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Tim Dixon Alex Wynn HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS

Tim Dixon Wholesale Team Leader Title slide Alex Wynn Analyst www.cornwall-insight.com

Change from last report Additional info CP16 CP17 CP18-25 • Lower than expected Roc issue for fuelled technologies and onshore wind Roc supply • Partially offset by a rise in Roc issue for offshore wind • EII exemptions continue to be taken into account from 1 April 2018 • BEIS forecasts annual eligible EII volumes of Roc demand 11.7TWh for 2018-19 to 2021-22, and 11.6TWh for 2022-23 to 2026-27 • The GB RO target is forecast to peak at 0.479 RO targets Rocs/MWh in CP20 • CP16 and CP17 RO targets both confirmed • Reflects Ofgem’s confirmation of the 2018 -19 Cost to suppliers buy-out price (£47.22/Roc) • A net 1.0mn decrease in forecast Roc issue for CP16 Roc values • Fewer-than-expected onshore and offshore stations accrediting in CP16 www.cornwall-insight.com 4

• Buy-out price for 2018-19 confirmed on 12 February o Ofgem confirmed the new buy-out price at £47.22/Roc, representing a £1.64 increase compared to the previous compliance period • Controlling the cost of Biomass and Co-firing under the RO o BEIS confirmed its final decision on its consultation on Controlling the Costs of Biomass Conversion and Co-Firing Under the RO o A generator cap of 125,000 Rocs will be applied to the generation eligible for Rocs at the biomass conversion and co-firing bands o It is intended that, subject to parliamentary approval, the cost control measures will come into effect in 2018-19 www.cornwall-insight.com 5

• Drax confirms the conversion of fourth unit to biomass o Drax welcomed the decision on controlling the cost of biomass under the RO, and confirmed that it will be converting a fourth unit to biomass o The generator plans to complete work on this unit as part of a major planned outage in the second half of 2018, before returning to service in late 2018 • Energy Intensive Industry exemptions o BEIS published a revised level of the RO to include EII exemptions, confirming the obligation level for the 2018-19 obligation period in GB has increased from 0.452/Rocs/MWh to 0.468Rocs/MWh www.cornwall-insight.com 6

• Our demand forecast remains unchanged on our previous report 292 288 GB Demand (TWh) 284 280 276 272 268 264 GB demand forecast before EII exemptions GB demand forecast after EII exemptions) www.cornwall-insight.com 7

35,000 30,000 Installed capacity (MW) 25,000 20,000 15,000 10,000 5,000 0 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 2025-26 2026-27 CP16 CP17 CP18 CP19 CP20 CP21 CP22 CP23 CP24 CP25 Onshore wind Offshore wind PV Fuelled Hydro Landfill gas Wave/tidal www.cornwall-insight.com 8

CP16 CP18-CP25 CP17 • • • Roc supply is now Roc supply is now Roc issue forecast has forecast at 105.3mn forecast at 116.0mn decreased by an (2mn lower than our (1.5mn lower than our average of 0.1% previous long-term previous report) • Roc supply is forecast to report, 1mn lower than • Reflects changes to peak in CP18 at 118.2mn our latest report) capacity forecast for Rocs • Largely due to lower- onshore and offshore • Roc issue will decline than-expected Roc issue wind more steeply from CP21 for fuelled technologies • Partially offset by the as capacity begins to exit • Drax 2 and 3 recorded inclusion of a fourth Drax the RO reduced capacity factors biomass conversion unit throughout December 2017 and January 2018 • Roc issue for onshore wind also below expectations www.cornwall-insight.com 9

• BEIS already sets targets for CP16 and CP17 0.6 o CP16 target: 0.409Rocs/MWh 0.5 for GB and 0.167Rocs/MWh for NI 0.4 Rocs/MWh o CP17 target: 0.468 Rocs/MWh 0.3 in GB and 0.185 Rocs/MWh in NI 0.2 • The GB RO target forecast for 0.1 CP18-25 has remained static 0.0 CP16 CP17 CP18 CP19 CP20 CP21 CP22 CP23 CP24 CP25 o The GB RO target is forecast to peak at 0.479 Rocs/MWh in GB NI CP20 www.cornwall-insight.com 10

