www.cornwall-insight.com Roc market developments o CP15 analysis - - PowerPoint PPT Presentation

www.cornwall-insight.com

www.cornwall-insight.com

• Roc market developments
• CP15 analysis & CP16 forecast
• Banking
• EIIs
• CfD and FiT update
• CfD auction analysis
• FiT market developments
• PPA market developments
• Corporate PPAs
• Offtaker PPAs
• Cornwall Insight’s services for 2017-18
• Refreshments in the Theatre Bar

2

www.cornwall-insight.com

HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

www.cornwall-insight.com

• Capacity expected to reach more than 31GW by CP16 end
• Despite being closed to new capacity, grace periods allow some projects

to accredit until 31 March 2019

4

RO accredited capacity

www.cornwall-insight.com

• 86.0mn Rocs issued in CP15, a

5.0% fall on CP14

• Due to less favourable

meteorological conditions and

• utages at large-scale biomass

stations

• Total CP15 Roc supply was

94.8mn with the inclusion of 8.8mn Rocs banked from CP14

• Outturn RO eligible demand

estimated at 293.6TWh, creating an RO on suppliers of 100.6mn

5

CP15 Rocs issued vs CP14 total

www.cornwall-insight.com

6 Current Holder Organisation Name Total Statkraft Markets GmbH 1,165,975 SSE Energy Supply Ltd 1,061,059 ScottishPower Energy Retail Ltd 500,000 SmartestEnergy Ltd 496,055 Opus Energy (Corporate) Limited 273,184 DONG Naturgas 254,630 Total Gas & Power UK 241,437 Gazprom Marketing & Trading Ltd 151,908 Shell Energy Europe Limited 114,350 DONG Energy Salg & Service A/S 99,980 Hudson Energy 89,846 British Gas Trading Ltd 69,480 UPM Kymmene (UK) Ltd, UPM Shotton Paper 23,980 Opus Energy Ltd 23,064 RWE Generation UK PLC 21,459 Opus Energy Limited 17,401 Power NI Energy Ltd 16,668 Other 79,359 Total 4,699,835

Source: Ofgem Renewables & CHP Register

Remaining certificates on the register

• The most Rocs banked in any

undersupplied compliance period, and the second most in any compliance period

• Participants trying to capture

more value from there Rocs by banking

www.cornwall-insight.com

• CP15 - An estimated 90.1mn Rocs presented for compliance brings maximum CP15 Roc values

to £49.9/Roc, including a recycle of £5.1/Roc

• CP16 - Supply forecast at 105.3mn Rocs. Maximum CP16 Roc values projected at £51.0/Roc,

including a recycle of £5.5/Roc

7

Traded Roc values at a six year high

Roc supply, obligation & recycle values

Traded Roc values – e-POWER auction

www.cornwall-insight.com

• BEIS intends to bring in the RO exemption from 1 January 2018 subject to being in a

position to publish a revised 2017-18 obligation level by 31 October 2017

• The current obligation for 2017-18 for GB is set at 0.409 Rocs/MWh, and BEIS

estimates this will rise to 0.423 Rocs/MWh from 1 January 2018

• We estimate an annual weighted obligation of 0.413 Rocs/MWh
• The draft legislation still needs Parliamentary approval
• If the legislation has not come into force and BEIS have not published the revised 2017-18
• bligation level by 31 October 2017, BEIS’s intention is that the exemption will come into

effect from the start of the fourth month after the necessary approvals have been obtained and a revised renewables obligation is published

• Consumer costs would uplift by approximately 3.6% on an annual basis

8

www.cornwall-insight.com

• Ofgem confirmed it will allow Rocs to be awarded to power generated

from renewables and used to charge co-located batteries

• Ofgem announced its decision in a blog by its Head of Renewables, Luke

Hargreaves on 13 September

• Anesco became the first commercial solar farm operator in the country to

retain accreditation under the RO for solar farms that supply storage batteries directly

• Ofgem intends to “publish bespoke guidance on key storage

considerations under the RO and Feed-in Tariff schemes” for storage later in the year

9

www.cornwall-insight.com

HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

www.cornwall-insight.com

• On 11 September, BEIS published results of second CfD

allocation round

• 3.3GW of capacity across 11 projects offered contracts
• Clearing prices ranging from £40.00/MWh to £74.75/MWh (2012

money)

• 3.2GW awarded to offshore wind projects
• Technology saw strike price of £74.75/MWh for delivery year of

2021-22 and £57.50/MWh for 2022-23

• Remaining capacity awarded to fuelled renewables
• Cleared at £74.75/MWh for 2021-22 delivery and £40.00/MWh

for 2022-23

11

www.cornwall-insight.com

• Successful offshore wind projects
• Triton Knoll (860MW) 2021-22 (delivery year of first phase)
• Moray (950MW) 2022-23 (delivery year of first phase)
• Hornsea (1.4GW) 2022-23 (delivery year of first phase)

