The Growing Importance of Policy Year Policy Objectives Household energy efficiency & contracts for 1994 EESoP, NFFO renewables Tax carbon element of business energy, discounts for 2001 Climate Change Levy/ CCAs energy intensive industry 2002 Renewables Obligation Subsidise large scale renewables Sustainability 2002 Energy Efficiency Commitment Household energy efficiency focus 2005 EU ETS, EEC2 European carbon trading, household energy efficiency 2008 CERT/ CESP, smart meters Household energy efficiency 2010 Carbon Reduction Commitment Business energy efficiency 2010 Small scale feed-in tariffs Sub 5MW renewables subsidy 2011 Warm Homes Discount Social tariffs, rebates for vulnerable households 2013 Green Deal, ECO Energy efficiency (ECO household only) Security 2013 EMR Carbon tax, CfD FiTs, capacity market focus 2015 RO, FiTs, Green Deal, CCL Reduction of subsidy and tax relief for renewables Affordability CMA whole market review and recommendations, CMA, embedded benefits, coal 2016 review of network charging principles, coal closure focus closure consultation www.cornwall-insight.com
The Levy Control Framework LCF Projected Funds 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019- 2020- £bn 2011-12 Prices 12 13 14 15 16 17 18 19 20 21 Total “budget” 1.61 2.36 2.97 3.50 4.30 4.90 5.60 6.45 7.0 7.60 Forecast consumer 1.61 2.37 3.03 3.56 4.26 5.19 6.38 7.35 7.88 8.43 spend Source: BEIS • • Budget and monitor the costs of Included policies in the consumer bill o RO o Households and business users o Small-scale FiT o CfD FiT • Nothing in place (yet) beyond 2020-21 • Excluded o Renewable Heat Incentive o Warm Homes Discount www.cornwall-insight.com
What are Third Party Charges? Third Party Wholesale Environment Networks Charges Energy & Efficiency Sourced from markets, regulated Domestic Energy Costs businesses and government policy 20 15 Supplier’s p/kWh own costs 10 5 Price offer in market 0 Gas Electricity Supplier costs and VAT Environment and efficiency costs Customers Network costs Source: Ofgem SMI www.cornwall-insight.com 26
TPC Trends - Key Events Rising Cost of TPCs FiT costs become 5.0 material 4.5 4.0 RO costs increase at 15%-35% a year 3.5 3.0 p/kWh 2.5 2.0 1.5 Distribution 1.0 costs fall in first Step in transmission costs year of RIIO-ED1 0.5 with RIIO-T1 0.0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Transmission Distribution BSUoS AAHEDC RO FiTs CfDs CCL Source: Cornwall www.cornwall-insight.com 27
How do Consumers see Charges • 1 April is critical date for new charges to apply o New time for SVT increases rather than autumn ? • Most charges are volumetric Fixed (Homes and SME) Pass-Through (I&C) • Charges billed at prevailing rates • Charges included within pre- levied on suppliers determined rates o Can be itemised on the bill • Risk premium • Bills can be volatile in line with pass-through cost volatility o The supplier may make additional charges to cover costs in case of unfavourable changes www.cornwall-insight.com
Why are TPCs Changing? Drivers of TPC Change Transmission networks Price controls and embedded benefits reforms (electricity only) Price controls and industry code changes (eg. DCP 228 for Distribution networks electricity) Balancing services Growth of renewables development AAHEDC Largely static but could include a future Shetland subsidy Renewables Obligation Level of Obligation placed on suppliers by government Feed-in Tariffs Renewables capacity accrediting under scheme Capacity awarded contracts (pre-2020). Full post-2020 costs Contracts for Difference still to be determined Clearing price in auctions - will include behaviour of coal fired Capacity Market generators and embedded generators Climate Change Levy Rebalancing of the CCL and inclusion of CRC costs www.cornwall-insight.com
