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What’s the outlook this summer?

National Grid has published its outlook for the coming summer, predicting low demand and record levels of renewables onto the system, posing new challenges for keeping the system balanced during summer months as well as the traditional peak winter periods.

As system operator, Grid has plans in place to manage over-supply and balancing supply and demand this summer, but how does it impact procurement strategies and security of supply over the coming months?

Business flexibility back in demand

There is an increased risk this summer that nuclear and renewables could exceed system demand – most likely during sunny Sunday afternoons when solar output is high, and during windy nights where demand is low but wind turbine output is high.

To avoid this having a negative impact on system voltage and frequency, Grid has a number of tricks up its sleeve, involving asking generators to turn down supply or asking businesses to increase demand.

Shutting down wind turbines is an expensive solution for Grid to deploy, but they can access up to 5GW of ‘footroom’ – asking generators to either reduce their output or increase demand (such as switching on pumped storage at hydropower facilities).

Increasing demand from industrial and commercial organisations is seen as a more cost-effective solution to keeping the Grid balanced. National Grid’s Demand Turn Up scheme invites consumers to increase their demand when required. This could be as simple as switching on lighting or HVAC systems. Grid procured 138.6MW of Turn Up flexibility in February, but it is looking to significantly increase this between now and June/July, when the scheme is expected to operate the most.

Inflexible generation dominates

National Grid expects solar generation to reach 13GW this summer. Alongside a reduction in coal plants and a greater reliance on less flexible nuclear plants and intermittent renewable technology, Grid will have a major challenge to control the frequency of the system in real time.

Frequency Response schemes will be in operation this summer, bolstered by conventional power plants, providing National Grid with a swift response to any fluctuations in frequency, avoiding interruptions to supply. Businesses can also participate in FFR schemes, being paid to adjust consumption in line with system frequency, often without impacting business operations.

Market outlook

Matt Osborne, principal risk manager at Inenco, explains what the supply and demand fundamentals should mean for the commodity markets this summer:

“Falling levels of demand for both gas and power means upward price pressure should be relatively limited over the summer months.  Barring any disruption to projected healthy generation capacity and GB gas supply, the market may see some downward momentum.  Centrica’s announcement that there will be no further injections into the Rough storage facility will have limited impact on summer gas prices, although reduced storage levels this winter will undoubtedly be built into the forward curve and may create issues should the UK experience any prolonged cold snaps.

“Businesses on flexible contracts who are sufficiently below budget this summer may want to consider hedging some volume closer to and even into delivery, whilst ensuring they have enough forward cover to protect against any upside. Those on fixed price contracts should certainly use this summer period to place at an opportune time that may present over the next couple of months. However, market vigilance will still be key to ensure contracts are placed at the optimum time – Inenco’s energy trading team monitor the markets and can support with this.”

Future challenges?

Balancing supply and demand has traditionally been an issue for National Grid over winter, but consistently falling levels of demand and growing renewable output means the issue of over-supply in summer will worsen. Whilst more investment in responsive technologies such as batteries and pump storage will help to counter inflexible generation, more opportunities for businesses should also be created as Grid seeks to procure more frequency response, footroom and demand turn up contracts.

Unlocking your flexibility and taking advantage of these schemes is becoming increasingly valuable. For support on finding opportunities within your organisation to turn consumption up or down and participate in demand response activity, speak to one of Inenco’s optimisation experts today. Call us on 08451 46 36 26 or email enquiries@inenco.com.