Utility Week

UTILITY Week 25th November 2016

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Page 27 of 31

28 | 25TH NOVEMBER - 1ST DECEMBER 2016 | UTILITY WEEK Markets & Trading Market view B rand new this autumn and winter is the capacity market notice. This is National Grid's newest tool of com- munication with the energy industry. Since the capacity market notice's introduction on 1 October 2016, two of them have been published. On 31 October 2016 at 12:06 National Grid released its first capacity market notice, for 16:30. A capacity market notice is an auto- matic operating margin notice. As Hallow- een night approached, the capacity market notice spectre hovered over the market until it was cancelled at 19:00. In the graph (right) you can see the shadow of the capacity market notice lurk- ing in cost of actions National Grid took to balance electricity supply and demand. Halloween saw a large number of accepted offers of more than £1,000/MWh. These are shown as the darker blue volumes. Offers are actions used by National Grid to increase the amount of electricity on the system. Between November last year and the end of October, National Grid has accepted 164 offers with a price greater than £1,000/MWh. On 31 October, it accepted 103 of the 164 Offers priced higher than £1,000/MWh. The highest priced of the Halloween accepted Offers was £2,500/MWh from a coal balanc- ing mechanism unit. Electricity market imbalances are settled on a half-hourly basis with each half hour referred to as a settlement period. The high priced accepted offers would have been a treat for those trading parties submitting the offers. However, parties paying for energy imbalances at the system price will be le feeling tricked. The system price was calculated as £519/MWh during settlement period 34 and £661/MWh during settlement period 35. These settlement periods were the only '"short" settlement periods while the notice was active, when National Grid had to increase the overall level of electricity on the system. The Halloween frights managed to also spook the energy trading desks. While the capacity market notice was active, the mar- ket index price reached a peak of £792/MWh in settlement period 36. This is calculated from same-day trades via power exchanges. This was also the first day of the supple- mentary balancing reserve (SBR) contracts window. National Grid renegotiated the SBR window to start a day earlier than originally planned, on 31 October rather than 1 Novem- ber, over fears of tight margins. From Elexon, we have compiled a set of FAQs to help industry understand better what SBR is and its impact on settlement. Despite any Halloween witches plots, National Grid did not have to resort to using a SBR provider. It was able to manage the system by using bids, offers and short-term operating reserve providers' actions. Looking forward, as the UK travels further into colder temperatures and shorter days, we can expect tighter operating margins leading to more capacity market notices. The knock-on effect could be peaks and troughs in imbalance and market prices. Emma Tribe, market analyst, Elexon Halloween market fright The capacity market notice is a tool enabling National Grid to buy in power at short notice to balance the system. It works – but at a price, as witnessed when prices spiked in October. By Emma Tribe. What is a capacity market notice and how is it triggered? A capacity market notice is a signal four hours in advance that there may be less generation available than National Grid, acting as system operator, expects to need, taking into account additional operational reserve requirements. The notices are intended to be a signal that the risk of a System Stress Event in the network is higher than under normal circumstances. Capacity market notices are communicated automatically by National Grid and will typically be issued four hours ahead by using data pro- vided by industry participants. The main trigger set by the government is for a capacity market notice to be issued to the industry where the level of available generation is within a 500MW threshold of National Grid's requirement. In such instances, the capacity market notice will be communicated with a trigger detailing "margin below threshold set out in capacity market rules". However, capacity market notices can also be triggered in response to a "demand reduc- tion instruction" or "low frequency disconnec- tion" event. Where such events take place and a capacity market notice is not already active, a discrete notice is issued for four hours' time. BALANCING ACTION VOLUMES AND PRICES, 31 OCTOBER 2016 1,200 700 200 -300 -800 -1,300 -1,800 1,000 500 0 -500 -1,000 -1,500 Volume of accepted balancing actions (MWh) System price and market index price (£/MWh) Market index price System price Bids Offers< £100/MWh Offers £100/MWh - £1,000/MWh Offers> £1,000/MWh Source: Elexon 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

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