– All three projects will be commissioned in three phases with third phases expected to commission in 2024-25

12

• Triton Knoll had clearing price

uplifted to £74.75/MWh by fuelled technologies

• Design of CfD auction implies

that either Moray or Hornsea bid lower than £57.50/MWh and was uplifted to this by the

• ther project’s bid

Estimated prices and capacity by delivery year assuming phasing

www.cornwall-insight.com

• Successful fuelled technologies projects
• Drakelow (ACT, 15MW) 2021-22
• Station Yard (ACT, 0.05MW) 2021-22
• Northacre (ACT, 25.5MW) 2021-22
• IPIF (ACT, 10.2MW) 2021-22
• BlackBridge (ACT, 5.56MW) 2021-22
• Redruth EfW (ACT, 8MW) 2022-23
• Grangemouth (Biomass with CHP, 85MW) 2021-22
• Rebellion (Biomass with CHP, 0.64MW) 2021-22
• Redruth’s bid of £40/MWh was not uplifted to £57.50/MWh as

rules disallow uplifting of strike prices for fuelled renewables by offshore wind

13

www.cornwall-insight.com

• 61% of £290mn budget allocated across four delivery years
• Peak £176mn in 2023-24

– Estimated £0.59/MWh additional on consumer bill, around £1.82

• n an annual bill, in 2012 money

14

Budget, allocation and applications

www.cornwall-insight.com

• Triton Knoll looks to be clear winner by bidding into 2021-22
• Must have had its clearing price uplifted by fuelled technologies
• £57.50/MWh clearing price for Moray and Hornsea
• Size and nature of investments means it is unlikely that these

bids were speculative

• Interesting to see if China Three Gorges takes 30% stake in

Moray project

• Assuming they haven’t already done so and the option remains
• pen

15

www.cornwall-insight.com

• Low offshore wind prices shouldn’t be surprising
• European wind auctions and tenders clearing lower then estimated

levelised costs for some time

– Some German auctions cleared close to expected wholesale power price

• Speculation that deeper waters, construction risks, higher

transmission and connection costs could cause higher prices than in peer European markets

• UK reaping benefits of acquired learning and greater efficiency in

wider European offshore wind market

• Mature supply line, larger turbines and valuable experience

16

www.cornwall-insight.com

HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

www.cornwall-insight.com

• 5.8GW currently accredited

across >800,000 installations

• New capacity has slowed

significantly

• 18MW accredited in July 2017,

and 23MW in August 2017, the lowest for those respective months since 2010

• 1,567 accredited in July 2017,

and 1,942 in August 2017, the fewest for those respective months on record

18

FiT capacity – non-cumulative FiT installations – non-cumulative

www.cornwall-insight.com

• Total capacity being accredited under post-2015 tariff rates is falling

significantly short of combined capacity caps

19

FiT deployment vs caps FiT capacity forecast

www.cornwall-insight.com

• Suppliers were invoiced on 8 September for FiT annual reconciliation (2016-17)
• Total FiT costs came to £1.33bn, approximately 16% higher than the previous year
• Outturn GB demand was 285.9TWh, 0.7% below the previous year
• FiT scheme costs as applied to the consumer bill came to £4.80/MWh
• 20.8mn Guarantees of Origins (GoOs), equivalent 20.8TWh, were presented for

exemption

• Well in excess of the 8.1mn cap
• With outturn FiT costs for 2016-17 at £4.80/MWh, the maximum value of a GoO used

for FiT exemption is estimated at £1.87

20

www.cornwall-insight.com

• The FiT export tariff has remained competitive with commercial PPAs
• Export tariff is currently £50.3/MWh
• Although, wholesale power prices have boosted recently
• Reports suggest BEIS is committed to publishing a fresh review of the FiT

scheme

• The “UK is obliged by its EU State Aid notification to consult on the

performance of the Feed-in Tariff Scheme every three years”

• 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

21

www.cornwall-insight.com

HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

www.cornwall-insight.com

23

• Sleeved structure in the UK
• Generator sells power directly to corporate and agrees fixed

price for power (and Regos)