What Direction are Costs Moving? Domestic Customer Forecast of Electricity TPCs (March 2017) 10 9 8 Main driver of electricity 7 change in the next two years is the cost of CfDs 6 p/kWh and the Capacity Market 5 4 3 2 1 0 2017-18 2018-19 2019-20 2020-21 2021-22 Year Transmission Distribution System balancing (BSUoS) AAHEDC (HDCA) Renewables Obligation (RO) Feed-in Tariffs (FiT) Contracts for Difference (CfDs) Capacity Market (CM) Warm Home Discount (WHD) Energy Company Obligation (ECO) Fuel Poverty Obligation (FPO) • Between 2017-18 and 2021-22, we forecast the total cost of these domestic electricity third-party charges to rise by 18.3% (the equivalent for gas is 2.9%) Source: Cornwall www.cornwall-insight.com
What Could Change this Direction? Unknown Known • • Smart metering programme on Network price controls set tough trajectory for 2020 beyond 2020 • • ECO successor under LCF is set to 2020-21 development • Triad charge rebalancing through CMP264/265 Basic framework is set to • Charging base as demand 2020-21 , but nothing for declines policy costs thereafter www.cornwall-insight.com
PPM Electricity Cap and Future Bills Annualised Delivered Cost of Power, Calculated Every Six Months 600 500 400 £ Per Year 300 200 100 0 2016-17 2016-17 2017-18 2017-18 2018-19 2018-19 2019-20 2019-20 2020-21 2020-21 Summer Winter Summer Winter Summer Winter Summer Winter Summer Winter Wholesale energy Network Policy Other • With no changes to current policy £100/year of networks and policy costs in electricity bills by 2020-21 Source: Cornwall www.cornwall-insight.com
33 Conclusions • • Funding policy programmes Political concern about overall through bills is a longstanding level of bills unlikely to choice dissipate • • Many schemes, much Price caps could have impacts complexity and rising costs along the value chain despite efforts to rein them in: o FiT degressions, RO early closure o ECO scaling back www.cornwall-insight.com
Contact Details J onathan Davison Wholesale Team Lead j.davison@cornwall-insight.com www.cornwall-insight.com
Can the Market Still Innovate? 20 June 20 17 Anna Moss HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
Can the Market Still Innovate? • What innovation have we seen so far? • What about “fair” markets? • Can innovation and fairness co-exist? • Can the market still innovate? www.cornwall-insight.com
What Do We Mean by Innovation? • Traditionally a homogenised product, but o Is the proposition changing? o How are customers buying? o Who is selling to them and how are they doing it? o What else are these companies doing? www.cornwall-insight.com
Is the Proposition Changing? Rising proportion of dual fuel customers Rising proportion on fixed tariffs 80% 80% 70% 60% 50% Jan 2017 70% 40% 30% 60% 20% Jan 2008 10% 0% 50% Large Suppliers Small and Medium Suppliers Source: Cornwall Tariff progression Variable Fixed Smart www.cornwall-insight.com
What About the Prepayment Market? • Prepayment now ~ 1 in 6 households Tariff progression • Concerns about equity trigger CMA PPM cap Variable o To go when SMETS2 complete • SaMS bring innovation o e.g. Online top-up • Matched by some large suppliers Fixed Smart www.cornwall-insight.com
How Are Customers Buying? www.cornwall-insight.com
Who Are They Buying it From? 50 25% Small and Medium Supplier Dual Fuel Share 58 fully licensed domestic suppliers 45 72 including white labels 40 20% 35 Dual Fuel Suppliers 30 15% at 30 April 25 20 10% 15 10 5% 5 0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Large suppliers Small and medium suppliers SaMS dual fuel share at 30 April Source: Cornwall www.cornwall-insight.com
Identi-kit Suppliers? 10 • Supplier in a box provides easier route to entry 9 • White labels now popular with local councils 8 7 • First acquisition happened in 2017 New entrants 6 5 4 3 2 1 0 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416 Q117 Q217 Self-managed Pre-accredited Supply White Label Acquisition Source: Cornwall www.cornwall-insight.com
Rising Interest in Multi Utilities • With a few exceptions (e.g. Q217 43 15 Q117 40 12 BG, Utility Warehouse), Q416 37 11 suppliers have struggled to Q316 30 11 Q216 diversify 30 11 Q116 29 11 Q415 26 11 • Q315 But increasingly energy 21 9 Q215 20 9 suppliers seek new markets: Q115 19 8 Q414 19 7 Q314 18 7 o Acquisitions Q214 19 6 Q114 19 5 o Partnerships 0 20 40 60 Energy Only Other Services o Direct entry Source: Cornwall www.cornwall-insight.com
