1 Roc market developments o CP16 and CP17 analysis o Drax - - PDF document

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1 Roc market developments o CP16 and CP17 analysis o Drax - - PDF document

May 17, 2023 352 likes •592 views

www.cornwall-insight.com Ben Hall, James Brabben & Tim Dixon HELPING YOU MAKE SENSE OF THE HELPING YOU MAKE SENSE OF THE www.cornwall-insight.com ENERGY AND WATER SECTORS ENERGY AND WATER SECTORS 1 Roc market developments o CP16 and

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

Ben Hall, James Brabben & Tim Dixon

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  • Roc market developments
  • CP16 and CP17 analysis
  • Drax conversion
  • Energy Intensive Industry exemptions
  • FiT and CfD update
  • FiT export tariff pricing
  • FiT exemptions/ GoOs
  • CfD and budget issues
  • Future routes to market and PPAs
  • Private wire and co-location
  • Value drivers
  • Renewables services in 2018-19

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

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  • Despite being closed to new capacity, grace periods allow some projects

to accredit until 31 March 2019

  • We project capacity to rise to 31.6GW through grace periods by the end
  • f CP17

5 RO accredited capacity 5,000 10,000 15,000 20,000 25,000 30,000 35,000 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 Installed capacity (MW) Onshore wind Offshore wind PV Fuelled Hydro Landfill gas Wave/tidal www.cornwall-insight.com

  • 86.2mn Rocs issued in CP15,

~5.0% fall on CP14

  • Total CP15 Roc supply was 95.2mn

with the inclusion of 8.8mn Rocs banked from CP14

  • Outturn RO on suppliers of

100.7mn

  • 90.2mn presented by suppliers,

89.5% compliance

  • 5.0mn Rocs banked into CP16

6 CP15 Rocs issued, obligation & recycle

1 2 3 4 5 6 20 40 60 80 100 120 140 Recycle (£/Roc) mn Rocs Fuelled Hydro Landfill gas Offshore wind Onshore wind Solar PV Rocs banked from previous CP UK obligation Recycle

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£39.0 £41.0 £43.0 £45.0 £47.0 £49.0 £51.0 £53.0

  • CP16 - Supply forecast at 105.3mn Rocs. Maximum CP16 Roc values projected at £50.5/Roc,

including a recycle of £4.9/Roc

  • CP17 - Supply forecast at 116.0mn Rocs. Maximum CP16 Roc values projected at £52.3/Roc,

including a recycle of £5.1/Roc. CP17 buy-out confirmed at £47.22

7 Traded Roc values remain at six year highs Roc supply, obligation & recycle values Traded Roc values – e-POWER auction

4.5 4.6 4.7 4.8 4.9 5.0 5.1 5.2 20 40 60 80 100 120 140 Recycle (£/Roc) mn Rocs Fuelled Hydro Landfill gas Offshore wind Onshore wind Solar PV Rocs banked from previous CP UK obligation

www.cornwall-insight.com

  • Buy-out price for 2018-19 confirmed on 12 February
  • 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
  • BEIS confirmed its final decision on its consultation on Controlling the

Costs of Biomass Conversion and Co-Firing Under the RO

  • A generator cap of 125,000 Rocs will be applied to the generation

eligible for Rocs at the biomass conversion and co-firing bands

  • It is intended that, subject to parliamentary approval, the cost control

measures will come into effect in 2018-19

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  • Drax confirms the conversion of fourth unit to biomass
  • 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

  • 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
  • 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

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  • Government announced that it

will consult on widening the eligibility criteria for the EII exemptions in the Industrial Strategy

  • The volume of exempt supply if

the eligibility criteria is widened is currently unknown

  • Each additional TWh of electricity

demand exempt from the costs

  • f the RO adds 0.4% to the

average consumer bill in GB – equivalent to £0.09

10 £22.4 £22.6 £22.8 £23.0 £23.2 £23.4 5 10 Cost to consumers (£/MWh) TWh

Impact per TWh if eligibility criteria is widened

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  • 5.9GW currently accredited

across >800,000 installations

  • New capacity is slow
  • 38MW accredited in Q118 so

far (January and February)

