Britain’s electricity prices have soared to an all-time high with gas also surging to a three-year record ahead of sub-zero temperatures forecast for much of the UK next week.
Energy prices have jumped as markets brace for freezing temperatures that are expected to boost demand for heating and electricity.
The UK’s market price for electricity has risen to a new record of almost £1,500 a megawatt hour for Wednesday evening’s peak in demand after a string of power plant outages and low levels of renewable energy generation.
The UK price of gas for next month has jumped by a fifth to 80p a therm, its highest in almost three years, ahead of the cold snap which may keep temperatures low across Europe until early next month.
Higher energy market prices typically lead to higher energy bills. Millions of households already face the risk of rising rates because the energy regulator has warned it may raise the cap on standard variable tariffs from April this year to help energy firms cover the cost of unpaid bills during the coronavirus crisis.
Tim Dixon, an energy market expert at Cornwall Insight, said cold weather has been a driving factor in the UK’s rising demand for gas this year, which is 40% higher than the same period last year.
“This is driven by increased heating demand but also by high demand from gas-fired power stations, a consequence of low windpower output and greater electricity demand,” he said.
The UK’s growing reliance on fossil fuels has been made more expensive by a global boom in gas markets which has lifted the price of gas imported into northern Asia – on giant super-chilled tankers as liquified natural gas (LNG) – to a record high of $20.705 per million British Thermal Units last week.
James Huckstepp, a gas analyst at S&P Global Platts, said the high prices offered by Asian gas buyers have diverted cargoes of LNG east, and forced European energy companies to rely on stocks of stored gas.
“If below normal temperatures are sustained into February and March then the UK, which has more limited storage stocks, [will be] left particularly exposed to the tighter global LNG balance. Prices could easily rise another 50% to incentivise stronger Russian [gas] supply and to compete with Asia for LNG,” he said.
National Grid’s electricity system operator (ESO) has relied heavily on gas and coal plants in recent weeks to meet the UK’s demand for electricity.
The control room issued an official warning that its buffer of spare electricity supplies would fall short by around 1,100MW on Wednesday evening, double the shortfall last week.
Adam Lewis, a partner at commodities trader Hartree Partners, said National Grid is already paying thousands of pounds to idle fossil fuel plants for each megawatt hour they generate to fill the gap left by power plants outages.
“The more we run power plants that typically have low running hours the more likely I think we are to see such outages,” he said.
Lewis added that electricity market prices would remain “very sensitive” to any further outages, drops in wind power, or disruption to the subsea cables connecting the UK to Europe’s power grids over the next week.