Posted on: 18/05/2018
From the 1st November 2018, there will be changes to the way the system price (also known as the cash-out price) is calculated. James Graham, Deputy Vice President of Asset Optimisation, looks at how these changes will impact market volatility and how businesses can prepare themselves for next winter.
Industry body Elexon are implementing three changes to the way they calculate the system price as a result of the Balancing and Settlement Code P305:
- Reducing the Price Average Reference (PAR) volume from 50MWh to 1MWh
- Increasing the Value of Lost Load (VoLL) from £3,000/MWh to £6,000/MWh
- Replacing the static loss of load probability calculation with a dynamic method
What does this mean?
Whilst the change to PAR will not directly affect system prices, we do expect to see intraday volatility increase, with higher price peaks and more frequent negative prices.
Elexon have developed a System Price Analysis Dashboard providing a modelled price for the upcoming 1 November 2018 changes.
We’ve used the model to demonstrate how the reduced PAR will impact system price volatility.
On 20th April 2018, the minimum system price based on PAR50 was £26/MWh, under PAR1 it would have been £-85, a swing of £112/MWh from positive to negative.
Fail to prepare, prepare to fail…
It’s true what they say! Now is the time to prepare your business turn these price risks into opportunities and take advantage of these changing market conditions.
There are revenue opportunities for businesses that can change the way they use or generate electricity during periods of high volatility.
SmartestEnergy provide bespoke trading arrangements to enable businesses that can be more flexible to benefit from energy market optimisation.
Our framework agreements provide access to the short-term markets, so consumers or generators can optimise their positions in the day-ahead and intraday markets.
Most large I&C companies have 1MW or more flexibility within their business. If your business is yet to identify it's flexible assets or processes, book a no-obligation site survey and find out how you can tap into new revenue streams in ancillary and energy markets.
About the author
James joined SmartestEnergy in 2012 as a Business Development Manager after more than a decade’s experience working in the energy sector and later became Head of Direct Sales. In his current role he is responsible for delivery of sales through SmartestEnergy’s Asset Optimisation function. His role focuses on working with customers to deliver value from flexibility across generation and demand response. His career in the energy industry has seen him hold senior roles with companies including Reactive Technologies and Bergen Energi.