Phil Hewitt

Bumper Month for Profits on Day-Ahead to System Price Arbitrage in GB

January 2021 in the GB power market has not passed by unnoticed.

Low margin and new market arrangements on the interconnectors post Brexit, resulted in extreme prices. In the day-ahead market we noticed prices up to £1500/MWh. While such extreme events incorporate obvious risks, they can also be great opportunities when using the right tools and strategy.  We calculated how our day-ahead price forecast performed.

 

As part of the EnAppSys product suite for our GB platform we include a day-ahead price forecast. This forecast starts with fundamentals where we run a stack model to come up with a marginal cost of production. On top of that a layer of sentiment analysis is used to arrive at a prediction for the day-ahead price. This prediction, together with the inputs can be used to build your own models to account for individual preferences and experience.

 

Our day-ahead forecast aims to provide a different view on how the market clears. When the model runs it gets the best possible view on the price for the intraday market. This model is suited to strategies around time-shift arbitrage.

 

With the extreme prices in January 2021, bumper profits could have been realised from our model using the right approach: Using the model, a position on the day-ahead market can be taken, and then leaving the position to imbalance cash-out. If we are predicting a higher day-ahead price than the auction price out-turn we buy and if we predict a lower price we will short the day-ahead.

 

Using this approach, you can get a position that can be taken into the imbalance market. By placing a 1MW trade in the hour in January 2021, our model cleared £8,918.62 against Nordpool to imbalance price and £7,419.74 against EPEX to imbalance price. This was a profit of £12.28/MWh against Nordpool and £10.20/MWH against EPEX.

“Realise profits of £12.28/MWh against Nordpool and £10.20/MWH against EPEX”

Generally the model performed well over 2020, despite Covid-19, yielding around £5,000 per year with 1MW deployed in the market and a profit of 91p/MWh. This performance could be improved by closing positions early in the Intraday but with a simple dumb strategy of going from Day-Ahead to System Price it is a strategy that requires little effort.

 

As shown in Figure 1, this came with some major swings against the market on some days, which may frighten a risk manager, but in the round, it was very successful. Figure 2 shows how the profits were spread. It can be noticed that these high prices were only a small number of positions.

 

Do you want to know more about our products for beyond intraday? Please do not hesitate to get in contact with Kathleen Dingenen and her team.

Figure 1: Rolling Day-Ahead to System Price Arbitrage Calculation – January 2021

Figure 2: Profit Distribution by Profit Bin – January 2021