PRICE FORECASTS FOR POWER AND CERTIFICATE MARKETS

Transcription

1 PRICE FORECASTS FOR POWER AND CERTIFICATE MARKETS FEBRUARY 2015 EDITION THEMA offers long term price forecasts for the Nordic and German power markets as well as the market for electricity certificates in Norway and Sweden. Each forecast is delivered with latest market data at the time of order. In addition to our standard scenarios, we also cover a chosen topic in each forecast

2 NORDIC POWER PRICE FORECAST THIS EDITION S TOPIC: EFFECTS OF THE OIL PRICE FALL ON NORDIC POWER PRICES In this edition we look at the consequences the fall in oil prices and increased macroeconomic uncertainty might have on the Nordic power market. If oil prices stay at the $ 50 level, we will most likely continue to see low gas and CO 2 -prices, with low Nordic power prices as a result. Exchange rate mechanisms EUR/USD may mollify these effects. BEST GUESS SCENARIO SHOWS INCREASE IN PRICES POST 2020 While we see rather modest power prices towards 2020, we expect prices to rise after This increase is driven by a number of factors, such as an increase in CO 2 prices and an increased degree of interconnections. Each forecast also analyzes the effects of changes in main price drivers in form of sensitivities, including CO 2 price, power balance, inflow and market integration DELIVERABLES A lean and to the point report summarizing results and assumptions, but also explaining general price drivers. On request, we offer workshops where the report and market developments are discussed. Key data is delivered in Excel-format. Data deliverables can be customized to client request (e.g. hourly prices for all simulations etc.) We also deliver bespoke forecasts with assumptions provided by the client. REPORT SCENARIOS REVEAL HUGE POLITICAL AND MARKET RISK To an increasing degree, markets are dominated by political uncertainty. Fuel price markets add further uncertainty. This leads to considerable price uncertainty beyond 2020, which is captured by our high and low scenarios. This report contains a Climate Scenario and a Shale Gas Scenario addressing these uncertainties. WORKSHOP DATA

3 One of the most sophisticated models in the market: The price simulations are performed using the The-MA model, a sophisticated power market simulation model for North-West Europe. Other users: Developed by THEMA, the model is also used by a range of clients, including E.ON, RWE, E-CO, NVE, OED, and others. It is applied both for trading support, and long-term price forecasts. Features: The model has hourly time resolution, a detailed representation of thermal units, hydro units, and intermittent generation. All larger units, including reservoirs, are modelled as individual plants. An up-to-date database for North-West Europe: The model scope is North-West Europe. All countries in North-West Europe are modelled with the same degree of detail as the Nordic countries. Long-term developments in capacity developments for RES and thermal capacities are taken into account, as are plans for new cables. Price zones: We also model price zones in the Nordic market and report both system prices and area prices for all Nordic price zones. We account for developments in the inner-nordic grid and planned cross-border cables and transmission investments

4 CERTIFICATE PRICE FORECASTS: THIS EDITION S TOPIC: PROPOSED INCREASE IN SWEDEN'S 2020 RES TARGET Swedish authorities wish to increase Sweden's national 2020 RES target by 5 TWh. In this edition we have a closer look at the consequences of the proposed change and show that it in fact only means an increase of 2 TWh in the certificate market target. The resulting price effects is likely to be modest. BEST GUESS SCENARIO SHOWS THAT PRICES MUST INCREASE TO MEET TARGET We see a gradual increase in prices towards and after 2020, despite a large current surplus. After 2020, however, there is a large uncertainty around price developments. Technological improvements and costs developments for RES add to the uncertainty. Each forecast also analyzes market uncertainty through sensitivities on development of costs (LCoE), power prices, hydro and bio potential as well as the timing of investments. DELIVERABLES A lean and to the point report summarizing results and assumptions from the model simulations, but also explaining general price drivers for the certificate market. On request, we offer workshops where the report and market developments are discussed with client. Key data is delivered in Excel-format. We also deliver bespoke forecasts and benchmarking services for clients. REPORT BENCHMARKING (OPTIONAL) THEMA also offers benchmarking of wind investments. We have developed a comprehensive database of potential and actual RES projects in Norway and Sweden, with project specific cost data, allowing comparison of a client s project or portfolio with the remaining supply curve for renewables. This service can be ordered in addition to a standard price forecast for certificates. WORKSHOP DATA