Summary of Main Points • • Is the proposition changing? Who is selling to them and how are they doing it? o Often led by SaMS new products are being developed o New entry shows no signs of and adopted by consumers abating • How are customers buying? • What else are these companies doing? o Online successfully engages consumers o Existing competitor are seeking new markets www.cornwall-insight.com
But What About Fair Markets? • Political focus has increased in parallel with competition • Concerns centre on price especially for prepayment and SVT • 2015-16 wholesale slump increased benefits for engaged • 2017 SVT increases for the disengaged o Fixed prices rose from summer 2016 • Bifocal market o Suppliers to the engaged and disengaged are different www.cornwall-insight.com
Can Innovation and Fairness Co-exist? Large supplier discounts attract £300 saving media concern SVT to fixed Fairness has supplier and consumer perspectives Source: Cornwall www.cornwall-insight.com
SaMSand Large Suppliers Compete in Different Markets 30% 27.3% 25% 20% 18.1% 15.0% 16.1% 15% 12.8% 12.6% 10% Q315 Q415 Q116 Q216 Q316 Q416 Q117 Q217 SaMS Churn Large Supplier Churn Total Churn Source: Cornwall www.cornwall-insight.com
Can Innovation and Fairness Co-exist? • Innovation is about more than price (even online fixed) • Industry systems and regulatory rules (have held product development back o Smart metering seen as the enabler • But needs better settlement o Project Nexus offers capability in gas o Voluntary electricity HH settlement o Suppliers own systems www.cornwall-insight.com
What Have We Learned So Far? Source: Cornwall www.cornwall-insight.com
Can the Market Still Innovate? • • Those who cannot engage in Suppliers entering new the market are disadvantaged, markets and adding new and there also concerns about propositions large/SaMS competitive • dynamic Large suppliers are having to respond • Record supplier numbers • Early signs that smart is having • Four year high engagement an effect through switching o Since last price rises www.cornwall-insight.com
Contact Details Anna Moss Domestic Retail Team Lead a.moss@cornwall-insight.com www.cornwall-insight.com
www.cornwall-insight.com 52
Debate: Regulation, Engagement and the Political Agenda 20 June 20 17 HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
The Panel www.cornwall-insight.com
www.cornwall-insight.com 55
Unravelling the Paradox 20 June 20 17 Gareth Miller HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
Low-carbon Revolution Total renewable generation capacity to 2035 (GW) Current renewable capacity (MW) 45,000 70 60 40,000 50 35,000 40 30,000 30 25,000 20 10 20,000 0 15,000 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 10,000 Renewables (reference case) Gas Nuclear 5,000 - Total renewable generation output 2025 and 2035 (TWh) 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 forecast 5% 3% 14% 46% 40% 36% Hydro Onshore wind Offshore wind 42% 13% Solar PV Biomass Landfill gas Sewage & EfW AD & ACT Wave & tidal Renewables Gas Nuclear Other Renewables Gas Nuclear Other Source: BEIS to 2016, Cornwall capacity estimates 2016-17 Source: BEIS Emissions Projections March 2017 www.cornwall-insight.com
Old and Shrinking Thermal Fleet Net change in thermal generation 2012-16 (GWs) Fuel Net change in capacity (GWs) Gas + 2GW Coal - 12GW Nuclear - 1GW Total - 11GW Average age of thermal capacity Changes in availability, National Grid, 2014-15 to 2016-17 2% 1% Fuel Average age 1% 0% Coal 46 years -1% -2% -2% -3% Nuclear 43 years -3% -4% -5% CCGT 15 years -6% -6% -7% Nuclear Coal + biomass OCGT CCGT Source: Cornwall www.cornwall-insight.com
Demands for Flex Increasing Upward and downward reserve RoCoF trajectory Primary and high frequency Regional Blackstart requirements 2000 400 Capacity (MW) Inertia (GVAS) 1000 200 Primary requirement Secondary requirement 0 0 EFR requirement Inertia Source: National Grid Systems Needs and Product Strategy www.cornwall-insight.com
