installed capacity of around 9GW. And actual output can be expected to be lower due to unplanned outages and outage extensions.

Availability is due to rise to 6.9GW in the first quarter of 2021, up from output of 5.6GW during the first quarter of 2020. But the 1.1GW Huntertown B station appears to be particularly at risk of further delays. Currently its two units are scheduled to return in December, but they have been off line since 2018 and have had their outages repeatedly extended.

Spreads with France have tightened recently, but the winter peak-load contract remains at a wide discount of €10.59/MWh. Interconnector capacity will rise to 3GW when the 1GW IFA2 interconnector is commissioned. Test flows are due to start in October.

That said, less French nuclear capacity is currently scheduled to be off line this winter than during winter 2019-20, when France was able to export strongly to the UK. But the market has been pricing in the risk of further extensions, or of cold weather boosting demand.

UK CCGT availability will be lower due to the mothballing of 1.7GW of Calon Energy's assets until September 2021. Its other CCGT asset, the 582MW Baglan Bay, is due to be off line throughout the fourth quarter.

Availability is due to average around 26.9GW during winter, and range between 25.4GW and 27.8GW, data from Elexon show. This could leave the system tight, particularly in the event of unplanned outages — CCGT output peaked at 27.1GW last winter.

Some downside risks remain for the winter. While prices have spiked this quarter when coal has come on line, coal generators may be less aggressive in their offers this winter, as two of three remaining stations plan to run down their stocks as they either close or cease commercial operations before winter 2021-22.

And while demand has recovered, it remains lower on the year and is vulnerable to any new Covid-19 measures taken by the government. National demand including embedded wind and solar has been around 2pc lower on the year in September, ESO data show. It had been 17pc lower on the year in April.

By Killian Staines

UK winter clean spark spread 49.13pc efficiency £/MWh

UK-France winter 2020-21 spread €/MWh

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