  • New deployment is falling

significantly short of original deployment caps set by BEIS

  • ~6.2GW expected under the

scheme by end March 2019

  • BEIS confirmed its intention to

close scheme from April 2019

12 FiT capacity – non-cumulative FiT capacity vs deployment caps 40 80 120 160 200 Capacity (MW) Micro CHP Hydro AD Wind PV

  • 20

40 60 80 100 120 140 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Deployment (MW) Deployment (tariff) period Solar PV Wind Hydro AD Original cap

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www.cornwall-insight.com 13 Revenue stream 2015-16 2016-17 2017-18 2018-19 Wholesale power (annual day-ahead average) £39.1 £45.8 £46.5 £47.5 Embedded benefits £8.1 £7.5 £8.1 £8.3 Lecs £5.5 Regos £0.2 £0.2 Total £/MWh value £52.7 £53.6 £54.5 £56.6 PPA value £50.1 (5% discount) £50.9 (5% discount) £52.3 (4% discount) £54.3(4% discount) FiT export rate £48.5 £49.1 £50.7 £52.4 £0.00 £10.00 £20.00 £30.00 £40.00 £50.00 £60.00 2015-16 2016-17 2017-18 2018-19 £/MWh Regos Lecs Embedded benefits Wholesale power (annual day-ahead average) FiT export rate HV connected solar PV in East Midlands

Only sites in East Midlands, East, South East and London consistently achieved values above export rate in past We calculate 60% of above 30kW FiT projects are now on commercial PPAs as wholesale pricing improves

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  • EII consultation response still being awaited for FiTs
  • EII exempt volumes are forecast as 10.0TWh for 2017-18, and 9.9TWh for 2018-

19 to 2026-27 (inclusive of 85% liability)

  • 1 July 2018 earliest possible date for implementation – although we see this as

unlikely as State Aid approval is still being awaited

  • GoO exemptions at 1.8TWh for Q317 and 2.7TWh for Q417
  • We believe cap will still be reached by year end with annual

reconciliation

  • Both exemptions see cost rises for remaining demand
  • Our 5 year central forecast calculates scheme costs will rise £5.2/MWh

in 2017-18 to £5.9/MWh to 2021-22

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  • Letter from European Commission released 7 March 2018 confirmed that

in line with Article 50 and Brexit withdrawal plans Directive 2009/28/EC (on promotion of renewable energy and green certificates) will no longer apply to the UK

  • Effectively means that GoOs in UK (i.e Regos) issued on or after 30th March

2019 will no longer be recognised for fuel mix disclosure in the EU

  • Likely to mean Ofgem will respond accordingly to stop use of GoOs from

same date

  • Potential implications:
  • 30th March date has implications for March GoOs – what happens to those

issued on 30th and 31st March?

  • Have contracts agreed to take all GoOS for year – break clauses?
  • Knock-on impacts for GB Regos and value for FMD

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  • Rego pricing has continued to improve in the market – based on our

analysis of short-term PPAs

  • GoO changes could see prices rise close to upper end of range
  • Tiered pricing structure emerging
  • Price rises create larger difference between brown and green power

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Values quoted in the range of £0.1/Rego to £0.6/Rego

RE100 and CSR drives Domestic green tariffs Demand for solar and wind Regos GoO implications

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  • 330MW commissioned in Q417
  • 1.4GW expected to commission in 2018
  • >3GW expected to be operational by end of 2018

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Cumulative installed & expected CfD capacity

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  • Consultation published 15 December with proposed definition of remote

island wind

  • Remote island defined as:
  • Island located in UK territorial sea, other than

part adjacent to Northern Ireland

  • And where all parts of coastline are at least

10km from mainland GB

  • To qualify as remote island wind project:
  • Must be located on remote island
  • Connection between unit and Main

