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

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

Setting the scene—AR3

16 May 2019

Gareth Miller

www.cornwall-insight.com

Application window

May 29—June 18 June 19—July 9

Qualification assessment window Sealed bid window

July 19—July 25 [October 9—October 15] July 26—August 13 [October 16—October 31]

Run allocation process Results go-out

August 18—August 19 [November 4—November 5] September 4—September 17 [November 21—December 4]

Contracts signed & returned

AR3—Timeline

• There have been appeals in the previous rounds

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AR3—Key parameters

• Offshore wind
• Advanced

Conversion Technologies (ACT)

• Anaerobic Digestion
• Dedicated Biomass

with CHP

• Wave
• Tidal Stream
• Geothermal

No place for (non-island)

• nshore wind or solar

PV, and wide range of maturities of techs under one auction

• Offshore wind at

£56/MWh 2023/24 & £53/MWh 2024/25

• RIW at £82/MWh flat
• ACT at £113/MWh

2023/24 & £111/MWh 2024/25

• AD at £122/MWh

2023/24 & £121/MWh 2024/25

• Biomass CHP

£121/MWh Offshore wind significantly cheaper Projects need to target commission in either 23/24 or 24/5 Budget and capacity:

• Up to £65mn; or
• 6GW procured

Whichever constraint applies first First time a capacity constraint has applied Two reference prices:

• Baseload reference

price

• Intermittent reference

price For first time BEIS are accounting for captured generation price of variable renewables in auction valuation Technology Pot Strike price caps Auction constraints Reference prices

01 02 03 04

Technology Type 2023/24 2024/25 2025/26 2026/27 Baseload technologies (2011-12 prices) 48.95 51.61 52.65 52.36 Intermittent technologies (2011-12 prices) 48.13 50.9 51.92 51.23

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1GW of fueled (Biomass CHP, AD and ACT)— ASP range £111—122/MWh

0.8GWs RIW – ASP £82/MWh c8GWs offshore wind-ASP £53-56/MWh

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

Project Developer Capacity (GW) Morray West EDPR, Engie 0.4 Seagreen Alpha & Bravo SSE 1.5 Dogger Bank/Creyke Beck Equinor, SSE 2.4 Teeside A Equinor, SSE 1.2 Inch Cape Redrock 0.8 Sofia Innogy 1.4 EA3 Scottish Power 1.2 Project Developer Capacity (GW) Stornaway EDF, Wood 0.18 Uisenes EDF, Wood 0.16 Viking SSE, Shetland Community 0.5 Costa Head Hoolan, Low Carbon 0.04 Hesta Head Hoolan, Low Carbon 0.04

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• Offshore wind looks set to dominate
• c80% of possible competing capacity, and (unless RIW can defray, defer
• r share grid costs) the cheapest by a mile
• 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

• 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 1st phase commissions. 23/24 more

expensive (with lower ref price) so will eat budget fastest for a given SP

• Offshore wind price at which 6GW comes into play (assuming bidding
• ffshore wind capacity above 6GW) is £53/MWh or below
• There is price pressure, but it works both ways…
• 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

• 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…

• Low European comparators not always “apples with apples” – particularly
• n who covers devex and connection costs

Place your bets

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