Utility Week

UTILITY Week 13th November 2015

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Markets & Trading This week Ofgem hikes cash-out prices for generators Generators who fail to balance their positions could be stung for up to £3,000/MWh UK generators face dramatically higher cost risk this winter under new rules put forward by Ofgem that hike the cost of their failing to balance their positions in the market to highs of £3,000/MWh. The so-called cash-out prices prevent market participants from generating or consuming either too much or too little electricity. Any deviation from their contracted position could put the system out of balance and lead to penalty costs per megawatt-hour. As the UK's supply margins shrink, the need to keep the electricity market balanced is more important than ever to reduce the risk of blackouts. Until last week market players faced cash-out prices calculated as the average of the top 500MWh of actions that National Grid takes to keep the electricity system in balance, either by buying power from generators when the system is short or by asking generators to reduce output when the system is long. But now the price will be considerably higher because Ofgem has reduced this average to the top 50MWh of actions. In times of system stress this price will be even higher. If National Grid is forced to use its supplemen- tal balancing reserve of either supply or demand-side response contracts, cash-out prices could soar to £3,000/MWh, a spokesman for the regulator said. It would also increase to this level if National Grid had to use voltage control and demand disconnection, he added. JA GAS Isle of Grain loads up for the road National Grid has offered the "first fill" from its Isle of Grain liquefied natural gas (LNG) terminal, which allows road tankers to transport gas to large businesses and industrial customers. The terminal stands along- side the Grain LNG terminal in Kent, which imports gas from the global LNG market before flowing it into the UK grid. On Wednesday the new facility began catering for the commer- cial, industrial and road fuel markets through a road tanker loading facility, which allows trucks to carry gas directly to customers across the UK. National Grid's biggest LNG customer, Flogas, will receive the first fill of 20 tonnes of LNG, which it will distribute to major industrial manufacturing sites across the UK. The supplier said it intends to take 60 to 100 tonnes of LNG, equivalent to 1-1.5GW of energy, per day. Flogas head of LNG Rob McCord said the new facility was "vital" to the company's strategic growth. National Grid's director of LNG, Jon Butterworth, said demand for road tanker loading was expected to increase in the UK due to "the substantial economic and environmental benefits of LNG". "Logistically we are ideally placed to develop a road tanker loading hub, as we sit right next to the major transport routes in the South East of England and to or from Continental Europe," Butterworth said. ELECTRICITY National Grid issues supply crunch alert National Grid called on the market to bring forward at least 500MW of extra power generation capacity last week, just three hours before multiple plant breakdowns and low wind forecasts threatened a capacity crunch. The transmission operator told the market on Wednesday aernoon that supply margins for that evening were "inad- equate" despite the warmer than usual weather, aer a string of unplanned plant outages tightened already meagre winter supply margins. "An additional 500MW is being requested between 16.30 and 18.30 this evening," National Grid said in a notifi- cation of inadequate system margin (NISM) at 13.30, its first since 2012. Later in the aernoon, National Grid called on con- tracted companies to reduce their demand through its demand-side balancing reserve mechanism and accepted offers of 40MW of capacity reduction. Business just got a bit riskier Tricks of the trade Jillian Ambrose "A day later, the new system would have come into play" Commodity markets have always run on a combination of educated predictions, savvy and luck. But few would have pre- dicted that the National Grid's first notification of inadequate system margin (NISM) since 2012 would emerge on a balmy Wednesday in November. It wouldn't be the first time that a string of unrelated out- ages and low wind generation combine to leave the system tight and prices high. But this winter, when every megawatt used, the cash-out price could have soared to £3,000/MWh – a huge hit for any smaller market participant with a less than reli- able generating asset. Then again, perhaps that's where savvy comes in. Genera- tors knew the new rules were coming and the time for mainte- nance is definitely before then. National Grid expects further NISMs in the months to come, so all luck, savvy and careful predictions will no doubt be at the ready. counts, National Grid was forced to pay highs of £2,500/MWh to make ends meet. Nonetheless, luck was still at play for the generators. Wednesday 4 November was the last day of the old cash-out regime, which averages the top end of Grid's market actions to determine the penalty price for being out of balance. Had the NISM been called a day later, the new system would have come into play. First, this would mean that generators might have faced a far higher price for those unplanned outages if caught short against their contracted volumes. And once the supple- mental balancing reserve was 28 | 13TH - 19TH NOVEMBER 2015 | UTILITY WEEK

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