Interconnected Transmission System will require at least 50km of cabling, of which 20km must be subsea

  • Must be connected to GB national

transmission system or distribution system

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  • Remote island wind defined as new technology allowing it to compete in

future “less-established” auctions

  • Existing onshore wind criteria will apply to remote island projects
  • Includes requirement to have >5MW capacity and approved Supply Chain Plan

if capacity >300MW

  • Over 750MW of projects with planning consents on Western Isles, Orkney

and Shetland eligible under proposals

  • Definition widened to include sites off Welsh and English coast following

consultation

  • EII exemptions from CfD costs came into force in November 2017
  • Exemptions lower scheme costs for certain businesses
  • Alongside Autumn Budget 2017, government announced no new low-

carbon levies will be introduced until existing costs fall

  • £557mn CfD budget will still be allocated under future rounds
  • Next auction earmarked for Spring 2019

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  • Scheme costs forecast to rise as more projects commission

Cornwall Insight CfD cost forecast

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  • Autumn budget on 22 November outlined continued issues of LCF

budgets

  • £557mn for further CfD auctions- but for 2021 delivery onwards
  • No new levies will be introduced until existing scheme costs are

falling

  • Likely to be 2025 at earliest
  • New levies may still be considered if they have a net reduction effect
  • n bills and are consistent with the government’s energy strategy
  • New structure to be in place from 2020-21 to replace LCF

framework

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CfD for offshore wind + the only show in town from 2019 for low carbon generation?

OBR forecasts – March 2018 - £bn 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 OBR forecasts (inclusive of CM, CRC, ECO and WHD) 5.2 8.7 10.8 12/2 13.3 13.6 13.9

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Re-powering subsidy free: Old NFFO and early RO onshore sites now looking at re- powering with next generation turbines. Routes to market include private wire and corporate PPAs Storage co-location: Pen y Cymoedd Wind Energy Project has installed a 22MW battery using existing wind farm connection. More for additional revenue than

  • flexibility. Solar

profiles compatible with co-location Subsidy free CfDs: Some developers looking at a private CfD arrangement where a supplier (or large-end user under a corporate PPA) provides a long-term price guarantee at a rate that is profitable to build Private Wire/ behind the meter: Alternate route to market for current projects without a subsidy route. Physical connection between generator and large end-user. Price fix based on public network savings

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  • Ofgem released guidance in December 2017
  • No new policy or requirements included in the document, but is intended

to clarify existing agreements and key principles:

1. Co-located storage does not change generators obligation under RO/ FiT scheme 2. Only renewable electricity generated from an accredited station will receive support 3. Installing storage will not alter the capacity of the generator 4. The schemes’ eligibility requirements not altered by the type of storage technology

25 Source: Ofgem www.cornwall-insight.com 26

100MWh Typical public network consumption 30MWh Private wire – cost avoidance through volume reduction 1MW peak output Behind the meter– cost avoidance through peak

  • support. Additional access

to DSR revenues

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www.cornwall-insight.com 27 Cost component HV HH customer (£/MWh) Wholesale £45 Transmission £1.0-£2.2 Distribution £5.9-£20.0 Balancing services £2.20 AAHEDC £0.3 Losses £1.0 - £1.9 Renewables Obligation £21.9 Feed-in Tariffs £5.9 Contracts for Difference £4.8 Capacity Market £2.8 Supplier costs £1.0-£3.0 VAT @ 20% £18.8 - £22.0 Climate Change Levy £5.8 Total £117.2 - £137.8

Wholesale commodity = ~36% Networks = ~14% Policy = ~28% Supplier costs and margin = ~2% VAT/Tax = ~21%

www.cornwall-insight.com 28 10 20 30 40 50 60 70 80 90 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 £/MWh Charging Year Transmission Distribution System balancing (BSUoS) AAHEDC (HDCA) Renewables Obligation (RO) Feed-in Tariffs (FiT) Contracts for Difference (CfDs) Capacity Market (CM) Climate Change Levy (CCL)

