The Future of Electricity: A Market with Costs of Zero? Marginal Imperial College Business School Richard Green, IAEE European Conference, 217 1
Running your mouse over the bubble in the top left corner should reveal my comments Demand and Supply Prices reflect Marginal Costs /MWh Marginal Cost Nuclear CCGT OCGT GW 2
Annual Generation Costs /kw-year Open Cycle Gas Turbine Combined Cycle Gas Turbine Nuclear OCGT cheapest CCGT cheapest Nuclear cheapest Hours per year 3
Load-duration and Capacity GW OCGT CCGT Nuclear OCGT cheapest CCGT cheapest Nuclear cheapest Hours per year 4
Generator Costs & Revenues /kw-year Open Cycle Gas Turbine Combined Cycle Gas Turbine Nuclear OCGT cheapest CCGT cheapest Nuclear cheapest Hours per year 5
British Energy Prices per MWh of electricity /MWh 5 4 3 2 1 Electricity Gas Coal 29 21 211 212 213 214 215 216 Imperial College Business School Source: ElectricInsights.co.uk 6
German Energy Prices: The Merit Order Effect Prices ( /MWh) 7 6 5 4 3 2 1 Gas price / 45% Electricity price Installed capacity (relative to peak load) 14% 12% 1% 8% 6% 4% 2% 22 24 26 28 21 212 214 % Source: Green and Staffell, Oxrep, 216 Imperial College Business School 7
Renewables in a Power Market Imperial College Business School 8
Demand and Supply The The long-run merit order adjustment effect /MWh Marginal Cost Nuclear CCGT OCGT GW 9
Capacity and Load GW OCGT CCGT Nuclear After renewables OCGT CCGT Nuclear Hours per year 1
Capacity and Peak Demand Great Britain GW 9 8 7 6 5 4 Solar Wind Conventional Peak Demand 3 2 1 1999 21 23 25 27 29 211 213 215 Source: Digest of UK Energy Statistics Imperial College Business School 11
Generators Load Factors UK-wide, including Northern Ireland 8% 7% 6% 5% 4% 3% 2% 1% CCGT Coal % 1999 21 23 25 27 29 211 213 215 Imperial College Business School Source: Digest of UK Energy Statistics 12
A Low-Carbon Christmas 8 7 6 GW Day-ahead Price Real-time Price /MWh 2 1 5-1 4-2 3-3 2-4 1-5 -6 25 December 216 26 December 216 27 December 216 Nuclear Biomass Gas Coal Hydro Peaking Imports Wind Solar D P R Source: ElectricInsights.co.uk
Supply and Demand /MWh Demand Marginal Cost Price GW
A volatile market /MWh 8 Day-ahead Electricity Price (half-hourly) Great Britain, April 216-March 217 7 6 5 4 3 2 1-1 April May June July Aug Sept Oct Nov Dec Jan Feb Mar Source: ElectricInsights.co.uk
Day-ahead Prices in 216 Surplus over annual average fuel cost /MWh 8 7 Black bars are for coal-fired plant, blue for gas 6 5 4 3 2 1-1 1 2 3 4 5 6 7 8 Imperial College Business School Source: ElectricInsights.co.uk hours 16
Day-ahead Prices in 216 Surplus over annual average fuel cost /MWh 15 Black bars are for coal-fired plant, blue for gas 1 5-5 1% 5% Coal Gas Cumulative surplus % 1 2 3 4 5 6 7 8 Imperial College Business School Source: ElectricInsights.co.uk hours 17
More need for peaking plant? 216 Load-duration curves GW 216 Demands GW (Detail) 5 52 4 5 48 3 Gross 46 2 Net 44 Gross 1 2 4 6 8 Imperial College Business School Hours/year 42 4 Net 1 2 3 4 5 Source: ElectricInsights.co.uk Hours/year 18
More risk for peaking plants? Usage over 17 years of demand and weather data Hours/year 45 4 35 3 No Renewables Current Renewables (15 GW Wind, 12 GW PV) Double Renewables (3 GW Wind, 24 GW PV) 25 2 15 1 No Renewables Current Renewables Double Renewables 5 1 2 3 4 5 6 7 8 1-hour mean annual running time 2-hour mean GW 19
