Aurora Energy Research has released new analysis exploring what happens to the power market in a very high renewables world as Great Britain approaches a zero-carbon power system.
The analysis considers a 2050 scenario with a combined total of 130GWs of wind, solar and nuclear capacity (up from 40GWs today) in GB.
Power demand will grow by nearly two thirds (relative to today) as it is assumed that all cars and 80% of residential heating is electrified.
The report highlights that significant growth of renewables would fundamentally alter the workings of the power market with an excess of renewables generation leading to prices crashing during the summer months.
This raises questions about whether the current wholesale market design can persist in the long term as we approach a zero-carbon system, or whether we need to 2 learn lessons from other ‘zero marginal cost’ sectors (such as the internet) on how the power market might need to be restructured in the future.
The future power market described Aurora’s new report sees some dramatic changes compared to today. In summer, there is an excess of low carbon generation relative to demand – in part due to the significant amount of solar generation during the summer months. In winter, the significant growth in renewables cannot entirely fulfil power demand – the balance will be made up by gas generation and storage.
Aurora’s research shows that a highly seasonal prices pattern emerges, with very low prices during the summer (more than three-quarters of hours see prices below £10/MWh), and much higher prices during the winter (average around £60/MWh) when thermal power stations are still setting the price.
Battery storage also plays an increasingly important role with more than 10GWs of grid scale batteries deployed by 2050.
These findings have some significant implications for existing power generation assets and the deployment of new assets. Existing gas power stations and renewables plants would be profitable, even though they would make almost all their revenues during the winter months.
New build thermal assets would require a significant “capacity payment” outside the wholesale power market in order to be viable. Renewables such as wind and solar would need to see significant reductions in cost (of up to 85%) to be viable without Government subsidies in such a scenario.
The report provides some pointers about what happens if we push even further in decarbonising the power system. The analysis shows that it is possible for the power system to be entirely free of greenhouse gas emissions if enough low carbon capacity is built alongside large amounts of inter-seasonal storage.
However, this would result in wholesale power market prices reaching a very low level – raising questions about how low carbon capacity and storage could be built economically under the current market structure.
The report also looks to the example of other sectors, such as the internet, which are also based on zero-marginal cost technologies – to offer some lessons on how the power market might need to be restructured in the future.
This analysis suggests that the current model of pricing electricity on a half-hourly basis, may become less relevant over time – whilst we may see a move towards ‘capacity contracts’ with the Government or the electricity system operator ‘procuring’ capacity.
The GB power market has already moved in this direction with the introduction of a Capacity Mechanism in 2014, but this model would need to evolve considerably in order to ensure that market outcomes are also consistent with the government’s decarbonisation objectives.
Weijie Mak, Lead GB Power Expert at Aurora, said: “The advent, and implications, of a near zero-carbon power sector have come to the forefront of policy debate in recent months with the publication of the Labour party’s energy policy paper and the IPCC Report.
“Tripling Great Britain’s current low carbon generation capacity in a bid to reach “net zero” in the power sector is possible, but also challenging. The wholesale market will continue to function and provide the majority of revenues for existing assets, especially in winter months when wholesale prices are high.
“New assets will however, be increasingly reliant on capacity market payments for economic viability. To integrate a large buildout of renewables at minimal cost, regulators should aim for a harmonised policy across all technologies.”