UK power flows set to swing to exports until start of winter

The UK is forecast to become a net exporter of electricity over coming months, reflecting cheaper carbon costs for generators versus those on the continent, according to analysts at S&P Global Commodity Insights.

August could be the first net export month since last November, according to a weekly report published Aug. 3 with July imports already down sharply from a record 4.3 GW in May.

"Based on the current discount in UK carbon costs, we expect GB baseload power prices to move to the bottom of the European stack for September and into early Q4-23, with net exports forecast at an average of 1.6 GW between September and November," said Raymond Shi, European power analyst at S&P Global.

"Greater weighting towards wind versus solar should increase the relative length of the GB system moving into the winter months," Shi said.

However, there was a risk that mainland Europe will be able to push back on British gas with improved French nuclear availability and continued demand weakness the main drivers beyond gas and carbon spreads.

UK carbon allowance prices have plunged 60% over the past year to a record low GBP40.60/mt ($52/mt) on Aug. 3, while EU carbon allowances are down just 10% year on year and trading above Eur80/mt ($88/mt).

UKAs' discount to EUAs rose above Eur40/mt on Aug. 8, having been at a premium last year, according to Platts assessments for S&P Global.

UK power prices, meanwhile, remained at a premium to France for September, but swung to a discount from November until the end of Q1, 2024, according to Platts assessments and exchange data.

French nuclear rebound

So far in August, Britain continues to be a strong net importer with net flows averaging over 3 GW, system data to Aug. 8 showed.

That has been despite a widening differential in gas short run marginal costs driven by sustained weakness in UK ETS prices, while French nuclear is not impacted by carbon price differentials.

"UK border flows have been stubbornly resistant to the direction implied by that UK carbon discount, but when the story shifts to being a gas vs gas one later in the summer, we expect to see low level net exports," Shi said.

In July, French nuclear output was some 12% below declared availability indicating strong flexing with the French reactor fleet able to ramp down by 10 GW during negative price periods at weekends.

Rising French nuclear availability allows for a push back on the 4 GW of interconnectors between France and Britain.

Analysts at S&P Global forecast French nuclear output to gradually rise from a 30 GW average in August to average 37 GW in November.

A swing back to exports for the autumn would also boost gas-for-power demand in the UK, supportive for both UKAs and NBP gas prices.

UK gas-fired output for the first seven months of 2023 was down 18% year on year at 52 TWh, while coal plunged 58% to just 1 TWh.

The spread between UK and Continental gas prices has virtually disappeared with NBP winter gas trading at a slight premium to TTF.

Platts last assessed NBP winter at GBP1.20/therm.

UK gas-fired power generation in 2023 is forecast to fall to the lowest since 2015.

For 2024, the S&P Global analysts forecast UK wind to overtake gas for the first time in the power mix.