As we take our first steps into 2021, we continue to look back at the biggest developments in the UK energy markets in 2020, setting us up for the significant year ahead.
The COVID-19 crisis had a pronounced impact on demand and prices throughout the year. At the height of the spring lockdown demand fell 20%. This, combined with a period of high renewables generation, weak oil prices and a glut of global gas, led to record low GB power prices and an increase in the incidence of negative pricing. The lower demand also impacted on the business supply market with the lower volumes leading to suppliers having to sell back any previously hedged volume at a loss. Business closures have also led to increased bad debt provisions for suppliers.
The lower demand and action to curtail high renewables output, with solar and wind hitting record levels, led to a sharp rise in Balancing Services Use of System (BSUoS) costs – in some periods to above £25/MWh compared to a £4/MWh average. This led to two urgent code modifications being introduced to cap charges in any half hour to £15/MWh (CMP345), and then in August down to £10/MWh and limited the total charges deferred to next year under the cap to £100mn (CMP350). In light of the significant reduction of demand for electricity, a code modification was approved (GC143) to clarify the arrangements for the emergency disconnection of embedded generation. While curtailment action was taking place during the summer, November and December saw National Grid ESO calling a record number of alerts for tight margins.
There was also the launch of a new balancing services, including the Optional Downward Flexibility Management (ODFM) and Dynamic Containment and new entry into the balancing mechanism from virtual lead parties, gas engines and batteries.
The year also saw the signing of, by our records, 10 major corporate power purchase agreements (CPPAs) supporting renewables projects, many signed with subsidy free generation. Also supporting renewables generation was the confirmed return of ‘Pot 1’ technologies, notably onshore wind and solar PV, to the Contracts for Difference (CfD) scheme with plans for an auction in late 2021. But it was not all good news for renewables; the low demand and high output led to record levels of price cannabilisation with as much as 20% shaved off capture prices for wind compared to baseload power.
With lockdown in 2020 having a significant impact on demand, the focus will be on what impact another national lockdown in 2021 will have. This is set against a busy year for BEIS even without the pandemic – the government has put an awful lot on its plate for this year, with a raft of consultations and calls for evidence to take place soon, all of which we will cover in the Daily Bulletin and Energy Spectrum.
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