Lessons from the recent GB market crunch

These recent events tested the system, stretched resources and saw prices surge. The Viking interconnector proved vital by bringing additional power into Great Britain at a critical moment, helping prevent further market disruptions. It highlighted the need for collaboration and innovation in response to challenging circumstances, much like a fortified settlement providing defence against Viking invaders during the mediaeval age.  

The day offers valuable insights into the workings of the market under extreme conditions and underscores the importance of a robust, flexible system.   

By Monday, it was already clear that Wednesday evening was looking tight. Wind forecasting, now increasingly reliable with a 48-hour horizon, predicted low wind output for the day: a mini-dunkelflaute event. Early signals from the market added to the tension. Day-ahead interconnector capacity auctions cleared high at GBP 200/MW to import power into GB for the evening peak, implying that traders were worried. The National Electricity System Operator’s (Neso) demand forecast on Wednesday morning was also concerning with low temperatures, low wind and 3.2 GW of interconnector outages. Together, this implied that the market would be close to running out of capacity at the evening peak. 

However, the hourly day-ahead power auctions on the GB side of the interconnectors cleared at GBP 330/MWh for the peak, lower than one might expect given the tight conditions. The subsequent auctions on the continental side of the interconnectors cleared low, allowing traders to book modest single-digit profits moving power into GB. 

By 18:00 UK time, we had a clear indication of how Wednesday might unfold. Simple calculations showed that two generating units were likely to shut down after lunchtime in the northwest and Wales, and they were eventually joined by another unit in London. This suggested these units either failed to clear at high enough prices in the day-ahead market or anticipated better returns in the balancing market. 

At 20:30, Neso issued its first electricity market notice (EMN) in nearly two years, signalling concerns about generation margins. A few hours later, another message from the Neso control room revealed efforts to either bring an interconnector back online or increase its flow for Wednesday evening.

Wednesday started with Neso reiterating its EMN, which it repeated at noon. A capacity market warning was also issued shortly after midday and quickly cancelled.  

Some power stations had declared plans to shut down for the afternoon, meaning Neso had to extend their operations into the evening. Historically, power stations would often declare they were running for the entire day, only to adjust their position closer to delivery - potentially buying back their position in the intraday market and then shutting down. This practice is now restricted under the “Inflexible Offers Licence Condition” (IOLC). 

However, a power station can still decide not to run during tight periods. In such cases, generators may instead set their prices based on what they perceive to be the scarcity value of their generation. In this case, the run extensions drove prices in the balancing mechanism to as high as GBP 5,750/MWh at one plant.  

Help from Denmark

Meanwhile, Neso’s Tuesday night request for interconnector support was about to be answered. The Viking interconnector, which was under maintenance at the GB end, was poised for deployment. It was brought back online just in time for the evening peak. 

However, while the GB side was fixed, work remained on the Danish side. Denmark’s DK1 bidding zone, with an average demand of around 2.5 GW, faced a significant challenge in delivering an additional 700 MW of output at short notice. Danish TSO Energinet had to undertake substantial efforts on its side of the interconnector to ensure the delivery of this crucial power boost. 

Imports into GB were boosted by 200 MW between 16:00 and 17:00 and rose to 700 MW over the planned amount for the following two hours. This system operator to system operator (SO-SO) action is rare and is one of the last options available. It allowed Neso to switch off a CCGT that was asking for EUR 5,750/MWh in the balancing mechanism. 

The market’s reaction to the potential for imbalance prices to reach EUR 2,900/MWh is shown in the chart below. Prices began to rise at around 15:15 as market participants recognised an opportunity to benefit from the high imbalance price or avoid paying it.

By Friday, similar conditions loomed, but higher day-ahead prices (GBP 600/MWh), lower demand and improved interconnector availability provided more breathing room. The market remained balanced, with intraday prices staying below GBP 210/MWh. 

Incomplete information

Accurately calculating the imbalance price requires clear visibility of all Neso actions, but limited transparency around non-balancing mechanism actions can lead to market confusion. In this instance, the Viking interconnector SO-SO trade was booked as a zero-price action, which created anomalies in calculating the price and left the market operating on incomplete data during critical periods. Several days after the event, the market was still awaiting publication of the correct prices. 

Overall, the events of 8 January show that while the GB market can handle stress, these moments test the system’s resilience. The use of an EMN for the first time in nearly two years shows that such extreme conditions are rare. The market’s ability to manage these scenarios without excessive interventions suggests it remains functional, incentivising private investment to address future capacity challenges without undue cost to consumers.  

Ultimately, these sorts of days demonstrate the need for vigilance, adaptability and investment in infrastructure to ensure that the system remains robust as the energy transition progresses.  

It also highlighted the vital role that infrastructure – like the Viking interconnector – plays in maintaining balance. Just as Viking raids ultimately prompted stronger fortifications and more strategic planning, this day of market stress underscored the need for continued energy investment to secure the future resilience of the GB power market.

This article originally appeared as a column on montelnews.com