Listening to electricity traders is scary in Europe

Every week, the people who trade electricity in the UK get to quiz the managers of the national grid for an hour. The conference call, which anyone can monitor, offers an insight into what the men and women on the front line of the power market are worried about. Listening to them is getting scarier by the week — and suggests keeping the lights on this winter will be a lot more challenging than European governments are admitting.
Prices are worrying enough. British households were told on Friday that their power and gas bills will increase from October 1 by 80%. The so-called energy price cap was set at £3,549 ($4,189) per year, up from £1,971 over the past six months and £1,277 during last winter. But the industry’s teleconference suggests the problem is broader than just rising costs. Increasingly, the words “emergency” and “shortages” are being used, with participants focusing on when, rather than if, a crisis will hit. Imagine being able to overhear conversations between Wall Street executives and the Federal Reserve as the global financial crisis unfolded in 2008.
Here’s a question from last week’s session: “Are you war-gaming possible options for if/when cross-border trading collapses under security of supply pressures this winter?” And another: “Can we have a session where we talk through the emergency arrangements?” Another participant said that the forecast for demand-and-supply electricity balance showed “how bad the winter could be for anyone who can do the maths.” The same caller was blunt about the grid’s own predictions: “I don’t think you believe what you’ve written, and nobody else does.”
One intervention was particularly revealing. “Based on where winter ‘22 products are trading, where does this position yourself with respect to securing power over the winter?” asked one participant. The background? In the forward market, UK power for December 2022 is fast approaching £1,000 per megawatt hour, up 50% from current prices. The implication? Power shortages.
Compare the tone with the British government’s insistence that there’s nothing to worry about. “Households, businesses and industry can be confident they will get the electricity and gas that they need over the winter,” Downing Street said. “That’s because we have one of the most reliable and diverse energy systems in the world.”
The weekly call is officially known as the “ESO Operational Transparency Forum,” and allows market participants to query the managers of the so-called Electricity National Control Centre, the hub that moves power around the UK from generators to traders to consumers. The forum typically deals with obscure power-trading problems. But in recent weeks, attention has shifted to crisis management. Another example from earlier this month: “If a system-stress event is active in both gas and power, how do the electricity system operator and gas control center communicate? Which stress event takes priority?” What’s particularly worrying is how few of the disaster scenarios appear to have been planned for.

—Bloomberg