Circumstances combined to push prices to a rare peak just as Hinkley Point C nuclear power station got the go-ahead. What does this tell us?
The government has finally decided to finally press ahead with Hinkley Point C. Who said the UK takes time to make decisions on infrastructure? It鈥檚 only been 10 years since the original Blair government decision to 鈥済o nuclear鈥�.
The announcement coincided with a day when wholesale electricity prices (bid the day before), rose to 拢160/MWhr from a typical 拢40/MWhr 鈥� with an astonishing 拢999/MWhr for the peak evening hour.
This spike in prices is unusual and was due to a combination of events. The unseasonal hot weather coincided with planned maintenance at several UK nuclear power stations, which were consequently offline. Add to that a low contribution from wind generation and the fact that the French interconnector was partially disabled, and the market responded in the way markets respond to all shortages 鈥� prices rose. It is anticipated that the cost of electricity will be above usual levels for the next few weeks, as maintenance at power stations and the interconnector continues and wind is forecast to remain low.
The system worked 鈥� we didn鈥檛 have any blackouts 鈥� but that success comes at a cost which inevitably gets passed onto consumers
So what does this tell us? First, it tells us that although the Hinkley strike price is high in comparison to the usual wholesale price, prices do fluctuate for many reasons and low wind generation and maintenance outages are only two of the factors that can drive prices higher. In the longer term 鈥� as the pressure grows to meet our carbon targets 鈥� the price we need to pay for low carbon electricity will inevitably rise as we are forced to use alternative and more expensive technologies, such as battery storage to balance the electricity network. Second, the system worked 鈥� we didn鈥檛 have any blackouts 鈥� but that success comes at a cost which inevitably gets passed onto consumers.
One last point. I am not generally prone to conspiracy theories but, on the day that the EDF Hinkley project gets the go ahead from the government, two of our existing nuclear power stations were offline, the French interconnector was partially down and the extra demand on the network was driven by a large amount of hot air arriving from France. All of this led to electricity prices above the contracted Hinkley strike price 鈥� surely just a coincidence?
Nick Cullen is a partner at Hoare Lea
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