Forecast TPCs – HV HH User, regional average, money of the day

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Sleeving (aka direct/corporate PPAs)

  • Contract between generator and large electricity user – usually a “blue-chip” corporate –

through some form of long-term price agreement

  • Third party provides necessary services to transport power to the end user
  • Several corporates including M&S, Mars and Tesco now do this

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  • Why? - many wind and solar assets with grid connection finding it difficult to

stack up subsidy free model for sole asset

  • Advantages – full utilisation of grid connection, access to additional revenue

streams, arbitrage potential for renewables output

  • Barriers/ implications – metering, connections, battery durations/degradation,

MCPD, proof of renewable power (RO/FiT/CfD, Regos)

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Anesco – Battery co-location

  • First developer to site a battery on the

same grid connection as their existing 5MW solar farm and retain RO accreditation

  • Battery part of balancing services

contracts rather than managing solar farm volumes Hive solar – private wire with co-location

  • 40MW subsidy free project approved in

July 2017

  • On-site grid connection to Hive’s

headquarters creates private wire agreement

  • SSE sleeve excess power to the grid
  • The site will also be used as a test

facility for R&D, battery co-location and voltage management BEIS have also announced in recent Clean Growth Plan that they will support where possible the development of subsidy free solar. Although details unclear…

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  • Energy minister Claire Perry has recently confirmed 2018 will see a

formal review of the Capacity Market

  • Penalties and contract lengths
  • Alignment with Industrial Strategy ambitions
  • Potentially opening up to renewables
  • One wind farm prequalified for the last T-4 (as a hydro site) but was

removed before entering the auction

  • One Drax unit also looked at CM vs co-firing under the RO (chose RO)
  • De-rated capacities are likely to be fairly low for intermittent

renewables

  • National Grid de-rates onshore wind to 21% for in the Winter Outlook at

to 17% in Electricity Capacity Report (for the CM procurement)

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  • Charge on out of balance parties based on costs incurred by SO to manage

imperfect trades

  • Not costs to manage imperfect system e.g. constraints, actions taken over shorter period

than settlement period (these are recovered via BSUoS)

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Cash-out reform timeline Charge Basis Part marginal

  • 50MWh in Nov 15
  • 1MWh in winter 18-19

Constraints Tagged/ flagged and taken out of price calculation stack Price Single (£/MWh)

  • Include “Reserve Scarcity

Pricing” mechanism Capped at Value of Lost Load

  • £3,000/MWh until capacity market
  • £6,000/MWh with capacity market

Agent Elexon – Calculate and send out invoices Frequency Every 30 mins

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Introduction of P305

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  • Elexon has released data for PAR 1 and VoLL £6000/MWh pricing
  • On average system prices would be £1.6/MWh higher between

2015 and 2018

  • Standard deviation of system prices would be £2/MWh higher

between 2015 and 2018

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  • 15
  • 10
  • 5

5 10 15 20 25 12/02/2016 04/03/2016 25/03/2016 15/04/2016 06/05/2016 27/05/2016 17/06/2016 08/07/2016 29/07/2016 19/08/2016 09/09/2016 30/09/2016 21/10/2016 11/11/2016 02/12/2016 23/12/2016 13/01/2017 03/02/2017 24/02/2017 17/03/2017 07/04/2017 28/04/2017 19/05/2017 09/06/2017 30/06/2017 21/07/2017 11/08/2017 01/09/2017 22/09/2017 13/10/2017 03/11/2017 24/11/2017 15/12/2017 05/01/2018 26/01/2018 £/MWh 30Day average difference 30 day average stdev

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The effect of wind power on power prices

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Large & (Still) Growing Market 22.1GW (65%+) of the renewables market is under some form of PPA. Similar developers in flexibility assets mean this trend is likely to continue High Liquidity & Re-tendering Driven by short-term deals for renewables projects and flexibility assets through CM and balancing contracts New Entry ~40 PPA providers with capacity – up from less than 20 three years ago Improved Pricing Competition and liquidity driving improved retention for generators

