Prime Minister Theresa May Pledges That New
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Tom Crisp Editor 01603 604421 [email protected] ENERGY PERSPECTIVE 02 Monday 21/05 – Prime Minister Theresa May pledges that new Looking beyond the cliff edge: technologies and modern construction practices will be harnessed to emerging power market trends – Tim Dixon at least halve the energy usage of new buildings by 2030. The two task forces established by Ofgem under the Charging Futures Forum POLICY 05 to consider network access arrangements and the forward-looking elements of network costs issue their final report. The Competition Defra unveils Clean Air Strategy and Markets Authority releases the text detailing the findings of its MPs blame clean energy investment low on policy Phase 1 investigation into the proposed SSE/npower merger, warning changes it could raise prices. CMA cites risk of price rises as key concern in SSE/npower Tuesday 22/05 – The government consults on its draft Clean Air merger Strategy, confirming it plans to maintain the existing EU model of Energy UK puts forward EMR integrated industrial pollution control post-Brexit. Ofgem opens an reform recommendations Parliamentary update: Week 21 investigation into National Grid Electricity Transmission’s demand 2018 forecasting. Cuadrilla seeks consent to hydraulically fracture the UK’s first ever horizontal shale gas well at its Preston New Road site. REGULATION 12 Wednesday 23/05 – Energy UK shares its views on potential Task forces deliver report on improvements to the Energy Market Reform framework, including future network charging and access introducing a revenue stabilisation Contract for Difference. Energy Minister Claire Perry commits £21.5mn of UK funding towards a global Smart Meters Bill passes final parliamentary stages carbon capture and storage challenge. A BEIS civil servant states at an event that the department is not planning to change the rules for the INDUSTRY STRUCTURE 16 Contracts for Difference scheme before the 2019 auction. The Oil and Gas Authority offers 123 licences over 229 blocks or part-blocks to 61 SSE looks forward to “year of transition” companies in the 30th Offshore Licensing Round. Centrica on track to meet targets despite customer losses Thursday 24/05 – Scottish Climate Change Secretary Roseanna Npower and Innogy results Cunningham pledges that Scotland will be one of the first countries in largely as expected the world to achieve a 100% reduction in carbon emissions. Citizens Advice research highlights challenges of engaging with the energy NUTWOOD 20 market for people with mental health problems. The Telegraph reports Rocket boosters, revolutions and 12,000 SMETS1 smart meters are being replaced with other first positive outcomes; why BEIS’ generation meters every month. next solar step is crucial – Liam Stoker Friday 26/05 – SSE’s 2018 results show it lost 430,000 customer Corporations cannot get enough accounts in its retail division while the government's energy price caps of a good thing – Perry Sioshansi’s Letter from America for vulnerable customers also hit profits. SSE also confirms plans to construct an 840MW £350mn CCGT power station at Keadby, without MARKETS 22 a capacity market agreement in place. The Scottish government raises its carbon reduction target to 90% of 1990 levels by the middle of this century. Energy Spectrum 619 | 29/05/2018 | page 1 After a long drawn-out The experience in places such as California has winter characterised by triggered a range of supply- and demand-side extreme weather and responses with new pricing structures, storage, record spikes for gas and and gas turbines operated mainly for flexibility. power prices, we now And this pattern is now being evidenced in GB. look towards the summer. Take me high Indeed summer 2018 could prove to be a One consequence of these trends is the Tim Dixon ground-breaking period depression of peak power prices on days with high Wholesale Team Lead where some long-held solar output. Figure 2 illustrates several days 01603 959881 theories about flexible recently that experienced lower average prices t.dixon@cornwall- insight.com power systems are finally over the peak (7am – 7pm) than during off-peak put into practice. periods on the N2EX day-ahead auction. In this Energy Perspective we explore a range of Figure 2: N2EX Day-ahead hourly auction prices emerging market phenomena reflecting an electricity market in rapid in transition. The millennium prayer GB renewables capacity now exceeds 40GW, sufficient to meet demand at certain times. While this is unlikely in practice owing to the need for flexibility and response, we have already seen this month record low levels of coal output. In the wholesale market, peak power prices have also fallen below those for off-peak power. Overall transmission system demand is expected to be lower this summer than in 2017, according to Increased volatility and greater price differentials National Grid. This is due to further