Seasonal demand variation (Electricity market UK)

Seasonal demand variation (Electricity market UK)

The demand for electricity does not remain stable throughout the year in the UK; monthly demand fluctuates significantly (as indicated in fig 1a), because of a shifting, aggregate demand in the end users’ market; demand also falls in wholesale and retail market.

uk-monthly-electricity-gwh-demand-2014

Fig.1 UK’s monthly electricity demand and supply demand behaviour – 2014 (Source: National Grid UK)

As the monthly demand curve shifts, so do the average monthly electricity prices (£/GWh, fig.1b). Every year electricity prices (spot, wholesale and retail) reach its ceiling figure between December and January and touch their floor level between July and August.

All major electricity producers (big six) take some of their capacity out of production for annual maintenance during lower price periods and bring it back before December. The supply curve now shifts from AS1 to AS2 (Fig. 1b) due to excess availability from the six to sell at higher rates. Prices (£/GWh) are dropped by (P1-P1’) at the same quantity (Q3) level due to the shifting of the aggregate supply curve.

Electricity cannot be stored; it can only be produced and consumed at the same time, meaning supply and demand must be matched by System Operators (SO, National Grid – UK) in a real time.

References:

National grid (UK). [Online]. Available at: http://www2.nationalgrid.com/UK/Industry-information/Electricity-transmission-operational-data/Data-explorer/ [Accessed on 07 May 2015]

Vahey S., 2015b – Working paper, Basic Macro Models (Aggregate demand/aggregate supply), Warwick Business School, unpublished.

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