Posted on: 04/02/2020
Wholesale market prices have fallen significantly, increasing pressure on independent generators, and highlighting the need to sell power flexibly. Head of Smart Generation Sales, Angus Widdowson, looks at what’s driving down these prices and why a Flexible Power Purchase Agreement (PPA) could be a preferred option for independent generators to help protect project revenues.
Over the last week the wholesale market has dropped off considerably. We’ve seen unusually low prices for forward seasons in recent weeks, with the Summer 20 price falling below £35/MWh and Winter 20 dropping to less than £43/MWh.
Largely driven by excess gas supply in the form of LNG and milder temperatures, seasonal power prices have been a lot flatter than we’ve seen in recent times. Together with the additional risks and uncertainty around Brexit and even the economic impact of the Coronavirus, all these factors can be attributed to the current market movement. Fundamentally, supply is outweighing demand, as retirement of large carbon intensive thermal generation plant continues to be delayed.
You’ll see in the chart below, from November 2019 to the end of January 2020, the Summer 20 price has dropped by almost 25% which is about £11/MWh and Winter 20 has dropped by 20% equating to around £10/MWh.
Wholesale prices represent a major part of project revenues, so choosing the right time to lock in power prices is crucial for independent generators.
With prices considerably low at present, customers are increasingly looking for an alternative to a Fixed Price PPA and one option they are considering is a Flexible PPA structure. This enables generators to benefit from hedging volume in multiple blocks and spread price risk across a number of transactions instead of all in one go, whilst having transparency of associated management fees, meaning when there are spikes in the market, they can take advantage of higher power prices for maximum value, with direct access to our Trading team, giving that ability to instantly hedge.