• Licensed supplier sleeves the power – top up and spill
• Licensed supplier registers meters and settlement
• Back to back PPAs or triparty contract

www.cornwall-insight.com

• Over 100 corporates have committed through RE100 to 100%

renewables for their operational demand

• Corporate PPAs are seen by many as the main option to achieve this

24

www.cornwall-insight.com

25

Developer/ Generator Technology Capacity Buyer EDF Onshore wind 72MW BT Baywa Solar PV 45MW Nationwide Baywa Solar PV 15MW McDonalds BSR Solar PV 61MW HSBC Pennant Walters Onshore wind 23MW BT Shanks/ Future Biogas AD 4MW M&S Eneco Onshore wind 60MW Mars

www.cornwall-insight.com

Developers/ generators

• Removal and reduction of subsidies
• Lack of forward liquidity to provide

fixed price long-term certainty

• Long-term route to market
• Lower cost of capital
• Bankability/ creditworthy

counterparties

• Diversifies risk of payment default
• Lowering levelised costs (across

renewables)

• Established project finance markets
• Success of CPPAs in other markets

(e.g. US)

• Growing interest from corporates
• Increases pool of offtakers

Corporates/ buyers

• Corporate social responsibility –

reputation-led

• Government-led targets/ pressure
• Internal/ public renewables/ low

carbon targets

• Long-term wholesale price certainty

(currently low prices)

• Hedges against fuel and power price

volatility

• No upfront capital requirement
• Meet/ match demand requirements
• Experience of developers/ utilities is

growing

• Maturity of established renewables

technologies

• Development of partnerships

26

www.cornwall-insight.com

Developers/ generators

• Creditworthiness of offtaker becomes

even more important if subsidy free

• CPPA may create 100% of revenue
• Power offtake not core for corporates
• Will corporate buy way out if turns out

to be a bad deal in falling market

• Subsidy regime interactions (see next

slide)

• Fairly limited pool of corporates, but

increasing

• More complex to negotiate and likely

to take more time

• Still requires a supplier for top up, spill

and registering of meters for settlement

Corporates/ buyers

• Board appetite for the deal
• Unlikely to agree to pay more in the

short-term for long-term certainty

• Pricing heavily dependent on forward

curve and forecasts of future prices

• Not core business – lack of know how

and expertise in closing the contract

• Complexity and costs associated
• Back to back contracts
• Security may be required e.g. a direct

agreement

• Contract termination costs
• Change in law risks for commercial

balance of the contract (e.g. Lecs recent example)

27

www.cornwall-insight.com

• RO
• Roc certificate can be separated from power (Rego too)
• Generator exposed to wholesale price volatility unless under

short-term fix or CPPA

• FiT
• Administered export rate available – currently above wholesale

market price and limits interest in CPPAs

• CfD
• Top (or pay back) is to strike price is against market reference

price, incentivising generator to be in PPA indexed to this

• CPPA would create basis risk
• Subsidy free
• Some solar developers have announced subsidy-free plans with

CPPAs

28

www.cornwall-insight.com Seasonal power prices Source: Cornwall Insight

• Recent uplift in power prices, driven

by concerns over French nuclear plant

• utages and National Grid’s forecast
• f tight supply margins
• 2017-18 annual wholesale baseload

price is currently ~£47/MWh

• Pushed up by high winter 17 price
• This is not sustained down the curve

as 2018-19 is ~£44/MWh

• Wholesale market lacks liquidity past

~2 years

• Some utilities may offer fixed price

PPA for 3-5 years

29

Power forward curve

32 36 40 44 48 52 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 £/MWh Summer 17 Winter 17 Summer 18 Winter 18 Summer 19 Winter 19 30 34 38 42 46 50 54 Day- ahead Oct Nov Dec Q417 W17 S18 W18 Ann Oct-17 £/MWh Last week Two weeks ago Last year

www.cornwall-insight.com

• A recent report by Arup for Scottish Renewables has said
• nshore wind could be delivered for £50-55/MWh
• Could be lowest-cost form of generation in the UK if in CfD
• CfD or revenue stabilisation
• Imperial College said integration costs could fall from

£10.2/MWh to £7.6/MWh if grid is modernised/ flexible

• Anesco said last week it had retained Roc accreditation for a

solar site with battery storage (UK first)

• Co-located under one grid connection
• 1.1MWh battery, to release power at peak times
• Ofgem plan to publish RO and FiT guidance in coming months
• NextEnergy recently announced plans to build subsidy free

solar, potentially through corporate PPAs

30

www.cornwall-insight.com

HELPING YOU MAKE SENSE OF THE ENERGY AND WATER SECTORS

www.cornwall-insight.com

32

Large & Growing Market ~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

www.cornwall-insight.com

• Number of offtakers active in the renewables PPA space has

passed 40

• More than doubled in three years
• Driven by new entrant energy suppliers, re-emergence from

established players and arrival of European utilities

• Many new entrants focus on short-term PPAs as route to power

and Rocs – credit means they’re unlikely to offer long-term PPAs

• Short-term PPA market remains very liquid
• Customers have reported tenders of up to 20 offtakers all

bidding

• Many generators opting for ~12 month deals
• Value retention very high at 95%-99% across power, Rocs and

embedded benefits

33

www.cornwall-insight.com

34

Aggregation specialists “Gold-plated” long-term PPAs Flexible contracting/ new product providers Trading specialist