increases in between periods of low and high demand is also the amount of distributed generation – at the start producing arbitrage opportunities. This is of May there was just over 13GW of embedded something that will be welcomed by storage solar and nearly 6GW of embedded wind capacity operators and flexible generation looking for alone. revenues beyond grid procured services. Falling transmission demand, particularly at times Where do we go from here? of high solar output, means daytime minimum The rest of the generation mix over summer will be demand can now fall below the overnight contingent on renewables and nuclear output, minimum. Indeed, this has already occurred this needing to act flexibly as intermittent sources of summer as over 8GW of solar on 5 May led the generation fluctuate. For instance, last summer for afternoon minimum to be 500MW lower than every extra unit of renewable generation, one unit overnight. Figure 1 illustrates the demand shape of gas-fired generation was lost, according to this creates, sometimes termed ‘the duck’s back’. National Grid. Figure 1: Demand and solar output, 5 May 2018 As for coal, clean dark spreads – the difference between the price a coal-fired plant can sell its power for on the wholesale market and the cost it takes to produce that power – are close to negative for summer months. This means coal stations cannot make money from generation alone. Coal units will as last year operate at significantly reduced running hours and potentially only have volumes accepted in the Balancing Mechanism (BM). Energy Spectrum 618 | 21/05/2018 | page 2 Indeed GB recently broke a national record by Day-ahead peak power prices are also increasingly going 76 hours without burning coal. The new falling below prices for the corresponding record came after coal was not used to generate baseload contract. This has already occurred 13 any of the country’s electricity from 9.05am on 21 times since summer 2016, and it can be expected April until 1.10pm on 24 April. It is likely this record to occur more this summer. will be broken again this summer, with the least available coal capacity in the week commencing Figure 4: Captured solar and wind prices against APX half-hourly Market Index Price 30 July amid planned outages at Aberthaw and Cottam power stations, while Drax will be converting a unit to biomass. In contrast clean gas spreads are sitting higher (see Figure 3). Gas will therefore act as the primary flexible generator in the mix, especially as we are also seeing an increasing need for the system operator to instruct generators to turn down. Figure 3: Clean spark and dark spreads (at 24 May 2018) Small corners Negative prices are also becoming more commonplace. These arise when National Grid instructs inflexible generators (most commonly wind, but it can include thermal and storage), to reduce power put onto the system to ensure they have sufficient provision of headroom, footroom and inertia – the ability to absorb changes to frequency. Now you see me, now you don’t These actions also occur when and where there Another phenomenon becoming more prominent are localised transmission constraints – where the in the market as renewables increase is wholesale electricity transmission system is unable to power price cannibalisation. We covered this effect transmit power to the location of demand due to in-depth in a recent Insight Paper. congestion. This is something that we have seen Price cannibalisation is the depressive influence on already this summer with numerous windfarms the electricity price at times of high output from having bids accepted at -£100.0/MWh or below, intermittent generation. The absence of fuel costs meaning they get paid this value to turn down and the incentive to capture as much subsidy as compensating them for lost subsidy payments. possible makes these generators competitive in However, the commissioning of the Western wholesale markets, squeezing out capacity from HVDC link this summer – a transmission cable less efficient and higher cost conventional linking Hunterston and Deeside – should ease generation. The effect is therefore low, or some of these constraints between England and sometimes negative, wholesale power prices. Scotland. This depressive effect is set to be increasingly felt. Negative prices are becoming more common in In our most recent Green Power Forecast, we imbalance prices, with 38 instances last summer assessed the effects of price cannibalisation on alone. There have been 18 so far this year, solar and wind plants. We assessed the “captured compared with 11 in the corresponding period price” of wind and solar over the past few years 2017. These are derived directly from the prices of versus the average half-hourly Market Index Price actions accepted in the BM. (MIP) to reflect values they realistically achieved in They have also occurred on the within-day traded the market based on respective generation market (see Figure 5), but they are yet to be seen profiles.