5 An advanced simulation model: For the certificate price forecast we have developed a simulation model that models prices and investments, taking into account a large number of variables and restrictions, including technology learning curves, grid restrictions, and area prices. Integrated forecast: The certificate market model is seamlessly integrated with our power market model The-MA. Power prices and certificate prices are consistent with each other, and both models share the same base data for simulations. The certificate forecast is based on the best guess power price scenario. Country specific restrictions and market design accounted for: In our analysis and database we also account for country specific restrictions and regulation (e.g. depreciation rules, committed investments, grid constraints, etc.). Detailed project data base: THEMA has developed a comprehensive database for RES investments in Norway and Sweden, with project specific costs and other information relevant for the certificate market. The project database is regularly updated, and is also basis for our benchmarking services

6 GERMAN POWER PRICE FORECAST BEST GUESS SCENARIO Our Best Guess Scenario is based on what we assume to be the most plausible development in key price drivers. We use the forward market as input for fuel and CO 2 -prices in the medium term, while we rely on price input from IEA and the World Bank in the longer horizon. Furthermore, the scenario is based on THEMAs assessment of changes to the regulatory framework both on the national and EU level. We analyze the effect of main price drivers in form of sensitivities on CO2, coal and gas prices HIGH AND LOW SCENARIOS Our scenario analysis is based on plausible developments in the fuel and CO 2 markets. The downside is modelled as the event of the EU failing to agree on a tighter cap in the fourth CO 2 trading period combined with European gas prices falling towards US levels. The upside is represented by a climate scenario, reflected by higher CO2 prices in addition to somewhat higher fuel prices due to increased economic activity. DELIVERABLES A lean and to the point report summarizing results and assumptions from the model simulations, but also explaining general price drivers. On request, we offer workshops where the report and market developments are discussed. These workshops can also be offered in German language. Key data is delivered in Excel-format. Data deliverables can be customized to client request (e.g. hourly prices for all simulations etc.). WORKSHOP REPORT DATA CAPACITY MARKETS We also discuss the outlook for capacity markets, and estimate potential capacity prices that reflect the missing money consistent with our forecasted spot prices

7 One of the most sophisticated models in the market: Like the Nordic power price forecast, the price simulations are performed using The-MA model, a sophisticated power market simulation model for North-West Europe. Other users: Developed by THEMA, the model is also used by a range of clients, including E.ON, RWE, E-CO, NVE, OED, and others. It is applied both for trading support, and long-term price forecasts. Features: The model has hourly time resolution, a detailed representation of thermal units, hydro units, and intermittent generation. All larger units, including reservoirs, are modelled as individual plants. An up-to-date database for North-West Europe: The model scope is North-West Europe. All countries surrounding Germany are modelled in detail. Long-term developments in capacity developments for RES and thermal capacities are taken into account, not only in Germany, but also surrounding countries. Cables and exchange: As the model also includes the Nordic countries, and represents them with accuracy and high degree of detail, the consequences of new interconnectors are captured. THEMA s experience: THEMA has a long track record in price forecasting, power market modelling, and market analysis, also for Continental Europe. We have performed studies for European TSOs, regulators, and utilities. For the European commission we employed our model to study loop flows and the effect of bidding zone delimitation on German prices and trade flows

8 Contact: Marius Holm Rennesund, Senior Consultant is a consulting firm focused on Nordic and European power market and energy issues. THEMA is active in three areas: Market analysis, market design, and strategy consulting. Our products range from tailored products, studies and services to off-the-shelf price forecasts. To find out more, please visit Clients Our clients include major utilities, banks, investors, and trading companies as well as regulators, authorities, TSOs, and the European Commission