BSC Insights: a review of 2020
COVID-19 dominated the news in 2020; however, it was not all that happened. In this article, the Analysis and Insight team review 2020 and focus on the consistencies and inconsistencies witnessed. They use BMRS data to review the Fuel Mix, the make-up of BSC Parties, the Energy Imbalance Volume, and the overall electricity demand. While all of these were impacted by COVID-19, the data also demonstrates some consistencies with previous years despite COVID-19’s impact.
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The 2020 Fuel Mix
During 2020, we saw some firsts for the UK Fuel Mix. We experienced the longest consecutive coal free period since 1882 between 10 April 2020 and 16 June 2020. There was 67 consecutive days where no coal was used for electricity generation. The first coal free Christmas also occurred in 2020. We have written about this in a previous BSC Insight.
A record year for coal generation
The graph below displays the total generation by year and by fuel type. In comparison to 2016, in 2020 the total coal generation fell by 72.24% in 2020 (25TWh in 2016 and 7TWh in 2020). In 2019, there were 28% more Settlement Periods without coal generation in 2020. The drop in coal generation can be attributed to a few factors, such as greater and more competitive renewable generation and the closing of several coal generating plants in Great Britain.
Closing UK coal plants
In 2020, SSE and RWE closed the Fiddler’s Ferry power station and the Aberthaw coal plant. This means that only four coal plants remain operational in the UK, which contributed to the decrease in coal generation in the 2020 fuel mix. The government have set out plans to close all coal producing plants by 2025. However, there are ongoing discussions to bring this date forward by a year to 2024.
Coal generation and COVID-19
A further factor that could be attributed to a drop in coal generation is the reduction in electricity demand due to COVID-19. In comparison to 2019, there was a 12TWh (4.3%) drop in demand in 2020. A reduction in demand will result in less pressure on the System Operator to produce more electricity from other sources such as coal. Nonetheless, a further reduction in coal generation will help reduce carbon emissions and help the UK achieve its net zero targets by 2050.
New records for wind generation
Due to the decrease in coal generation, to make up the deficit there was an increase in wind and biomass generation in 2020. It was a record-breaking year for wind generation in particular; the total wind generation was the highest ever recorded. In comparison to 2019, wind and biomass generation increased by 8TWh and 0.81TWh respectively. On 26 August 2020, as a result of Storm Francis, during the third Settlement Period (1:30 – 2:00) wind generation made up 54.10% of the fuel mix for that Settlement Period.
There were other instances in 2020 where wind generation contributed significantly towards the total energy available. For example, on 26 December 2020, wind generation contributed to 44.63% of the total energy for that specific day. In 2020, biomass generation recorded its highest percentage contribution to the fuel mix since 2015 (6.21% in 2020 and 6.43% in 2015).
New highs for low CO2 fuel, new lows for fossil fuels
As illustrated by the graph below, low CO2 fuel made the largest contribution to the fuel mix in 2020. This was the highest percentage contribution ever recorded. As low CO2 fuels recorded new highs in 2020, there were new record lows for fossil fuels. In 2020, the lowest total gas generation was recorded since 2015 (84TWh in 2015 and 94TWh in 2020). Fossil fuels contributed 35.79% to the fuel mix, which is the lowest contribution recorded for fossil fuels since records began.
In a challenging year, renewable energy hit new highs in 2020. There was also a continued decline in fossil fuel generation in 2020. As COVID-19 restrictions continue into 2021, it will be interesting to see what 2021 has in store for generation and the fuel mix. We will continue to monitor any changes in the Trading Operations Report, which provides information on the state of the BSC market, such as generation.
Virtual Lead Parties entering the market in 2020
In December 2019 arrangements that allowed wider access to the Balancing Mechanism went live; however, the first Virtual Lead Party did not become active in the Balancing Mechanism until 2020. These arrangements were part of BSC Modification P344 and enabled Virtual Lead Parties to submit electricity Bids and Offers to National Grid ESO to enable them to effectively balance the system.
Background to Virtual Lead Parties
A Virtual Lead Party is a distinct new type of Party to the BSC that only participates in Settlement by offering balancing energy. They can do this by bundling changes in consumer’s loads or distributed generation output for sale in the Balancing Mechanism. However, they do not simultaneously supply the customer with energy.
