Natural gas prices have surged this year due to uncertainty around supply from Russia, booming demand in Asia as economies reopen, and a late cold snap that ran down reserves across Europe. Britain currently generates almost half of its electricity from gas-fueled power stations and is hugely reliant on imports. Imports hit a record high at the start of 2021 as essential maintenance work at some UK facilities hit domestic production.
Concerns about Britain’s gas supplies escalated on Wednesday after a fire knocked out a cable connecting British and French power stations. The cable supplied nuclear power but the loss of this alternative means Britain will likely need more gas at a time when supplies are already hard to come by and expensive.
“It’s not hugely material but it just added to the panic in the market yesterday,” Henry Edwardes-Evans, an energy analyst at S&P Global Platts, told the Standard.
Day-ahead energy prices spiked on Wednesday to hit £171 per megawatt-hour, double what it cost in mid-July. Edwardes-Evans said he was also seeing “amazingly high prices” in the balancing market, where the National Grid puts out short-term bids to ensure there is enough power to meet peak hours in the evenings.
Electricity prices began to ease today as panic subsided but natural gas remained at “sky high” levels, Edwardes-Evans said. He said prices were likely to remain high over winter.
“There will be enough electricity, it’s just at what cost,” Edwardes-Evans said. “You will probably see factories ramping down just because of the high cost of power.”
Fertilizer producer CF Industries said on Wednesday it would close two British factories because of high electricity costs, Bloomberg reported.
Shares in power plant operator Drax spiked more than 7% in response to the market moves. Higher electricity prices are good news for Drax’s bottom line. Meanwhile, rising gas prices won’t hit costs. The company, which was once the biggest coal-fired power plant in Western Europe, now relies on biomass and hydro to generate most power, leaving it largely immune to the natural gas supply crunch.
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