Wholesale energy prices hit second highest level in at least three years
Wholesale energy prices hit the second highest level in at least three years on Monday, adding pressure on suppliers struggling to secure electricity and gas at competitive rates.
Low wind speeds were to blame for pushing wholesale energy prices for the peak period between 5pm and 6pm over GBP2,000 per megawatt hour, only the second time they have surpassed this level since 2018.
The UK’s power grid was forced to turn to gas-fired power plants and coal to make up for the lack of wind power generation, a problem that has exacerbated the energy price crisis that started in August.
The price surge on Monday was still below the levels reached in mid-September, when they hit GBP2,500 per MWh. The record wholesale prices have forced almost 20 energy suppliers to go bust since the start of September, , with more failures expected in the coming weeks.
“The very high wholesale prices have caused significant distress even before winter begins,” said Anna Moss, head of consumer markets at Cornwall Insight, which compiled the data. “How suppliers fare is in the hands of wholesale trading parties, and how suppliers can manage their costs through the winter months ahead.”
On Monday, gas-fired power plants were producing nearly 55% of electricity needs, up from a more typical level of 40%, while the rapidly disappearing coal sector accounted for about 3%.
Wind farms accounted for just 4%, a fraction of the average of 21% supplied over the last year, according to data from the Drax Electric Insights website.
In August, National Grid, which manages the UK’s electricity grid, was forced to break a 55-day coal-free power generation streak as the summer heatwave becalmed wind turbines. It was forced to turn to coal stations, the last of which the government has said it intends to close by the end of September 2024, to plug the power generation shortfall from wind turbines.
Demand for energy has rocketed as economies reopen following the coronavirus pandemic, with wholesale prices also under pressure due to lower supplies from Russia to western Europe.
While natural gas prices have climbed steeply, the UK’s price cap on energy bills stops companies from immediately passing those costs on to their customers.
Last month, Cornwall Insight released a report estimating that energy bills could rise by as much as 30% from 1 April, when industry regulator Ofgem is set to raise the price cap to contain the crisis engulfing suppliers.