The Trilemma in Theory Trade offs in policy decisions: Security of supply whilst Sustainability Affordability considering emissions Long term Decarbonisation whilst Trade-offs considering security of supply and costs Costs whilst recognising Security the balance between security of supply and decarbonisation is not free www.cornwall-insight.com
Politics Gets in the Way Action inevitable – “Do now” Delay and defer – “Deal with later” Politically vital Reduce Keep Meeting bills lights on carbon budgets Importance to success Appeal to Industrial heartland strategy Plan & consult- “Do next” Rhetoric only – “Timed out” Politically tradeable Heat and Smart & transport Flex/innovation This Parliament Next Parliament Time to achieve www.cornwall-insight.com
Resulting in Paradoxes Policy set to meet immediate priorities Meeting long term challenges Smart & Meeting Flex Reduce Keep carbon bills lights on budgets Drives Industrial reactive strategy Appeal to policies Heat and heartland transport Regulating retail prices Capacity market to get new large gas Embedded benefit reforms Which Hit onshore renewables increases the Prioritise inflexible nuclear costs of… www.cornwall-insight.com
Capacity/Carbon Paradox Carbon intensity of procured generation mix, Capacity Power sector carbon “gap” against carbon budgets Market T-4 auctions 70 60 50 MtCO2e 40 30 20 10 0 2018-19 2019-20 2020-21 gas reciprocating reciprocating coal CCGT Diesel Reciprocating CHP interconnector OCGT Energy From Waste BEIS estimates Source: CCC progress report to Parliament 2016 Source: Cornwall www.cornwall-insight.com
Low-carbon Flex Shortcomings DSR and batteries new build capacity Load reduction DSR as percentage of in T-4 capacity auctions (% of capacity peak demand, 2014-15 procured) 10 4.00% 8.9 9 3.50% 8 0.95% 3.00% 7 6.4 % of peak demand 5.9 2.50% 6 5 5 2.00% 4.1 3.9 4 1.50% 2.61% 3 1.00% 1.7 2 0.50% 1% 1 0.30% 0 0.00% ISONE PJM MISO CAISO NYISO NEM GB 2014 T-4 2015 T-4 2016 T-4 Market/system operator DSR Batteries Source: Green Alliance, Smart Investment report 2016 Source: EMR Delivery Body www.cornwall-insight.com
Undelivered new capacity and new embedded at risk from embedded benefit changes (% and GWs) 21.4% 24.3% 54.3% Trafford failure Total new embedded "Safe" new build Source: Cornwall analysis of EMR Delivery Body data www.cornwall-insight.com
Unnecessary Costs for Low-carbon Domestic bill impact of offshore-only world £16.00 £14.00 £12.00 Annual customer bill (£) £10.00 £8.00 £6.00 £4.00 £2.00 £- 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Customer Bill Offshore wind Customer Bill Onshore & Solar Source: Cornwall www.cornwall-insight.com
Long-term Uncertainties for Investment Policy Up to 2015 2015-2020 After 2020 Low-carbon support RO, ssFiTs and CfD, FIDeR RO closed, ssFiTs constrained New accounting measures for low carbon Broad basket of techs LECs removed unknown EU ETS and CPS One further CfD auction committed CfD auction frequency and regularity not CCS programme Onshore wind and PV solar left firmed up Carbon budgets set “subsidy free” Clean Growth Plan unpublished LECs EU ETS until Brexit EU ETS unknown CPS firm until 2021 CPS post 2021 unknown 4 th and 5 th carbon budgets not being met CCS programme discontinued Carbon budgets met up the 3rd Capacity and flexibility Capacity Market & CBR CBR ended Just don’t know! But with generation mix Wide array of relatively sable Capacity Market brought forward changing and new disruptors (Electric balancing services T-4 auctions progressing Vehicles for example) likely to be significant But changes to procurement method Potential changes to de-rating CPS uncertainty a problem Thorny issue of new gas unresolved Impact of carbon budgets on power policy in medium to long term? Reforms of balancing services under SNaPs Brexit impacts on interconnectors and Project TERRE Networks, settlements and Project transmit P305 staged sharpening of imbalance Genuinely little idea! charging Settled system of imbalance 2015-2018 priciing Network charging review, focus on Embedded benefits relatively embedded benefits stable Prospect of delay and legal challenge Access to connections supported in network charging – “connect and manage” Uncertainty as to scope and scale of changes in network charging www.cornwall-insight.com
