UK Power Prices Surge Amid Collapse of Wind Power

Waves break out at sea in front of Burbo Bank Offshore Wind Farm near New Brighton, at the mouth of the river Mersey in northwest England, on Mar. 13, 2019. Paul Ellis/AFP via Getty Images

A sudden fall in wind output triggered a spike in power prices in the United Kingdom, the world’s second-largest market for offshore wind power.

At the Epex Spot SE, some hourly power contracts rose above £1,200 ($1,445.92) per megawatt-hour on Tuesday, according to Bloomberg. Power prices for the 7:30–8:00 p.m. slot on Monday traded at £486 at the Epex Spot. The day-ahead auction cleared at £384 per megawatt-hour, which is the highest rate since Aug. 31.

Wind-power generation, which was projected to hit a low on Monday, is only expected to perk up by Thursday, according to a Bloomberg model.

More than one-third of the UK’s electricity comes from gas, and the fuel is used to heat 85 percent of homes in the country. After Russia’s invasion of Ukraine, gas prices have more than tripled. Meanwhile, temperatures on Tuesday and Wednesday are predicted to be colder than earlier forecasts, which would raise demand for heating.

The UK’s National Grid had earlier warned that it may have to implement a demand reduction program on Tuesday that pays certain homes to reduce consumption. But on Monday, the operator said the plan would be unnecessary.

In October, the UK government introduced an energy price guarantee (EPG) measure which promised households, using a typical amount of electricity and gas, would only need to pay £2,500 per annum.

Though the plan was intended to last for two years, the government later limited it to April 2023. The administration then announced that the guarantee will continue, with the price cap extended by £500, to £3,000 beginning April.

Government Financial Burden, Warm Banks

The price guarantee measure is expected to add a big financial burden on the government. According to Cornwall Insight, implementing 18 months of EPG will cost the administration £42 billion per year.

“This highlights the nature of the wholesale market risk that the government is taking on by deciding to extend the EPG ... with the consequence that the full costs may be potentially higher than currently budgeted for,” Craig Lowrey, principal consultant at Cornwall Insight, told the BBC.

According to the Office of Gas and Electricity Markets, a government energy regulator, households would have to pay £4,279 per year from January without the EPG scheme.

To help people who cannot afford to use heating at home, charities, community groups, and other entities are opening up “warm banks” this winter across the United Kingdom. Warm banks are places where people can go to heat up without paying.

More than half the councils in England and Wales are involved in either establishing warm banks or supporting the groups that are doing so.