Capacity market call sees £2,500MWh price spike, Grid says market working

November 8, 2016

Shaw: Price signals elicit market response

National Grid’s second capacity market notice saw day ahead prices spike to £800MWh and balancing market prices soar towards £2,500MWh.

The system operator issued the call yesterday (7 November) at midday for 4.30PM as demand appeared set to outstrip supply by 87MW. The notice was subsequently cancelled just after 3pm.

Speaking at a Policy Exchange briefing later that afternoon, National Grid executive director, Nicola Shaw, said those price spikes indicated that the capacity market was doing its job.

Taking part in a panel debate on whether current energy policy requires major surgery in the face of rapid change, the focus of a new Policy Exchange report, Shaw cautioned against wholesale change.

“I have sympathy [with those who perceive inertia within government departments responsible for energy] but also, be careful what you wish for,” said Shaw. “We don’t want intervention all of the time, there is a balance to be struck.”

National Grid was “focused on finding ways to make the [current] market work and I do think the market is working”, said Shaw.

“The capacity market notice is one example [of a functioning market] – providing information to which people react: Coal ramped up because prices were high and they could make money out of it,” she said.

“That is how things balance without us having to intervene all the time and I would rather be in that world than a world in which we have to intervene more.”

Looking longer term, Shaw outlined a looming skills crunch as the energy system becomes digitized.

“I think the algorithms for balancing are going to get more complex. If you have a bright child,” particularly those with strong maths and physics, said Shaw, “point them in our direction.

“We are going to need a lot of skilled people. The technology required is beyond an individual brain or system – they will be multiple – and making those systems work will be a challenge both for National Grid and the industry in general.”

Meanwhile, according to APX data, prices on the day ahead market for Tuesday look set to match Monday’s peak.