Flexibility and the outlook for the GB power market

Transcription

1 Aurora Energy Research Limited. All rights reserved. Flexibility and the outlook for the GB power market Presentation to Demand Responsive, 11 May 217 Dr. Benjamin Irons, Director, Aurora Energy Research

2 Agenda The emergence of flexible and distributed generation Market outlook The investment case for batteries, gas peaking plant and DSR 2

3 Growing intermittent renewable generation is materially changing the economics of dispatchable power generation GB power demand in a typical winter week (GW) Solar Wind Nuclear Residual demand Demand mainly met by uninterrupted baseload generation 2 Demand mainly met by flexible generation 1 1 3

4 1. Load factors will be no more than 15% for as much as 15GW of future CM contracts (These won t go to CCGTs!) Max load factor achievable % GW of capacity with load factors above 15% (Current CCGT capacity 23 GW, meaning this is mostly already built) GW of capacities with load factors below 15% (Current peakload 8 GW, meaning this is the main investment opportunity) CM-procured dispatchable capacities by 23 de-rated GW 1. Includes CCGT, OCGT, recips, DSR, batteries and others; excluding nuclear and interconnectors 2. Contracted in the T-4 22/21 CM auction. Amount of capacity required Sources: Aurora Energy Research, National Grid 4

5 2. Ancillary services value is set to nearly triple due to falling thermal generation and new nuclear National Grid balancing services spending m/year Other Headroom/footroom Reactive power EFR FCDM Frequency response STOR Black start BM constraint management 3, % 2,5 2, 1,5 1, Sources: Aurora Energy Research, Ofgem 5

6 3. Balancing mechanism volumes are set to double by 23 due to the imbalance introduced by wind and solar Bid-offer acceptances (BOA) GWh 3, +1% 2, 1, -1, -2, -3, Source: Aurora Energy Research 6

7 Three flexible technologies have emerged to capture the new build investment opportunity, but how will they compete? Peakers Storage DSR Diesel reciprocating engines Gas reciprocating engines OCGT Bulk storage - Compressed air - Pumped hydro Small scale - Lithium ion Emerging techs - Flow batteries Domestic Industrial and commercial - Refrigeration - Air conditioning - Manufacturing processes Source: Aurora Energy Research 7

8 Agenda The emergence of flexible and distributed generation Market outlook The investment case for batteries, gas peaking plant and DSR 8

9 GENERATION MIX We expect peakers to dominate in the near term, batteries in the medium term, with DSR the dark horse Installed capacity by technology Nameplate (GW) 35 Recip. engine Battery DSR Other storage 1 OCGT 3 CAGR: +7% Pumped storage and compressed air Source: Aurora Energy Research 9

10 Agenda The emergence of flexible and distributed generation Market outlook The investment case for batteries, gas peaking plant and DSR 1

11 1. STORAGE Arbitrage is the biggest opportunity for storage, but is only economically attractive when lithium ion cell costs fall below 15/kWh Lithium ion cell costs /kwh /kWh is the magic number for load shifting applications X Historic learning rates Consensus Breakthrough Cost reduction to 22 % p.a Year of mass entry: Source: Aurora Energy Research 11

12 2. PEAKERS Gas reciprocating engines are worse off after triad reform, but much of the lost income is recovered, and the investment case remains strong Gas reciprocating engines under STOR business model Gross profit, /MW/year We expect much of the missing triad revenue to return via - Higher energy and balancing prices in winter - Cancelled CM14/15 projects increasing CM prices - Increased STOR procurement Wholesale Balancing Capacity Fast reserve STOR Triads BSUoS GDUoS Source: Aurora Energy Research 12

13 3. DSR We estimate there is 8GW of flexible demand in the GB system, but not all will be economically viable as turn down DSR Peak demand (GW) Background Domestic Commercial Industrial 8 GW of DSR potential Inflexible demand Interruption Industrial Sources: Aurora Energy Research, National Grid 13

14 Thank you Please contact for more information Aurora would be delighted to help you with - Project finance support including lender s market advisory - Revenue stream forecasts including all ancillary services - Equity valuation including buy and sell side - Market reports on batteries and other technologies All our forecasts and analysis are available by subscription 14

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