Last night’s (4 March 2020) imbalance prices reached >£2,000/MWh as National Grid was utilising Short-term Operating Reserve (STOR) generators during this period. Despite these generators requiring a much lower price to ramp up output (utilisation prices are typically less than £50MWh), they were priced in the Imbalance Pricing Mechanism at the Reserve Scarcity Price (RSP). The RSP is calculated as the loss of load probability multiplied by £6,000/MWh (known as the Value of Lost Load). This was a mechanism implemented in 2015 to appropriately value scarcity in the market and therefore incentivise flexibility.
These non-BM STOR generators, while getting their utilisation price, also get paid the imbalance price (i.e. £2,242/MWh at 6pm). This is because they are deemed to be spilling power into the market. However, from April 2020, STOR generators will no longer get paid the imbalance price when operating under their contracts. This is due to a change in BSC rules under modification P354.
This is the first time that the RSP mechanism has set the imbalance price at such a level, at implementation in 2015 it was expected the RSP would have more of an impact. However, its relatively quiet existence is representative of the oversupplied power market we have at present, thanks to interventions like the Capacity Market.
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