Renewable Energy Foundation

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UK Coal Benefits from Exceptionally High Wholesale Electricity Prices

The unusually hot September weather, and a resulting higher demand from air-conditioning and refrigeration units, over the past week has contributed to very high wholesale electricity prices, with coal stations being the main beneficiary.

Coal appears to have been called upon because several gigawatts of gas generation were offline. Furthermore, generation from the UK’s 14 GW of wind turbines during the period was, as is likely during a hot spell, modest, ranging from a high of 4GW to less than 1 GW, or from 29% to less than 7% of its capacity.

The prices charged by the coal generators during this period were exceptionally high. West Burton coal-fired power station, owned by EdF, charged up to £1,237 per MWh for providing an extra 1.5 GWh of electricity on Wednesday 14th September. This is approximately 30 times the usual wholesale price. Ratcliffe-on-Soar coal-fired power station, owned by E.On, charged up to £1,484 per MWh for providing extra power, earning an extra £6 million for the day.

It is worth noting that the prices greatly exceed the £92.50 per MWh agreed with EdF for the output from the proposed new nuclear power station at Hinkley Point, and generally described as too expensive.

The prices charged by these coal stations may seem unreasonable, and there is every indication that these generators raised their prices to take advantage of their powerful position in the market during a time when there was unexpected demand. However, it is fair to recognise that the fossil fuel generators guaranteeing security of supply on an increasingly renewables-dominated grid face a high-risk market for their output, making future income hard to estimate. Offered the opportunity of generating in volume, and at an advantage, it is inevitable that these stations will maximise their income for the rainy days that almost certainly lie ahead for them.

In other words, the fossil fuel generators, in the present case coal, are operating in a distorted market created by government policy, and must offset their own increasing risk at the expense of consumers. Balancing the system is becoming more expensive because of the indirect effects of policy. It is difficult to see any practical way of preventing this; a further compensating distortion, a cap on fossil fuel prices for example, would only further damage price signals to invest in the firm capacity for which there is a pressing need. Government is now in a very difficult position.

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