The Additional Trilemma • Trust o How to reset expectations Trust Certainty around future costs and rising consumer prices? • Certainty o How to restore investment Continuity confidence in the sector? • Continuity But to balance all three, as with the original trilemma, it will require a whole- o Managing Brexit and near system re-think that creates long term constant political upheaval and common objectives across capacity, flexibility and low-carbon policies www.cornwall-insight.com
Contact Details Gareth Miller Chief Executive g.miller@cornwall-insight.com www.cornwall-insight.com
Charting the Least Cost Pathway to 2030 20 June 20 17 Tom Edwards HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
Low Cost Paths to 2030 • o New system balancing needs Reaching 2030 will require GB will arise to pay something… – Increases in peak load o Meeting carbon targets will require additional investment ▪ EVs & Heat pumps – Low-carbon power – Back up for renewables ▪ Which technologies? – Inertia – Networks – Voltage – Replacing aging assets o Policy needs to unpick and ▪ New nuclear balance all these variables ▪ New gas ▪ Peaker’s www.cornwall-insight.com
Expected Progress Against Carbon Budgets 3000 2500 Emissions MTC02e 2000 1500 1000 500 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2nd carbon budget 3rd carbon budget 4th carbon budget 5th carbon budget Cumulative budget emissions BEIS reference Cumulative budget emissions BEIS baseline Source: Cornwall www.cornwall-insight.com
Who (What) Will Step Up? (1 ) • Offshore wind world Offshore only LCF and CM spend 14000 o Expensive – offshore 12000 wind 1/3 rd more 10000 expensive than 8000 onshore wind - £4.8bn Spend (£mn) for new projects by 6000 2030 4000 2000 o Needs expensive transmission 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 infrastructure -2000 CM Spend Committed SSFiT Committed RO Committed CfD New CfD Source: Cornwall www.cornwall-insight.com
Who (What) Will Step Up? (2) Alternative technologies LCF and CM • Onshore wind and solar spend may rise to the occasion 14000 12000 o Tantalisingly close to grid 10000 parity 8000 Spend (£mn) o A lower cost trajectory - 6000 £3.9bn for new projects 4000 by 2030 2000 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -2000 CM Spend Committed SSFiT Committed RO Committed CfD New CfD Source: Cornwall www.cornwall-insight.com
Who (or What) is Best? • By 2030 there is a £0.9bn premium for the offshore only strategy o That is a £9.90 increase an average annual household bills Comparison of Offshore only vs alternative scenarios 14000 12000 10000 Spend (£mn) 8000 6000 4000 2000 0 All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only All technologies Offshore only -2000 2020 2020 2021 2021 2022 2022 2023 2023 2024 2024 2025 2025 2026 2026 2027 2027 2028 2028 2029 2029 2030 2030 Source: Cornwall CM Spend Committed SSFiT Committed RO Committed CfD New CfD www.cornwall-insight.com
Location, Location, Location Offshore Wind 2030 value of firm access to national market (£/kW/year) • Major network investment will be needed to ensure access to the market for all generators • This will be most expensive for generators connected at periphery of networks • Interconnectors and nuclear will have significant effect on flows www.cornwall-insight.com
Can Baseload Technologies Help? (1 ) • o Nuclear and CCS can provide By 2026 we estimate 3% of the year there will be periods where baseload low carbon power new nuclear power stations are constrained o Most expensive option • Nuclear and CCS also have – Strike price of £89.5/MWh for nuclear attendant flexibility problems – Estimated levelized cost for CCGT o EPR estimated to be able to CCS between £85/MWh and operate at 60% load £130/MWh o With solar and wind approaching • How does this fit in with a world of subsidy free these technologies more variable and more distributed find it hard to react to changes in energy? output o Baseload gas generators are already expected to be at low load factors by 2021 www.cornwall-insight.com
