James Brabben, our Wholesale Manager, spoke to William Powell, Editor in Chief, in the inaugural podcast for Natural Gas World. The podcast discusses the latest issues of the day in the gas market and includes a deep dive into the GB gas market by James.
In this blog, we take a look at the key takeaways from James’ analysis on the gas market and outlook discussed during his interview.
Pre COVID-19 the gas market was in a strong position
Before the COVID-19 pandemic swept across the globe, the GB gas market was in a good position. This was due to coal assets coming off the system, and gas usage for electricity and heating was high.
“Even though renewables were growing, gas was still the back-up fuel and still running at baseload levels when demand wasn’t there,” James explained.
Lockdown has seen the demand for gas fall
However, COVID-19 and the subsequent lockdown have changed the picture for gas. In fact, following the lockdown, the demand for gas usage in power has dropped dramatically, falling around 15% to 20%.
As a result of this drop in demand, gas prices plunged. Prices fell to sub 10p/Therm for gas in the day-ahead market at the end of April. “We haven’t seen prices like this for 15 years, and it hasn’t recovered much since then,” James commented.
An overall fall in energy demand has brought the market forward
This fall in energy demand coincided with warm and windy weather, which increased renewable penetration on the system, making for, as James describes, “a really interesting power market,” at the moment.
Gas plants are being asked to turn down by National Grid, primarily because gas is one of the most expensive fuel types of the system. However, James explained that it wasn’t just gas that is being asked to turn down “with some renewable assets being asked to turn off,” as well.
Talking about the effects on renewables on the system, James said that due to the fall in energy demand renewables now represent a more substantial proportion of the generation mix. This means participants in the market including gas plants, facing a market which may not have been seen until 2025-2030.
This has caused a reconsideration of business models
Describing the difficulty for gas-fired power stations, James said, “the power market on its own is just not doing enough to support gas-fired power stations in GB, and it’s similar across Europe.”
As a result, gas-fired power stations are now having to find new business models to fit in with this new system.
There is a risk of inertia, but National Grid is sorting it
Research by Cornwall Insight showed that inertia levels – the resistance to change of frequency – is falling significantly as both coal and gas are coming off the system. However, National Grid is taking a lot of time and money to try and correct this issue.
Energy will be high up on the government’s agenda for a stimulus package
BEIS, Ofgem and National Grid are currently focused on managing the effects of COVID-19 and the lockdown. However, “energy is going to be high up on the agenda for some sort of economic stimulus package out of the other side of this,” said James.
You can listen to the full podcast here. James speaks from 11 minutes 42.