Prices in the wholesale electricity trading pool are expected to soar to more than 80 pence per unit at one point tomorrow compared with a price cap of 2.4p to 2.6p set by the regulator, Offer. The record spike is thought to be the fault of the computer system that controls trading, but will be a huge embarrassment to the generators, National Power and PowerGen.
Professor Stephen Littlechild, director-general of Offer, is already considering whether he should take action after the average pool price over the year to 31 March slightly breached the cap. Professor Littlechild, who at one time suggested that pool prices may result in a reference to the Monopolies and Mergers Commission, has written to customers, canavassing their views on the issue.
Prices in the pool are set by generators bidding to run certain power stations for each half-hour period at various prices. The stations bidding the lowest are normally chosen first, but all stations get paid the same as the most expensive needed in a given half-hour to meet demand. Prices can dip to one penny in warm weather and at times of low demand.
National Power and PowerGen are confident they have bid fairly and that any surges in price are caused by the software that schedules the running order of available power plants. One industry source said: "This is very, very unfortunate timing. But it ought to concentrate the regulator's mind on the pool system and software rather than raising any question about the behaviour of the generators."
Pool price hikes have also occured recently because of the temporary unavailablity of some nuclear power stations. A sharp reduction in capacity results in higher payments to generators to keep plant ready to run in case they are needed unexpectedly.
The price changes do not affect consumers, as the regional electricity companies tend to buy from the generators under contracts that hedge against volatility in the pool. However, they do have a severe impact on some large industrial customers which buy direct from the pool.
These large users are among those pressing for action from Offer to curb pool prices. The generators argue that they could also take out contracts to hedge against pool prices but that those shouting loudest have failed to do so.Reuse content