UK grid operator pays up to GBP 1,379/MWh in heatwave balancing as capacity hoarding fears return
The National Electricity System Operator paid bids of up to GBP 1,379 per megawatt hour to keep Britain's grid in balance as a heatwave drove demand above available supply margins, Montel reported. The figure is an order of magnitude above normal settlement prices and reflects how rapidly reserve depth can erode when temperatures push peak loads toward the top of the generation stack.2
NBP front-month gas was trading at €43.94 on Monday (2026-06-29), up 3.74% on the session, while German day-ahead power rose 4.30% to €102.32 per megawatt hour. ICE Endex TTF front-month fell 1.19% to €41.64, a divergence that captures the short-term nature of the stress: European gas forward markets are pricing cooler conditions ahead even as spot power prices signal current grid tightness. The gap between where TTF is trading and where UK balancing costs are clearing illustrates how a weather event can decouple physical power stress from the gas curve within the same session.2,3
An analyst told Montel that capacity hoarding during interconnector trading with Europe may be inflating Neso's balancing costs. Parties holding interconnector positions have an incentive to withhold available capacity from the balancing mechanism, forcing Neso to procure more expensive alternatives at short notice and at prices the seller can set close to the imbalance cap.2
Regulator Ofgem has documented this pattern. It has identified instances in which parties submitted bids to Neso's capacity auctions at prices substantially above imbalance levels subsequently observed in the market — a dynamic consistent with the hoarding behaviour the analyst described. Ofgem has not named the parties involved or indicated whether formal proceedings are under consideration.2
The GBP 1,379/MWh figure arrives in a market already operating at elevated base costs. British energy prices are among the highest in Europe, a gap that has persisted through successive government interventions and kept industrial and household costs under sustained pressure throughout 2026.5
The balancing episode also pulls Drax back into view. The 2.6 gigawatt biomass station — the UK's single largest emitter — received GBP 1 billion in subsidies in 2025 according to think-tank Ember, a 15% increase from the prior year. Drax's biomass output is treated as zero-emission under carbon accounting rules, qualifying it for capacity market payments that underwrite its availability. In a stressed balancing market, heavily subsidised dispatchable generators occupy a structurally advantaged position: Neso's obligation to secure stability gives sellers of last-resort capacity significant pricing power, and the subsidy floor insulates them from the commercial risk of holding out for peak prices.1
The ICE Endex TTF front-month has not responded to the heat event with sustained upward pressure, sitting at €41.64 on Monday (2026-06-29). That reflects the consensus that the current demand spike is temporary and that European gas inventories, while below the levels seen heading into the 2024-25 winter, provide sufficient buffer for short-term UK draws via interconnectors. But the balancing cost data suggest the market's relative composure about gas supply has not translated into adequate balancing depth in the UK's spot electricity market.3
Gas markets have been tighter throughout 2026 following attacks on Qatar's Ras Laffan industrial complex, which handles around 20% of global LNG supply. An estimated 17% of Qatar's LNG output is expected to be offline for three to five years. ICE Endex TTF front-month exceeded €33 per megawatt hour in January 2026, more than 20% above the Q4 2025 close of €26.73, before easing somewhat in February. The recovery back above €41 means the UK enters any sustained heatwave with a structurally higher gas price floor than it faced in previous summers.3
Two variables will define the next trading week. Ofgem's ongoing scrutiny of auction bid behaviour raises the possibility of enforcement action against capacity withholding — a move that could reduce extreme balancing spikes but would require demonstrating intent rather than outcome, a high evidentiary bar. More immediately, the duration of the current heat event will determine whether the GBP 1,379/MWh episode was an isolated outlier or the first in a sequence. Western Europe saw record temperatures as recently as late May (2026-05-27), with the UK recording its hottest May day on record; if June closes with comparable anomalies, Neso's reserve margins will face the same test again before the month is out.4,2