(Bloomberg) -- A pair of gas-fired power plants were paid millions of pounds on Wednesday to plug a shortfall when wind supply dropped at the same time as sub-zero temperatures increased demand.
The grid operator, National Energy System Operator, warned the market late on Jan. 7 that there was an insufficient safety buffer during peak hours of consumption on Wednesday. The shortfall meant the network manager was willing to offer eye watering prices to power plants that could generate to help keep the lights on.
Two plants, one owned by a division of commodity trader Vitol Group and another owned by Germany’s Uniper SE, were scheduled to switch off Wednesday afternoon. The power stations then offered to keep running at prices much higher than the wholesale price during those hours, grid data show.
It’s an example of how power stations can exacerbate stress on the UK’s power grid by not being scheduled to run and then profit to help resolve the issue.
Intraday prices jumped as high as £1,778.34 ($2,196.7) per megawatt-hour at 5:30 pm London time, according to Epex Spot SE data. The price the power stations got in the so-called balancing market was even higher. Vitol’s Rye House plant in Hertfordshire north of London sold power for more than £5,000 per megawatt hour and Uniper’s Connah’s Quay station in northern Wales was paid £2,900 per megawatt hour, according to grid data.
By paying for more supply, the grid was able to operate as normal through the evening peak but the increased cost will be passed onto the bills of consumers already struggling with historically high energy prices.
A spokesperson for Vitol’s VPI unit said the company takes its market obligation very seriously and has never left the grid short on power or exacerbated system tightness. The Rye House station runs rarely and is usually required when the system is very tight, the company added. Representatives for Uniper didn’t reply to requests for comment.
This isn’t the first time this winter stations have tried to profit this way. Last month Rye House took advantage of a period of low wind to use the same move.
Overall, the share of gas in Britain’s power mix is falling as renewable energy grows. During periods when wind and sun aren’t available, gas stations are one of the only options that can step in as back up. When demand is particularly high it means they can command extraordinary prices. That may help support the economics of running a gas station in the coming years as the overall hours of operation decline.
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. But that rule only applied to actions taken within a single day. A version of the behavior was identified in an investigation by Bloomberg last year.
Plants are still free to set their plans a day ahead of time. That adds to risk for the operators as they may end up not being needed and miss out on revenues they could have made in the wholesale market.
(Updates to add statement from VPI Imminham in seventh paragraph)
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