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Tom Palmer and Tom Edwards HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
• Welcome to first customer flexibility event • Builds on success of our renewables customer event • Will be held every 6 months in future – next one likely to be in March for customers www.cornwall-insight.com 4
• Frequency Response o Tender results o SNaPS developments • Capacity Market and Power Purchase Agreements o Developments and rules changes o Flexible PPAs • Reserve o Fast Reserve o STOR • Market Developments o Project TERRE o Balancing Mechanism Lite • Cornwall Flexibility services for 2017/18 • Refreshments in the Theatre Bar www.cornwall-insight.com 5
HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
• Market characteristics o Not a market – Many historic bilateral arrangements o Monopsony - National Grid – Driven by system operator incentives scheme o Decision making not transparent o Reporting transparency • Not all about the commercial – different technical requirements and service types can be bundled as one making it complex • SNaPS offer the chance for reform of structure and type of services but also the procurement and transparency – but will it? www.cornwall-insight.com 7
Static FFR Primary Dynamic FFR www.cornwall-insight.com 8
• National Grid published the responses to its consultation in September 2017 • Grid received 128 responses from a range of industry participants • 98.1% of respondents agreed or were neutral with the SNaPS approach www.cornwall-insight.com 9
• Grid identified a number of insights, including; o Standardisation was the preferred approach for future products – Will make service procurement more transparent – Offers simple products with small number of parameters – Other options too complex and not necessarily technically feasible o Standardisation could lead to secondary trading and more efficiency stacking of services – 63% of respondents felt secondary trading of products was a positive step o A mix of short and long-term products was the preferred option – Short-term markets can remove forecasting risk and allow for changes to commercial strategies – Longer term contracts produce investor confidence and lower cost of capital www.cornwall-insight.com 10
• Grid identified a number of insights, including; o Potential to trial alternative procurement approaches was well received – Includes auctions – Respondents recommending moving to more ongoing performance monitoring regime www.cornwall-insight.com 11
• Process of developing services, through its DS3 program likely to be up to 4 year agreements through competitive auction • Use scalers according to product to provide clarity to participants on added value and how prices may change www.cornwall-insight.com 12
• Example of product scaler applicable to fast frequency response www.cornwall-insight.com 13
• Investors in demand side response, storage and other peaking plants often looking for long-term bankability • Neither SNaPS reform of FFR market or even Irish DS3 is suddenly going to provide certainty to investors for long-term • However, improvements should provide more clarity, transparency and understanding of the potential options available • Need to understand the range of uncertainty in outcomes around success and price www.cornwall-insight.com 14
HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
• Capacity Market o Consultation o Upcoming auction • Flexible PPAs www.cornwall-insight.com 16
Final week for Capacity Market…. However big unknowns remain even when it closes • The de-rating for storage projects - Duration tests / Guarantees required • Additional DSR capacity • Satisfactory performance tests • Metering re-assessment • Revised technology class Taking place after the body appointed to specifically manage change the capacity market rules accepted or rejected changes ??? www.cornwall-insight.com 17
• Even without the capacity market a lot of uncertainty remains System Levy Coal Needs and Control Closure Product Framework Policy Strategy Medium Carbon Clean Combustion Price Brexit Growth Plants Support Plant Directive Fortune favours the brave or misery loves the cowardly? www.cornwall-insight.com 18
• Competition expected to be fierce, as always, with the following capacity influencing the clearing price o Gas Reciprocating o Battery storage o Demand side response o Combined Cycle Gas Turbines o Open Cycle Gas Turbines o Interconnectors • CCGT expected to continue to struggle to be successful despite interest o Not yet delivered under capacity market o Eggborough, Calon, RWE, Carlton Power, ESB, Intergen o Need to get comfortable with uncertainty (load factor, emissions, peak price capture) • OCGT will continue to be the transmission scale capacity of choice o Progress/ Millbrook/Hirwaun (Drax), EDF, Intergen o Maybe more OCGTs especially where have connection/shared infrastructure www.cornwall-insight.com 19
Focus will be on the following • Gas Reciprocating o Lower capex and improving efficiency o Flexibility of revenue streams – wholesale, Portfolio FFR o Loss of triads, loss of STOR spill & embedded benefits uncertainty • Battery storage o Potential for high returns in a market not dependent on wholesale power prices o Limited opportunity alternative revenue streams • Demand side response o Increasing awareness and participation o Limited by contract duration for customer need • Interconnectors o Those with cap and floor and built on time – Nemolink, Eleclink, NSN, IFA2, Greenlink www.cornwall-insight.com 20
• Flexible generation requires a flexible PPA o Not just a route to market o Also a optimiser of revenue streams • Many of the traditional renewable PPA providers migrating across to flexible market • No one size fits all approach as it will depend on the investors/owners priorities Generator optimisation Supplier optimisation • Markets as flex PPA • Markets as flex PPA • Generator sets strike price • Supplier has more control to run on over running pattern and • Supplier monitors market dispatch for triggers • Uses only op. model to do Range of options between these • Generator hedges and this calls dispatch through • Generator takes volume portal risk • Supplier takes price risk www.cornwall-insight.com 21
• Share of revenue streams • Linked to outturn prices to provide security • Maybe even a tolling agreement Trading – Balancing DAM, IDM, Services Reviewing Data sharing BM, NIV Performance and reporting Supply and Future PPA Gas Services Markets Agreement Applicable Balancing Remote Service Volume Dispatch and Capacity Data Optimisation Market www.cornwall-insight.com 22
HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
• There are three main reserve markets o The Balancing Mechanism o The Short-Term Operational Reserve o Fast Reserve • All of these services overlap to some extent • Commercial and technical decision by system operator are as complex and transparent as other balancing services • Reserve reform low on SNaPS agenda, focusing on real-time flexibility , equal access and pan-European services www.cornwall-insight.com 24
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Tendered utilisation prices (£/MWhr) Tendered availability prices (£/hr) Average tendered prices (£/MW/hr) www.cornwall-insight.com 26
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• System needs o Requirement for reserve set to increase – both upwards and downwards regulation o Interconnector trading arrangements changing – Xbid allows change up to gate closure, more variable import/export flows o Trans European mechanisms for scheduling replacement reserve and manual frequency response reserve • Product strategy o Rationalisation – Fast Reserve removed? o Standardisation – standardising parameters across all services to increase transparency i.e service windows & delivery periods o Improvements – Reserve not at top of agenda, move to short- term markets and more reliance on EU platforms seems likely www.cornwall-insight.com 29
HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS
• Ongoing changes o Volatility o Move to PAR1 • European developments o Project TERRE (P344) o Xbid • Levelling the playing field o Balancing mechanism lite (P355) www.cornwall-insight.com 31
Introduction of P305 www.cornwall-insight.com 32
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