Energy Price rises – insulate your business from shocks

September saw some of the highest pool prices in a decade.  This was closely followed with a two week period in October where forward markets in power rose considerably for Winter 2016 (and they have continued to do so).  In fact Dec 16 power peak prices were trading around £55/£56, and they’ve since moved to £109 a unit!

For a while we have debated whether the lights would go out in winter, a highly unlikely scenario but, what is fast becoming a reality, is a highly volatile market.  One where intra-day prices rise quickly and forward markets move fast.

This is not a story about rising wholesale prices, it’s a story of changing fundamentals.  At its core, this story is about how we make our energy.  And this is what is driving the change in power prices.

In addition to having the highest pool prices on record this year, we’ve also had the highest number of negative energy prices.  In fact we’ve seen over 133 half hours of negative energy prices (National Grid even launched a new scheme called Turn Up -which asks users to turn up energy consumption at certain times).  We’ve also had headlines this year about how solar has outperformed coal for the first time in history.

All this change is largely due to the generation mix.  The advent of renewables is causing peaks and troughs in the system which, in turn, is driving price movements.  In the UK, it’s likely see these movements more frequently as we increase our on-site generation and create what is effectively a two tier system – surplus in Summer, shortage in Winter.  One story which draws a very interesting parallel with the UK, is the South Australian story this year. The energy price spikes we saw on September 14th due to increased demand (air-conditioning) and less energy on the grid has some interesting parallels to the SA event.

So how do energy professionals manage in this new era of energy?  What can you do to make sure you’re not caught out:

  • Re-think the hedging/flex purchasing strategy. Review your risk limits and take into account the system may be long/short at very different times of the year.  You may wish to consider extra cover in the peaks, and times of shortage.  You may even consider taking more to cash-out/balancing on negative prices.
  • Understand your residual costs and shape. This will become increasingly important as the volatility increases.  As HH prices could jump upwards (potentially into the £000s – make sure you understand how you’re energy imbalances will appear on your bill).
  • Take a good look at optimisation opportunities.  How you manage/shift load within day, either by making operational changes or looking at storage, combined with on-site will become increasingly important. There will be a brand new set of opportunities to create value in your energy estate.

Companies who embrace this fundamental paradigm shift have a significant opportunity to create and protect value.  And we’re excited to be providing the tools and technologies to make that happen.

For more information on how the Utilidex | Hub can help manage your new energy world please email (mike.mccloskey@utilidex.com) or call Mike on 07799742873