The first Virtual Lead Party became active in the electricity Balancing Mechanism on 23 April 2020. On this date a Virtual Balancing Mechanism Unit supplied 10.33MWh of balancing energy to National Grid ESO. Over the whole of 2020 there have been two Virtual Lead Parties that have provided 62GWh of balancing energy.
How do VLP’s operate outside the Balancing Mechanism
Prior to BSC Modification P344, unless you were a BSC Party you could not provide balancing energy through the Balancing Mechanism and were restricted to providing balancing energy outside of the Balancing Mechanism. National Grid ESO can procure balancing energy outside of the Balancing Mechanism through forward contracts for energy products.
The advantage of having access to the Balancing Mechanism is that it is a more transparent market place, and National Grid ESO procure a greater volume of balancing energy through the Balancing Mechanism. The absolute cashflow for balancing energy in the Balancing Mechanism in 2020 was £1.28 billion, compared to £0.26 billion outside of the balancing mechanism.
Electricity market participants can provide Balancing Products to National Grid ESO via the Balancing Mechanism or outside of the Balancing Mechanism. To provide balancing services in the Balancing Mechanism the market participant either needs to be a BSC Party or a Virtual Lead Party. This is because Elexon calculate the volumes of balancing energy in the Balancing Mechanism and invoice the Parties for the Balancing energy they have provided.
The total balancing volumes provided in 2020 can be seen in the graph below. Virtual Lead Parties represented 0.16% of the total balancing volumes in 2020. For the rest of the make up, 75% of balancing volumes in 2020 were procured in the Balancing Mechanism from traditional BSC Parties; 24.84% of balancing volumes were provided outside of the Balancing Mechanism.
Why was the contribution of Virtual Lead Parties to the Balancing Mechanism so small?
Compared to other sources of balancing energy, the volume of balancing energy provided by Virtual Lead Parties in 2020 was very small. However, 2020 has been the first year that electricity market participants have had access to this new route to the Balancing Mechanism. As of the 31 December 2020, there were only six registered Virtual Lead Parties. As this route to the Balancing Mechanism becomes more mature, we expect Virtual Lead Parties to provide a greater share of the total balancing energy in 2021 and beyond.
Energy Imbalance Volumes continue to increase in 2020
An Energy Imbalance Volume is a volume of energy that has been used or generated, but was not bought or sold in the wholesale electricity market in advance. Elexon calculate the net volume of electricity each electricity market participant bought or sold in advance, and compares it to the volume of energy that that market participant consumed or generated to calculate an Energy Imbalance Volume. Elexon also calculate an Energy Imbalance Price to then calculate and invoice the amount each electricity market participant is owed or owes for their Energy Imbalance Volumes.
Imbalance Volumes are to be expected in energy markets because it is difficult to forecast how much electricity demand there will be, or in the case of intermittent generation, how much will be generated. Electricity Market participants can also choose to incur an Energy Imbalance Volume as part of their trading strategy, if they think that the Energy Imbalance Price will be better than the energy prices in the wholesale market.
Energy Imbalance Volume in 2020
There was 30.9TWh of Energy Imbalance Volume in 2020, a higher volume than in any previous year. This was a 3.8TWh (14%) increase on the total Energy Imbalance Volume in 2019.
2020 was a very unusual year, energy usage patterns changed as people were urged to stay at home to control the spread of COVID-19. This made forecasting electricity demand difficult, and many electricity traders have had to adapt how they buy and sell electricity.
The month with the highest Energy Imbalance Volume (3.1TWh) was April 2020. This was the first full month of COVID-19 restrictions in Great Britain. As very little was known about how energy usage patterns would change as a result of the restrictions, it is unsurprising that it led to greater Energy Imbalance Volumes.
Tracking Energy Imbalance Volumes
It is understandable that Energy Imbalance Volumes increased in 2020 in response to changes in demand caused by the COVID-19 restrictions. However, in the graph below, we can see that increasing Energy Imbalance Volumes has been part of a longer-term trend. In 2014, the Energy Imbalance Volume for the year was 13TWh, in 2020 the total Energy Imbalance Volume for the year was 2.4 times bigger.
