The falling costs of wholesale electricity costs

In an article by Enirgy on Sunday April 5, the main wholesale market here for electricity went negative. Instead of paying, people got paid, for taking supplies of power from the Day Ahead Market (DAM). Now that’s not that unusual. There have been short periods before where charges have gone negative. But this was the first time that it happened to the average price across an entire day But let’s not get too carried away. At the price recorded, acquiring each kWh put just 0.2 pence in the pockets of buyers. It hasn’t exactly been a bonanza for suppliers though welcome no doubt.

What lay behind this state of affairs was a combination of factors which typically drive down prices: a forecast of high wind generation and an expectation of low demand. Given that the pandemic is likely to keep the appetite for power under even the reduced levels seen in warmer weather, it wouldn’t be surprising when the wind blows to see further instances of negative prices.

There is a more important factor at work than wind and that is the price of natural gas. A glut across the world has forced down costs of a fuel which is a major determinant of wholesale electricity costs here. Apart from a modest spike in prices last winter, the average wholesale cost of electricity has been just over three pence a unit or £30 a MWh during the first quarter of this year in the Day Ahead Market where close to 95% of electricity is traded. In comparison the average price of a MWh was over £50 for the same period last year.

So what does mean for Renewable Generators? In short if the wholesale electricity prices remain low and, as long as present conditions remain in force, it is very likely the fixed export rates energy companies offer will too drop!