How Electricity Market Reform may affect independent renewable generators Robert Buckley Cornwall Energy
What we will talk about Current baseline RO & CfD FiTs Commercial implications some thoughts 2
Current baseline The Betta market (1) Source: Elexon 3
Current baseline The Betta market (2) Nominations and imbalance Even (especially?) through PPAs
5 Electricity Market Reform What is a CfD FiT Under a CfD FiT the government would set the strike price Generators receive the difference between the wholesale reference price and strike price If the wholesale reference price exceeds the strike price the generator pays back the difference Retains generator s incentives to participate in the wholesale market Illustration of CfD FiT
Electricity Market Reform Moving to FiTs EMR FiTs from 2016 although first contracts could be let from 2014 Support for renewables will still be available under the RO until 2017: a choice of scheme for new projects some limited grace periods (delayed grid access) From 2017: RO is closed to new generation RO calculated by headroom until 2027, then fixed RoC to 2037 all technologies will be grandfathered in the vintaged RO in 2017 First payments made
Electricity Market Reform Other CfD FiT basics System Operator to deliver both the CfD FiT and capacity mechanism first draft delivery plan due mid-2013 will included desired volumes of low-carbon generation and initial strike prices for renewables but strike prices to be set by DECC (initially administered prices) then move to auction to establish strike prices six month allocation rounds for renewables suppliers to fund CfD FiTs (and capacity market) details still to be finalised single counterparty model now chosen payment model based on BSC process for uncontracted trades 28 day clearing and credit secondary legislation to provide for CfD FiT details DECC has formed Final Investment Decision Enabling Project investment instruments ahead of CfD availability
8 Electricity Market Reform Contractual model for CfD FiTs New government-owned company to act as a counterparty to the CfD FiTs with eligible generators Energy intensive industries are to be exempted from CfD FiT support costs
Commercial implications Offtake/PPA contracts concerns Despite feedback from recent call for evidence on PPAs stating that market conditions have deteriorated government believes: CfD FiTs offers a number of advantages (more later) most of the current concerns are likely to be temporary in nature but concerns on competition, imbalance risk, transition to CfD FiTs Government to continue to explore regulatory options efficacy of obligation to offer terms questioned offtaker of last resort not favoured as it could distort market and would require administered prices green power auction for PPAs, using prices as CfD FiT reference price also rejected as looking too much like a fixed FiT power in Energy Bill to modify electricity supply licences CfD FiT friendly PPA contracts and voluntary code covering issues such as price transparency mooted
Commercial implications Liquidity Government supports Ofgem s work to improve liquidity believes that regulatory intervention may be justified Healthy traded markets necessary for CfD FiTs Backstop powers in Energy Bill to allow government to intervene should industry actions/ Ofgem reforms not secure necessary improvements Ofgem still the primary vehicle to deliver changes Source: Elexon
EMR Key dates and milestones Summer 2013 next key milestone: indicative CfD FiT strike prices clarity on supplier obligation CfD FiT contract published To be followed in autumn 2013 by consultation on detailed secondary legislation for CfD FiTs and capacity mechanism
How Electricity Market Reform may affect independent renewable generators EMR is additional to Betta market rules: possibility of incremental change but no fundamental overhaul envisaged Happens to be emerging as Roc market creaks: Big Six are satisfied for their sticky customers CfD FiTs will entail a new contracting framework single counterparty will manage supply credit risks but generators will be kept interested in wholesale power prices Major overhaul of commercial world will occur