(Bloomberg) -- A pair of gas-fired power stations earned over £1 million ($1.3 million) each in a handful of hours this week when the wind was barely blowing.
The move involved announcing a cut off in electricity production, ahead of the busiest evening periods and then offering to keep the station on at a higher price to meet a potential shortfall it helped create. The plants are run by a division of Vitol SA and by a company owned by Czech billionaire Daniel Kretinsky.
Regulator Ofgem issued new rules to cut down on plants that were artificially inflating prices because it can lead to higher power prices for consumers. A version of the behavior was identified in an investigation by Bloomberg last year.
A representative for the owner of one of the plants, Kretinsky’s EPUK Investments Ltd., said that it’s the grid operator’s decision which power plants to select to manage the network and the price offered by its plant was in line with others at the time. Ofgem’s rule change targeted operators that made changes to generation plans within the same day, while this station alerted the grid operator about its plans a day ahead of time, according to the company spokesperson.
A representative for Vitol’s VPI Immingham LLP declined to comment.
It’s an example of how a slump in renewable output can create price spikes at times when fossil fuels are needed to step in as back up. Gas plant operators say they need these price surges to stay profitable as stations become gradually crowded out by renewables, running for fewer hours each year.
A unit of the South Humber Bank gas station, owned by EPUKI, was producing electricity in the morning on Dec. 12 before indicating it would shut off in the early afternoon. With little wind, the country was using a record amount of gas plants to keep the lights on, according to publicly available grid data. Prices jumped to more than double this year’s average.
The plant then offered to generate in what’s known as the balancing mechanism, a system run by the grid operator to maintain enough supply to meet the country’s needs. To keep generating in the afternoon and through the evening peak, South Humber Bank wanted as much as £3,105 per megawatt hour, more than 10 times the intraday market price, the grid data show.
Some gas plants take about six hours to cool down before being able to generate again, meaning that if they threaten to switch off before the highest demand periods in the early evening, it risks leaving the system short on power. That can push the grid operator to accept the plants’ high charges to stay operational, using money that’s ultimately added to consumer bills.
The grid operator only opted to use South Humber for around two hours. But at highly elevated prices, the plant was able to make over £1.1 million in that period.
After that, the grid operator decided it didn’t need the power station, leaving the plant out of the market when it could have been selling electricity at lower, but still high, market prices.
It shows the ways that power stations in the UK can try and juice their returns when power prices spike. That practice peaked during the energy crisis, as detailed in the Bloomberg investigation.
The outcome for EPUKI’s plant highlights the risk of the maneuver. If selected in the balancing mechanism, the plants stand to gain significantly. But if the market isn’t tight enough, the grid operator will be able to satisfy its needs with cheaper options.
The other plant that profited was VPI’s Rye House. The gas-fired station planned to cut its output Thursday afternoon and then offered to sell electricity in the balancing market, grid data show. It made around £1.5 million in about three and a half hours. But it also was only selected for a short period, missing out on selling power at high prices throughout the evening in the UK.
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