GOOD ENERGY. Mark Meyrick Trading & Origination Director. All-Energy Exhibition And Conference 2016

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1 GOOD ENERGY Mark Meyrick Trading & Origination Director All-Energy Exhibition And Conference 2016

2 Externalised Benefits of Solar and Wind: An Investigation into the Merit Order Effect Spring 2016 Mark Meyrick For any technical questions please contact: Tom Harrison

3 Introduction Preliminary observations of the impact of solar generation on prices Basic methodology: Look at wholesale electricity market in 2013 & 2014 and calculate what wholesale prices would have been without Wind and Solar. Analysis based on papers focussed on Western Europe by Green Giraffe & Fraunhofer Institute 3

4 Peak Prices are Being Eroded European results (2013): Merit Order Price (MOP) of Solar PV ~ 100/MWh Merit Order Effect (MOE): The saving which occurs when renewables join the bottom of the merit order, reducing the need for more expensive generation types, cutting overall costs. Merit Order Price (MOP): Shows how much saving occurs for each MWh of electricity generated from renewables. [ MOP = MOE / Renewable generation (MWh) ] 3

5 Was This Also the Case in the UK? Methodology: Dispatch model was created using national demand data and renewable generation to analyse the traded power prices. The effect renewables had on the market in 2013 & 2014 was analysed Two Models were created based on 2013 & 2014 Day Ahead Market prices (DAM). 4

6 Wholesale Prices Reduced by Renewables Results 2014 DAM throughout the average day in 2014 and the scenario with no PV Generation Type Reduction ( /MWh) Average DAM ( /MWh) Solar Total Wind* Total Wind & Solar The volume weighted DAM price for 2014: 43.34/MWh DAM No Solar & Wind vs with Solar & Wind The calculated DAM prices above assumes the generation type was not present. Generation Type Overall Saving (MOE) Mean MOP ( /MWh) Solar 150 million Total Wind* 1,400 million Total Wind & Solar 1,550million *Total wind includes both transmission and distribution connected. 6

7 What Does This Mean to the Customer? We see renewables driving down the wholesale price of electricity. Renewables driving down one part of the customers bill (Wholesale Prices) increasing another (Environmental Costs) If Renewables could internalise this external benefit there would be less need for subsidies Source: Ofgem

8 The Net Cost of Current Renewable Subsidies Currently the calculations for renewable subsidies do not take into account the effect of renewables on wholesale energy prices For 2014: Year Annual Total Spent on Solar & Wind Subsidies (Fit & RO), million Annual Total Wind Saving, million Annual Total Embedded Solar Saving, million Net Cost of Solar & Wind Subsidies ,668 1, ,118 The net cost of renewable subsidies is reduced by 1,550m or ~58% if you consider the impact of the solar and wind power on the power prices N.B. FiT and RO costs have been calculated for Solar & Wind technologies only 8

9 Merit Order Prices & Subsidies Assume MOP of Solar: 35/MWh Wind: 43/MWh What does this mean for the net cost of FiT and ROC subsidies, based on recent levels? Generation Type ROCs received 2 Total ROC subsidy ( /MWh) Net ROC subsidy ( /MWh) Solar On-shore Wind Off-shore Wind Generation Type FiT subsidy 2 Net FiT subsidy ( /MWh) Solar (~5MW) Wind (~5MW) This suggests that the subsidies should take into account the saving that renewables bring when considering the rate at which they are given. 1 These results should be considered as the lower bound value 2 Figures correct for end of 2015 pre FiT consultation 9

10 Conclusions Renewables externalise their benefits; whereas thermal generators externalise their costs. Wholesale electricity prices would have been ~12% higher without Solar and Wind in 2014 The reduction of subsidies could potentially cause an increase in customer bills. Discussion is needed regarding the net cost of renewable subsidies For any technical questions please contact: Thomas Harrison

11 Appendices

12 Correlation of Generation and Demand PV has a very low probability of generating at times of low demand, often at night. Meaning: All power will be utilised Unlikely to need to ask PV to turn off at times of low demand Leading to lower balancing costs And higher carbon efficiency Wind has the benefit of being likely to generate large amounts on Winter evenings when demand is high. Therefore the perfect solution would be a combination of the two. Data: Based on national transmission connected wind generation, GE Solar generation & national demand 3

13 2015 Results Generati on Type Solar PV Installed capacities used for Final Installed Capacity 2014 Avg (Used for analysis) 2015 Used for analysis 5.3 GW 3.9 GW 8.3 GW Wind 12.9 GW 10.5 GW 13.7 GW Generation Type Results 2015 Overall Saving (MOE) Mean MOP ( /MWh) Solar 300 million Total Wind* 1,600 million Total Wind & Solar 2,000million *Total wind includes both transmission and distribution connected. 13