Why Energy Imbalance Volumes are increasing
Since 2014, some electricity market participants have changed their trading strategies. In November 2015, BSC Modification P305 was introduced. This changed how the Energy Imbalance Price was calculated. The changes introduced made it possible for electricity traders to make a profit from Energy Imbalance Volumes as the Energy Imbalance Price was no longer tied to short term wholesale market prices in every Settlement Period.
A group of BSC Trading Parties that have taken advantage of the ability to make a profit by having an Imbalance Volume are Non-Physical Traders. These parties do not own any energy assets and are not responsible for any end customers, they are able to buy and sell volumes of electricity in the wholesale markets. They can choose to incur an Energy Imbalance Volume if they think that the Imbalance Price will be better than the wholesale price.
Non-Physical Traders had a total of 2.8TWh of Energy Imbalance in 2014, 12.4TWh Energy Imbalance in 2019 and 15TWh in 2020. The 15TWh Imbalance Volume they were responsible for in 2020 represents 48.5% of the total Energy Imbalance Volume for the year.
The other group of BSC Parties whose Imbalance Volumes have increased in 2020 are BSC Trading Parties registered as Suppliers. In 2020 Suppliers had a total of 7.2TWh of Energy Imbalance Volume, a 19.7% increase on the total volume in 2019, 6.3MWh. Suppliers Imbalance Volumes in 2020 represented 23.2% of the total Energy Imbalance for the year.
Energy Imbalance volumes as a percentage of electricity demand and generation
It is important to put Energy Imbalance Volumes into context, as they still represent a small volume of the energy generated and consumed in Great Britain. The 30.9TWh of Energy Imbalance in 2020 represents 5.7% of the electricity generated and consumed in 2020. This is the first year that the absolute Energy Imbalance Volumes in a year were greater than 5% of the total energy generated or consumed in a year. In 2019 Energy Imbalance Volumes represented 4.8% and in 2014 they represented 2.2% of the electricity consumed or generated in that year.
While the total Imbalance Volumes have been increasing, Imbalance Volumes can either be that the BSC Party had a deficit of energy or a surplus of energy, these will generally cancel each other out. The net Energy Imbalance Volume for 2020 was 0.59TWh.
Electricity Demand in 2020
2020 has been a very unusual year, one of the consequences of which has been that energy usage patterns have changed as people have been urged to stay at home to control the spread of COVID-19.
In 2019 Electricity Demand was 280TWh, it decreased by 4.3% in 2020 to 268GWh. The graph below shows the percentage difference in electricity demand for each month in 2020, compared to the five-year average demand for each month.
The months with the biggest difference from the five-year average are April, May, June and November. All of these months had lockdowns during part or all of them. Although in November there were different COVID-19 restrictions in each of the three nations in Great Britain, for most of the month England was in a lockdown.
The biggest difference in electricity demand between 2020 and the five-year average was in April, the difference was 16.48% or 3.77TWh. This was the first full month of COVID-19 restrictions in Great Britain, and had the strictest COVID-19 restrictions.
In April 2020 we wrote about how COVID-19 restrictions were changing electricity demand, and updated our analysis in July 2020 when the first set of restrictions were starting to ease.
2020 electricity demand over a day compared to the five-year average
The graph below shows that the biggest change in average electricity demand over a day between the five-year average and 2020 was between 8:00am and 8:30am. The 2020 average electricity demand was 1.59GWh (9.16%) lower than the five-year average during this half hour. As more people were forced to work from home in 2020, they could wake up later, this change in behaviour resulted in a change in morning electricity demand. This graph also includes a month filter so you can view the difference between 2020 and the five-year average for each month.
The month with the closest electricity demand profile to the five-year average is December. Although December 2020 may have felt like a very different December to previous years, in terms of electricity usage there wasn’t much difference.
One of the key drivers of electricity demand in December are the heating and lights being turned on to compensate for the colder weather and shorter hours of daylight. These two drivers of electricity demand were still very present in December 2020, even if the late night Christmas parties and family gatherings had to be cancelled.