CP16 CP18-CP25 CP17 • • • Roc values are forecast Roc values are forecast CP18-CP25 values (with at £50.52/Roc at £52.32/Roc recycle) are forecast at £51.91 • • The buy-out price of The buy-out price of • £45.58 and a recycle £47.22 and a recycle The buy-out price of value of £4.94 value of £5.10 £47.22/Roc and a recycle of £4.69/Roc • • £0.96/Roc higher than £2.44/Roc above our • our previous long-term previous forecast, due to BEIS’s headroom setting report, £0.48/Roc higher fewer-than-expected of 10% is assumed to than our latest report offshore and onshore keep Roc values stable stations gaining from CP17 to CP25 • Reflects lower Roc issue accreditation CP16 • We therefore forecast this capacity to come online at a later date in CP17 www.cornwall-insight.com 11

£60.00 £55.00 Roc value (£/Roc) £50.00 £45.00 £40.00 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2022-23 2023-24 2024-25 2026-27 2020-21 2021-22 2025-26 CP13 CP14 CP15 CP16 CP17 CP18 CP19 CP20 CP21 CP22 CP23 CP24 CP25 Outturn Central scenario Low wind scenario High wind scenario www.cornwall-insight.com 12

• CP16 costs for GB are expected at £18.64/MWh £25.00 o This is in line with our last £20.00 report • CP17-CP25 costs have risen £15.00 £/MWh by 3.5% on average £10.00 o £0.74/MWh for GB customers, in line with the updated buy- out price £5.00 o GB costs are forecast to rise to a maximum of £22.63/MWh in £0.00 CP20, before declining to £20.04/MWh by CP25 GB NI www.cornwall-insight.com 13

HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS

• Government announced that it will consult on widening the £23.4 eligibility criteria for the EII exemptions in the Industrial £23.2 Strategy Cost to consumers (£/MWh) • £23.0 The volume of exempt supply if the eligibility criteria is widened is currently unknown £22.8 • Each additional TWh of electricity £22.6 demand exempt from the costs of the RO adds 0.4% to the £22.4 average consumer bill in GB – 0 5 10 equivalent to £0.09 TWh www.cornwall-insight.com 15

• Ministers have been warned that the development of offshore wind projects in the UK could be at risk due to the removal of subsidies o Neither the 60MW Forthwind nor 10MW Dounreay Tri projects are expected to be generating electricity by the October deadline for support through the RO scheme • Should Forthwind and Dounrey Tri both not accredit under the RO, removing 70MW of eligible offshore wind capacity, this could increase the recycle value in CP17 from £5.10/Roc to £5.21/Roc, taking the total Roc value to £52.43/Roc (central scenario) o Costs and RO targets from CP18 to CP25 would fall by 0.5% on average, due to lower Roc issue www.cornwall-insight.com 16

HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS

• Roc value is forecast at £50.52/Roc (up from £50.04/Roc) owing to a reduction in forecast Roc issue (-1.0mn) • Roc supply is forecast at 105.3mn, down 1.0mn on our long-term forecast o Output from fuelled (-1.6mn), onshore wind (-0.3mn) and landfill gas (-0.1mn) technologies continues to outturn below expectations, and we have therefore reduced our forecast to reflect this o These reductions have been partially offset by an uplift in forecast Roc generation for offshore wind (+1.0mn) • Roc demand is forecast at 116.8mn , unchanged on our long-term forecast RO Demand Rocs Total Roc Oversupply Recycle Buy- Roc (mn) Presented Supply (mn) of Rocs (mn) Value Out Value Forecast 116.8 N/A 105.3 0.0 £4.94 £45.58 £50.52 values www.cornwall-insight.com 18

12,000,000 10,000,000 8,000,000 Roc Issue 6,000,000 4,000,000 2,000,000 - CP16 Roc issue CP16 forecast www.cornwall-insight.com 19

• A Cornwall Insight customer event for our subscription customers • We will discuss current and future developments in the renewables market, including: o Roc market developments o FiT and CfD updates o The PPA market and future renewable deployment • Drinks reception to follow the afternoon’s discussion 28 March 2018, 3PM Bridewell Hall, London www.cornwall-insight.com 20

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