Setting the sceneAR3 16 May 2019 Gareth Miller HELPING YOU MAKE - PowerPoint PPT Presentation

Setting the scene—AR3 16 May 2019 Gareth Miller HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS

AR3—Timeline June 19—July 9 July 26—August 13 September 4—September 17 [October 16—October 31] [November 21—December 4] Qualification assessment Run allocation Contracts signed & window process returned Application Sealed bid Results go-out window window August 18—August 19 May 29—June 18 July 19—July 25 [November 4—November 5] [October 9—October 15]  There have been appeals in the previous rounds www.cornwall-insight.com

AR3—Key parameters 01 02 03 04 Technology Pot Strike price caps Auction constraints Reference prices  Offshore wind  Offshore wind at Projects need to target Two reference prices:  Advanced commission in either £56/MWh 2023/24 & Conversion 23/24 or 24/5 £53/MWh 2024/25  Technologies (ACT) Baseload reference  RIW at £82/MWh flat Budget and capacity:  Anaerobic Digestion price  ACT at £113/MWh  Dedicated Biomass  Intermittent reference 2023/24 & £111/MWh with CHP price  Up to £65mn; or 2024/25  Wave  AD at £122/MWh  Tidal Stream  6GW procured  Geothermal 2023/24 & £121/MWh 2024/25  Biomass CHP For first time BEIS are Whichever constraint No place for (non-island) accounting for captured £121/MWh applies first onshore wind or solar generation price of PV, and wide range of First time a capacity variable renewables in Offshore wind maturities of techs auction valuation constraint has applied significantly cheaper under one auction Technology Type 2023/24 2024/25 2025/26 2026/27 Baseload technologies (2011-12 48.95 51.61 52.65 52.36 prices) Intermittent technologies (2011-12 48.13 50.9 51.92 51.23 prices) www.cornwall-insight.com

AR3—Who can we pencil in? We think there is c10GWs of potential capacity looking to squeeze into a max 6GW auction—but uncertainty around phasing, bidding strategy and (for RIW) grid treatment 1GW of fueled (Biomass CHP, AD and ACT)— ASP range £111—122/MWh c8GWs offshore wind-ASP £53-56/MWh 0.8GWs RIW – ASP £82/MWh Project Developer Capacity (GW) Project Developer Capacity (GW) Morray West EDPR, Engie 0.4 Stornaway EDF, Wood 0.18 Seagreen Alpha & Bravo SSE 1.5 Uisenes EDF, Wood 0.16 Dogger Bank/Creyke Beck Equinor, SSE 2.4 Viking SSE, Shetland 0.5 Teeside A Equinor, SSE 1.2 Community Inch Cape Redrock 0.8 Costa Head Hoolan, Low Carbon 0.04 Sofia Innogy 1.4 Hesta Head Hoolan, Low Carbon 0.04 EA3 Scottish Power 1.2 www.cornwall-insight.com

Place your bets • Offshore wind looks set to dominate o c80% of possible competing capacity, and (unless RIW can defray, defer or share grid costs) the cheapest by a mile o Possible if there is no budget take-up given low SP bids that other techs will clear the auction given the “jigsaw” effect of trying to squeeze stacked offshore phases/projects into 6GWs o Decisions around offshore project scaling (noting 1.5GW cap) phasing rules and selection of target commissioning year will be big drivers • Still a wide range of capacity outcomes - 2.5GWs to 6GWs possible Depends on first year in which 1 st phase commissions. 23/24 more o expensive (with lower ref price) so will eat budget fastest for a given SP o Offshore wind price at which 6GW comes into play (assuming bidding offshore wind capacity above 6GW) is £53/MWh or below • There is price pressure, but it works both ways… o Wave of new competition in later rounds, high committed devex, possibility of CfD reform and high probability of further ASP tightening could drive bidding to the bone of “walk-away” IRRs o LCOE is falling globally but ignores distinct GB driven cost drivers— change to network charges, OFTO interactions, exchange rates. Could put some upward pressure on bids… o Low European comparators not always “apples with apples” – particularly on who covers devex and connection costs www.cornwall-insight.com 5