Focussing on small-scale projects on short-term

• deals. Some

without supply license Usually with no / small supply position. Have competitive advantage in balancing and trading Flexibility in contracting as key trait. Competitive and looking to offer products and additional services Larger offtakers with the credit rating capabilities to

• ffer bankable

long-term deals

Shorter-term PPAs Longer-term PPAs

www.cornwall-insight.com

• Long-term deal liquidity is falling
• Due to reduced number of new renewables projects coming to

market

• Long-term PPA tend to be for debt financing requirements
• Some grace period Roc projects
• New CfD projects
• Recent recovery in wholesale electricity prices likely to

reignite PPA interest from FiT generators

• Annual baseload power price currently ~£47/MWh
• Administered export rate of £50.3/MWh (late 2012 projects+)
• Inclusion of embedded benefits and possibly some peak power

pricing could make FiT PPAs more attractive

35

www.cornwall-insight.com

Targeted Charging Review

www.cornwall-insight.com

• Ofgem launched its Targeted Charging Review Significant

Code Review on 4 August

• Objectives are to:

– Consider reform of residual charging for transmission and distribution, for both generation and demand, to ensure it meets the interests of consumers, both now and in future – Keep the other ‘embedded benefits’ that may be distorting investment

• r dispatch decisions under review
• SCR will mainly focus on the means of recovering residual network

charges from network users

• Residuals under consideration are:

– Transmission Generation Residual (TGR), Transmission Demand Residual (TDR) and the Distribution Demand Residual (DDR)

▪ Also considers BSUoS charges are currently a form of cost-recovery charge, so similar to residual charges

www.cornwall-insight.com

• At heart of TCR is what network costs are potentially

avoidable by different users and which are considered as sunk and should fall into the residual

• Ofgem’s initial view is that all users should make a

contribution to common costs and five initial options for how residual costs could be recovered have been put forward:

• Option A: a charge linked to net (kWh) consumption
• Option B: a fixed price charge
• Option C: fixed charges set by connected capacity
• Option D: gross kWh consumption
• Option E: a hybrid approach

38

www.cornwall-insight.com

• Explicitly excludes:
• Forward looking use of system charges
• Connection charges
• Charging for storage
• Timeline is:
• Publish residual charges working paper - Q4 2017 (calendar year)
• Publish draft Impact Assessment and minded to decision on any

proposed new residual charging arrangements – Q2 2018

• Publish decision and final IA on any new charging arrangements – Q3

2018

• Expect to be in a position to make a final decision on the resulting

modifications by early 2019 in order for new arrangements to come into effect from the 2020-21 charging year

• Setting up a new group to coordinated network charging changes the

‘Charging Futures Forum’ (CFF)

www.cornwall-insight.com

Cornwall services for 2017-18

www.cornwall-insight.com

41

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-

27

• 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

www.cornwall-insight.com

42

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

• Costs now out over a 5 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

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 Energy Market Bulletin

• Weekly report focusing on wholesale energy market

pricing and drivers of values

• Supported by regular webinars with our pricing

experts Weekly

43

www.cornwall-insight.com

44

Training

• Over 25 public courses being

held this year in London and Warwick

• 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
• Capacity market and CfD

auction modelling

• Assessment of embedded

benefits reforms

• PPA assessments for new

and existing generators

• Routes to market for new

investors

• Competition analysis of the

PPA and retail supply markets

www.cornwall-insight.com

• Three stage report due for

publication in November 2017.

• Detailed examination of the

market conditions, following the release of pre- qualification data.

• Forecast of the T-4 auction
• utturn.
• Post auction review (Feb)
• Long term forecast (July)
• Embedded benefits

calculator.

• Due to be issued in

October.

• A simple tool that

generators can use to understand the value of embedded benefits from their project.

• Updated with, network

price changes, forecasts

45

Capacity market forecast Embedded benefits calculator

www.cornwall-insight.com

• Fairness and Competition in the Retail Energy Market
• 22 November 2017 in London
• Hosted by Cornwall Insight
• Topics on the agenda include:

– Making markets fairer for all – New perspectives on established markets – Innovation in the energy supply chain – Debate on balancing fairness and innovation

• Speakers include: BEIS, Ofgem, E.ON UK, Ovo Energy, Centrica,

Octopus Energy, Gilmond and MoneySuperMarket

• Contact Richard Wetherall for more details

– R.wetherall@cornwall-insight.com – 01603 604422

46