Can Baseload Technologies Help? (2) Source: Cornwall www.cornwall-insight.com
Not J ust Cost and Carbon Need Balancing Falling inertia and Grids frequency reserve requirement • More intermittent asynchronous 2000 250 plant on the network brings 1800 increasing challenges 1600 200 1400 o Frequency become harder to Capacity (MW) Inertia (GVAS) manage as inertia falls 1200 150 1000 • This means increased requirement 800 100 for investment in flexibility 600 400 50 o Batteries 200 0 0 o Gas and diesel peakers 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 o Interconnectors Primary requirement Secondary requirement EFR requirement Inertia o Probably not CCGT Source: Cornwall www.cornwall-insight.com
80 The Known Unknowns • • The digital tide is washing Is storage a niche application over the electricity market for short-duration & high output or is it an efficient and o How will networks and the economic long duration large generators at the battery? other end of them cope when consumers appliances o When will it transition? are trading directly with embedded storage and PV? www.cornwall-insight.com
Planning Rapidly Becomes Complicated www.cornwall-insight.com
Policy Conclusion • • Policy has to balance Things are changing anyway competing pressures of the rise of digital cost, security, stability and technologies and sustainability decentralised generation may render whole sections • Need to be honest there is of the market obsolete no perfect solution o Policy needs to pick winners from the above list and legislate to incentivise delivery www.cornwall-insight.com
Contact Details Tom Edwards Senior Consultant t.edwards@cornwall-insight.com www.cornwall-insight.com
Contribution 20 June 20 17 Gareth Miller HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
Capacity Prices Have Been Low T-4 auction clearing prices Amount procured (GW) and clearing price (£/KW) Auction Price/kW 56 £25.00 2014 £19.40 54 £20.00 2015 £18.00 52 2016 £22.50 £15.00 50 EA £6.95 48 £10.00 Auction GWs 46 £5.00 2014 49.3 44 2015 46.4 42 £0.00 2016 52.4 2014 T-4 2015 T-4 2016 T-4 EA EA 54.4 Amount purchased (GW) Price/KW Source: Cornwall www.cornwall-insight.com
Existing Plants Have Dominated Pre-qualified Existing Generation Capacity & Target Procurement Volume Diesel 60 Reciprocating Reciprocating Gas Reciprocating 50 Hydro De-rated Capacity - GW Energy From 40 Waste Battery 30 Pumped storage OCGT 20 CHP Coal 10 CCGT Interconnector 0 EA 2017 T-4 2014 T-4 2015 T-4 2016 Nuclear Source: EMR Delivery Body www.cornwall-insight.com
New Capacity is Required Current capacity by year commissioned Average age of thermal capacity CCGT Coal/Biomass Nuclear Interconnectors Fuel Average age 50 De-rated Capacity - GW 40 Coal 46 years 30 20 Nuclear 43 years 10 0 CCGT 15 years 1960 1970 1980 1990 2000 2010 Year Commissioned Net change in thermal generation 2012-16 (GWs) Fuel Net change in capacity (GWs) Gas + 2GW Coal - 12GW Nuclear - 1GW Total - 11GW Source: Cornwall www.cornwall-insight.com
Some Delivered, But Not Large Gas New large gas vs total new build CMUs T-4 auctions Percentage of cleared capacity from new build 8.0 7.0 6.0 2.5 6.5% 5.0 4.0 New build % 4.2% 1.9 3.0 0.6 0.8 5.0% 2.0 2.6 0.6 1.0 1.7 0.8 0.6 0.0 0.0 0.0 0.0 Total new build New large gas Net of delivery Net of prior FID Net of effective failure & delivery refurbs 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% failure 2016 T-4 2015 T-4 2014 T-4 2014 T-4 2015 T-4 2016 T-4 Source: Cornwall based on EMR Delivery Body data www.cornwall-insight.com
New Embedded Success? New embedded vs total new build CMUs T-4 auctions Resilience to Triad & Defra? 8.0 7.0 6.0 2.5 5.0 4.0 1.9 3.0 1.8 2.0 1.1 2.6 1.0 0.9 0.0 Total new build New Distribution 2014 T-4 2015 T-4 2016 T-4 Source: EMR Delivery Body www.cornwall-insight.com
Undelivered new capacity and new embedded at risk from embedded benefit changes (% and GWs) 21.4% 24.3% 54.3% Trafford failure Total new embedded "Safe" new build Source: Cornwall analysis of EMR Delivery Body data www.cornwall-insight.com
