Britain remains heavily exposed to movements in the gas price, sys Rabobank, and even more so now that the UK’s last remaining coal-fired generator has been switched off.
According to the Dutch bank, Italy and the UK are among those markets with the highest power prices with an over 90% gas-power correlation, while France and Spain continue to be among the lowest-priced markets.
German benchmark price in 2024 at €72/MWh it is still trading around €42/MWh above the average level in 2020.
While geopolitics continue to inject some support levels into gas markets, the real threat to this winter’s balance is the development of the weather and Europe’s resulting heating demand.
In 2000, coal still accounted for 32% of the UK power mix, while wind and solar output only accounted for 0.25%.
The power mix has changed significantly over the last 20+ years, with coal only accounting for a 1.2% share by 2023, with solar and wind accounting for 34%.
“The UK’s coal phaseout has ensured the permanent decoupling of power prices from coal prices while cementing the role of gas as a price setter for years to come,” says Rabobank.
“Despite the UK’s target to reach a fully decarbonized power system by 2030, the importance of gas in the mix will not just evaporate over the next 4+ years.
“In 2023, gas still accounted for 35% of the power mix and is unlikely to just fall to 0 by 2030.
“The correlation between the UK baseload power and NBP gas prices has been over 85% since January 2023.”
A rising share of renewables will continue to depress power prices when output is high, leading to rising negative prices in the day-ahead market.
“As soon as renewable output drops off, however, gas-fired plants will still step in to balance the market – and lift prices yet again,” says Rabobank.