Scheduling model with start costs and no-load costs Capacity assumed infinitely divisible A market of the future The Model With No Name Reserve requirement of 3GW in all periods Demands from GB load profiles, scaled to common base Demand reduction linear in price above 4/MWh Renewable profiles for wind and PV from Iain Staffell and Stefan Pfenninger: renewables.ninja Assume 15 GW onshore wind Assume 5 GW offshore wind Assume 15 GW Solar PV Imperial College Business School 2
A simulated future Week 7 of 21 GW 5 /MWh 5 4 4 3 3 2 2 1 1-1 Gas OCGT Wind Solar Spilled Demand Price (RHS) -1 Imperial College Business School 21
A simulated future Week 44 of 21 GW 5 /MWh 5 4 4 3 3 2 2 1 1-1 Gas OCGT Wind Solar Spilled Demand Price (RHS) -1 Imperial College Business School 22
A barrier to renewables? Relative revenues by type of plant overall Gas OCGT Solar Wind Imperial College Business School 23
A volatile market /MWh 8 Day-ahead Electricity Price (half-hourly) Great Britain, April 216-March 217 7 6 5 4 3 2 1-1 April May June July Aug Sept Oct Nov Dec Jan Feb Mar Source: ElectricInsights.co.uk
A less volatile market /MWh 8 Day-ahead Electricity Price (half-hourly) Norway, April 216-March 217 7 6 5 4 3 2 1-1 April May June July Aug Sept Oct Nov Dec Jan Feb Mar Source: ElectricInsights.co.uk
Renewables in an Energy Market Imperial College Business School 26
Supply and Demand /MWh Demand Opportunity Cost ( Future Demand) Available Resource Price Remaining Resource Marginal Cost GW Finn s bathtub, from Forsund (27) Hydropower Economics Imperial College Business School 27
Reservoir Levels GWh Low price minimises the risk of throwing away energy Energy Capacity Low price again High price minimises the risk of running out of energy Time Imperial College Business School 28
A simulated future Week 7 of 21 GW 7 /MWh 7 6 6 5 5 4 4 3 3 2 2 1 1-1 Nuclear Wind Solar Storage Demand Price (RHS) -1 Imperial College Business School 29
A simulated future Week 7 of 21 GW 7 /MWh 7 6 6 5 5 4 4 3 3 2 2 1 1-1 Wind Solar Gas OCGT Spilled Demand Price (RHS) -1 Imperial College Business School 3
A simulated future Week 44 of 21 GW 7 /MWh 7 6 6 5 5 4 4 3 3 2 2 1 1-1 Nuclear Wind Solar Storage Demand Price (RHS) -1 Imperial College Business School 31
A simulated future Week 44 of 21 GW 7 /MWh 7 6 6 5 5 4 4 3 3 2 2 1 1-1 Wind Solar Gas OCGT Spilled Demand Price (RHS) -1 Imperial College Business School 32
A more level playing field? Revenues by type of plant Imperial College Business School Thermal Market Storage Market Average Gas Peaking/ Solar Wind Storage 33
TWh 18 16 14 12 1 8 6 4 2 Stored Energy Levels 876 hours of 21 Seasonal Storage (LHS) Peaking Storage (RHS) 18 16 14 12 1 8 6 4 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Imperial College Business School 34
Stored Energy Levels 876 hours of 21 TWh 18 16 14 12 1 8 6 4 2 Seasonal Storage (LHS) Peaking Storage (RHS) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec GWh 18 4 16 14 3 12 1 2 8 6 1 4 2 Imperial College Business School 35
Storage flows and prices Week 47 of 21 GW 25 /MWh 125 2 1 15 75 1 5 5 25-5 -25-1 -15 Peaking Seasonal Price (RHS) -5-75 Imperial College Business School
A storage-renewable market 876 hours in 21 GWh Seasonal Storage Price /MWh 3 12 25 1 2 8 15 6 1 4 5 2 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Imperial College Business School 37
What have I left out? Balancing Uncertainty Transmission Distribution Inertia What happens with intermediate amounts of storage Imperial College Business School 38
Conclusions Markets based on power will have volatile prices in a high-renewable world Storage can smooth these prices, creating markets based on energy Prices would be set to meet the energy constraint over long periods of time Would we value generators on their expected energy output? Imperial College Business School 39