Incompatible With Decarbonisation T-4 Capacity auction clearing price projection 70 60 50 40 MtCO2e 30 20 10 0 2018-19 2019-20 2020-21 gas reciprocating reciprocating coal CCGT Diesel Reciprocating CHP interconnector OCGT Energy From Waste BEIS estimates www.cornwall-insight.com
Innovation Not Being Fostered DSR and batteries new build capacity in T-4 capacity DSR and batteries new build capacity in T-4 capacity auctions (% of capacity procured) auctions (GWs) 4.00% 2.0 3.50% 0.95% 0.45 3.00% 1.5 2.50% 2.00% 1.0 Battery 1.50% DSR 2.61% 1.39 1.00% 0.5 0.50% 1% 0.37 0.30% 0.17 0.00% 0.0 2014 T-4 2015 T-4 2016 T-4 New build T-4 New build T-4 New build T-4 2014 2015 2016 DSR Batteries Source: EMR Delivery Body Market DSR penetration at peak GB 3.6% ERCOT 3.2% PJM 9.1% Source: EPRG, May 2016 www.cornwall-insight.com
No Sign of Higher Prices T-4 Capacity auction clearing price projection 40.00 35.00 30.00 25.00 £ 20.00 15.00 10.00 5.00 - 2021 2022 2023 2024 2025 2026 Source: Cornwall www.cornwall-insight.com
Drivers of Change It is here to stay – difficult to withdraw even if desired Carbon intensity of mix out of step with ambition – compatible with carbon budgets and clean growth plan? Existing plant bed-blocking carbon neutral & flexible Signposts innovation – compatible with smart markets work? for change Procurement cycle deficient in keeping step with pace of technological and policy change – stranded asset risk inherent? Technology neutrality/cheapest MW approach leads to unpredictable outcomes- drives policy intervention to correct? www.cornwall-insight.com
Aligning to Decarbonisation • BEIS could consider the introduction of an EPS qualification for participation for CM auctions o Expressed Co2g/KWh – set at a level to capture coal plants in initial T-4 at least o Taper downwards for each auction to allow for soft-landing into trajectory of intensity implied by Carbon budgets o 500 hours a year running hours exemption but explicit carve out of coal o Grandfather EPS for length of agreement secured in a particular auction – delivers investment certainty for new build plant, whilst reducing carbon intensity over time www.cornwall-insight.com
New Build and Fostering Innovation • • BEIS could examine splitting Avoids “windfall” to existing out existing and new capacity plant that would run anyway auctions, allowing for the total • amount of desired new BEIS might consider consulting capacity as a proportion of the on the term necessary to procurement envelope to be support the development of more precisely set by National DSR (5 years), removing the Grid’s modelling capex threshold for new build qualification and replacing it • The new plant auction would with evidence of a long term still see new plant competing contract for demand control with each other on the grounds of cost, so an efficient outcome could still be achieved www.cornwall-insight.com
But Only Part of the Story • • Delivering secure, low-carbon Parallels here with smart call for flexible energy systems requires evidence thinking beyond the policy silo’s • Already the market is grabbing • It requires a reworking of the hold of these themes through market - from the centralised to the acquisitions and partnerships decentralised and local models of between utilities and technology energy production and enabling and data companies consumption, taking advantage of • technology innovations The question is whether the Capacity Market, like so many of • The challenge is the development current code and regulatory of real time markets, and also the paradigms, is a facilitator or a implementation of automated, real- barrier to these forces time energy trading technologies www.cornwall-insight.com
Contact Details Gareth Miller Chief Executive g.miller@cornwall-insight.com www.cornwall-insight.com
Balancing Services Fit for the Future 20 June 20 17 Tom Palmer HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS
Market for Balancing Services (1 ) Source: Cornwall www.cornwall-insight.com
Recommend
More recommend
