Winter Outlook for 2019/20 Sees Growing Margins

The winter ahead (2019/20) should see market conditions that are similar to those seen in 2018/19, but with the market seeing increased levels of supply vs demand.

This is again similar to 2017/18 but shows a strong contrast to 2016/17 when prices were peaked at £796/MWh, for buying power day ahead for delivery on the following day. This is shown in the de-rated market figures provided by National Grid.

National Grid produces a Winter Outlook Report annually that presents its forecast of supply and demand for the forthcoming winter. Within this report National Grid publishes de-rated margin figures.

For the times of peak demands National Grid looks at the level of supply at a de-rated basis compared to peak demand. It also accounts for acquiring a level of basic reserve.

For the winter 2019/20, the de-rated margin is expected to be at 12.9% which is higher than last year with 11.7%. This is again higher than in 2017/18 with 10.3%.

In 2015/16 and 2016/17 a reserve service called Supplemental Balancing Reserve (SBR) was introduced. The Supplement Balancing Reserve paid older power plants to remain available to generate in case of a supply shortfall. These plants were not active in generating power and were not a factor in the true de-rated margins in those years.

Excluding SBR, the de-rated margin was at 1.1% in 2016/17. This number is also related to the Loss of Load Expectation that describes the possible impact on the end consumers from demand exceeding supply. The Loss of Load Expectation for 2016/17 was at 8.8h/year. This level is high compared to what is normally expected from the market.

In future years, EnAppSys expects the de-rated margin to decrease. This is due to coal plants closing down and reduce levels of supply being bought in capacity market auctions. In the coming winter high levels of supply could limit opportunities for generators, with this set to continue until de-rated margin levels decline. In the short term this could reduce market values, but with value expected to rise as margins fall.