November '22 - GB Power Market Report

Monthly Report

The first half of November was characterised by warm temperatures, strong wind generation, and healthy LNG deliveries into Europe – steadily pushing prices down across the curve. Around the midway point, temperatures flipped and fell below seasonal averages. Combined with a drop in wind generation, this pushed prices upwards – ultimately ending above where they started the month.

There were several significant policy developments during November. The UK government announced its ‘Electricity Generator Levy’, a 45% tax on ‘excess profits’ over ￡10 million from January 2023 – March 2028 for renewable generators producing >100GWh at a group level. Excess profits will be calculated in relation to a benchmark of ￡75 per MWh. Unlike the previously legislated Energy Prices Bill, this measure will affect FiT assets owned by a qualifying generator.

On the continent, the European Commission outlined its proposals for a temporary gas price measure: capping month-ahead trades on the TTF when prices > €250 per MWh for two weeks, and those prices are at least €58 above global LNG prices. The proposal was criticised by member states on both sides of the divide (for and against such a measure). The former believe the conditions will not be met regularly enough for the cap to have significant impact – whilst the latter are concerned about ensuring security of supply.

Notably, European demand for gas fell by a quarter in November according to provisional data from ICIS - despite the drop in temperatures. However, as a result of the colder weather, gas storage levels fell to 93% - from a high of 94.8% in mid-November. This remains well-above the 85% target for the end of 2022.

In further positive news, French nuclear output is beginning to look healthier - with availability having risen to 36.8GW. Grid operator RTE has set a target of 40GW by the end of December, rising to 43GW by the end of January. This is highly relevant for prices in GB, which typically receives substantial amounts of power from France over the winter period. So far this year, power has been flowing the other way as GB exports to France due to the low nuclear availability.

Overall, throughout November:

• S-23 closed up by ￡33.30 at ￡334.40, an increase of 11.5%
• W-23 closed up by ￡34.40 at ￡298.30, an increase of 12.6%
• S-24 closed up by ￡15.25 at ￡220.25, an increase of 7.4%
• W-24 closed up by ￡7.20 at ￡242.20, an increase of 3%

Weekly Developments

Week 1 (w/c Monday 31st October)

Freeport LNG remained confident of mid-November return to operation, despite regulators’ concerns. New all-time record for wind generation (>20GW) in a half hour period in the UK, beating the previous record set a week earlier. National Grid ESO launches its Demand Flexibility Service. Reports that the Sizewell C nuclear project is under review, later denied by Downing Street. EDF revised down its nuclear forecast for the rest of the year. Nationalised German utility Uniper reported a $39.3 billion net loss in the first nine months of 2022.

Week 2 (w/c Monday 7th November)

European Commission announced intention to submit a proposal for a temporary gas price measure. Warm temperatures forecast to continue until late November. Unplanned outage at Norway's Oseberg field. 18 LNG cargoes expected to arrive in the UK within the next three weeks. EU and US working to maintain LNG flows into Europe.

Week 3 (w/c Monday 14th November)

Unplanned outages are two Norwegian gas fields. Equinor’s Hywind Tampen – which will be the world’s largest floating offshore wind farm – produced its first power. 19 LNG cargoes expected over the next three weeks. UK-Belgium gas interconnector offline for maintenance until November 30th. Fall in wind generation to 20% below seasonal average. UK government announces its Electricity Generator Levy, a 45% tax on excess profits over ￡10 million from January 2023 – March 2028 for renewable generators.

Week 4 (w/c Monday 21st November)

Freeport LNG’s return to operation rescheduled for mid-December (1 month delay). China and Qatar sign a 27-year LNG deal. Wind generation declined, increasing gas-for-power demand. European Commission proposes a temporary gas price measure: capping month-ahead trades on the TTF when prices > €250 per MWh for two weeks, and those prices are at least €58 above global LNG prices. EU member states on both sides of the gas price cap divide (for and against) criticise the proposal. First floating LNG terminal arrives at German port – one of five such facilities leased by the German government. GB exports increased ~20% during the week.

Week 5 (w/c Monday 28th November)

N2EX day-ahead market prices spike. Gas interconnector between the UK and Belgium comes back online. Qatar signs 15-year deal to export LNG to Germany. UK government revives the Energy Security Bill, including: founding a centralised vehicle for nuclear development, ￡700m public stake in Sizewell C, aim to establish an independent whole system operator, various measures relating to heat networks. Bloomberg analysis predicts European gas storage levels to be at 53% after the end of winter.