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  • The number of offtakers has remained relatively steady at ~40 in

the past six months

  • Some offtakers have reduced their activity due to slow down in new

projects coming forwards

– Very limited number of grace period Roc projects – CfD projects (Rounds 1 and 2 and FIDER)

  • Some established long-term PPA providers have moved into shorter-

term PPA space due to reduced number of new projects requiring

  • Short-term PPA space remains very liquid

– FiT project tendering (annual) – Older Roc projects looking for new, short-term contracts – Balance sheet project under regular tendering

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  • Value retention remains at an all-time high (on a % basis)
  • Power prices in PPAs

– Long-term: 92%-98% of market index price – Short-term: 94%-98% of market index price

  • Rocs

– Generator retaining 95%+ of overall value

  • Regos

– Attributed value of ~£0.2/Rego

  • Embedded benefits

– Triads, BSUoS, losses: 95%+ – GDUoS full pass through in many cases

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Key question: How many of these are now at a “ceiling” and can go no further?

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Service Overview Delivery Within-year Roc forecast

  • An explanation of RO level for the CP
  • Latest Roc data issued by Ofgem
  • Breakdown of Roc issue trends by technology
  • Value forecasts and banking assumptions

Monthly Long-term Roc forecast

  • Provides reference point for Roc values out to 2026-

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  • Clear explanation of Roc value drivers
  • Up to date info on RO costs and impacts on supply

businesses and energy bills Quarterly Long-term FiT forecast

  • Reference point for current and future pass through

costs

  • Sets out quarterly updates with the latest data
  • Insights into capacity, installations and system sell

price developments Quarterly

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Service Overview Delivery Green Power Curve

  • An analysis of potential values achievable for

renewables projects (RO, FiTs and CfD) Comparison of revenue retention under different

  • fftake arrangements
  • Provides market commentary on latest

developments in power, and Roc markets Quarterly CfD Supplier Obligation report

  • Forecasts costs to suppliers resulting from the

new CfD levy

  • Annual report supplemented by quarterly

updates

  • Five year forecast

Quarterly Green Generators Group

  • A forum run since 2012 for stakeholders in the

independent renewables generation community

  • A platform for information exchange on EMR,

EBSCR, embedded benefits and more

  • Presentations on topical issues to stimulate

understanding and debate Monthly

www.cornwall-insight.com

  • Embedded benefit calculator
  • Our newest product in the renewables suite
  • Simple tool to help value and estimate embedded benefit values for

distributed generation

  • Current year assessments and further four year forecast
  • Used by offtakers and generators for PPA and financial planning

processes

  • Values shown in £/year, £/kW and £/MWh
  • Updated regularly to take account of latest network charges

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Service Overview Delivery Flexibility Forum

  • A forum hosted by Cornwall Insight aimed at

stakeholders with flexibility interests

  • A platform for information exchange on balancing

services, embedded benefits and more

  • Presentations on topical issues to stimulate

understanding and debate Monthly Frequency Response Report

  • Commentary on policy and regulatory developments
  • Forecasts of value obtainable from non-bilateral

frequency response services

  • Analysis of technical and commercial requirements of

the schemes Monthly Capacity Market Forecast

  • Forecasts of CM clearing prices across T-4 and T-1

auctions

  • Auction outturn analysis
  • Assessments of costs to the consumer of CM

Three issues /year

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Training

  • Over 40 public courses being

held this year (mainly London)

  • 100+ bespoke training days

delivered in-house last year. Topics include:

  • Embedded benefits and PPA

workshops

  • Storage and DSR revenue

streams

  • Capacity market
  • New Flexibility, I-SEM and

Water courses have been launched Consultancy

  • Growing practice with varied

clients on broad range of topics

  • Work recently has included
  • Subsidy free renewables
  • Flexibility regulatory and

commercial support

  • PPA assessments for new

and existing generators

  • Electric vehicles and

charging infrastructure

  • Competition analysis of the

retail supply markets