power markets today · cfd r1 -- east anglia 1 cfd r1 -- neart na gaoithe cfd r2 -- triton knoll...

Power Markets TodayMarket design in an age of transition

Tokyo Power Market Seminar

Albert Cheung

June 14, 2018

1

Source: Bloomberg New Energy Finance

Clean energy deployment is accelerating

Annual global renewable energy installations, 2004-2017

12

33 34

51

71 82 85

108 117

128 137

154 164

175

-

20

40

60

80

100

120

140

160

180

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

GW

Others

Wind

Solar

2

Source: Bloomberg New Energy Finance. New Energy Outlook 2017

China U.S.

Utility-scale PV

Coal

Onshore wind

CCGT

0

20

40

60

80

100

120

140

160

180

2017 2020 2025 2030 2035 2040

$/MWh (real 2016)

Utility-scale PV

Coal

Onshore wind

CCGT

0

20

40

60

80

100

120

2017 2020 2025 2030 2035 2040

$/MWh (real 2016)

Solar and wind will be the cheapest forms of electricity in most countries by 2030…Levelized costs of electricity for utility-scale solar, wind, coal and CCGT

3

Source: Bloomberg New Energy Finance, New Energy Outlook 2017

Japan India

Utility-scale PV

Coal

Onshore wind

CCGT

0

50

100

150

200

250

2017 2020 2025 2030 2035 2040

$/MWh (real 2016)

Solar and wind will be the cheapest forms of electricity in most countries by 2030…Levelized costs of electricity for utility-scale solar, wind, coal and CCGT

4

Source: Bloomberg New Energy Finance, New Energy Outlook 2017

2016 2040

Coal37%

Gas23%

Oil4%

Nuclear10%

Hydro17%

Onshore wind4%

Utility-scale PV1%

Small-scale PV1%

24,155TWh

Coal22%

Gas16%

Nuclear9%

Hydro15%

Onshore wind15%

Utility-scale PV

12%

Small-scale PV5%

38,079TWh

The future power system will be renewables-ledGlobal power generation mix, from BNEF’s New Energy Outlook 2017

New Energy Outlook 2018 will be out next week!

5

Source: Bloomberg New Energy Finance, respective country sources. Note: *Excludes large hydro.

Renewable energy* share of power generation in Europe, 2007-2017

U.K.

1%

28% Denmark

24%

69%

Germany

11%

37%

Italy

10%

32%Spain

13%

29%

6

Source: Bloomberg New Energy Finance.

-100

-50

0

50

100

150

200

-40

-20

0

20

40

60

80

Oct 23 Oct 24 Oct 25 Oct 26 Oct 27 Oct 28 Oct 29

GW

Pumped storageHydro ReservoirOtherOffshore windOnshore windSolarOilGasCoalLigniteNuclearHydro RoRGeothermalOther renewablesCoal derived gasWaste to EnergyBiomassLoadDay ahead price

euros / MWh

Germany’s negative pricing weekend, October 2017

Power price

Power demand

LigniteCoal

Nuclear

SolarWind

7


Future power systems will require much more flexibility

-40

-20

0

20

40

60

80

23/Feb10:00

24/Feb10:00

25/Feb10:00

26/Feb10:00

27/Feb10:00

28/Feb10:00

29/Feb10:00

GW

CurtailmentOffshore windOnshore windSolarOther generationDemand

Highest output week for renewable energy in the U.K. in 2040

Frequent excess wind / solar generation

Flexible resources must fill gaps

Low or negative power prices common

8

● Cheap gas and renewables causing challenges for coal and nuclear plants● Rise of distributed energy, New York REV and community choice aggregators

● Impacts of growing RE on power market● Move towards ‘merchant’ projects and possibility of self-cannibalization● Clean Energy Package, 2030 goals and European internal energy market

● Power market reforms, liberalization, growth of clean energy

● Launch of National Energy Guarantee, recent developments in South Australia

● Rise of distributed energy resources● Increasing penetration of variable, zero-marginal-cost renewables● Growing need for flexibility● Paris commitments to continue reducing greenhouse gas emissions

Power market design issues around the world

9

1.Credible market signals for long-term investments in energy and flexibility

2.Optimized short-term dispatch and balancing of supply, demand and storage

3.Capacity build and energy provision in the geographical locations where it is needed

4.Proper integration and valuation of distributed resources

5.Markets that encourage innovation and are future-proofed for emerging technologies.

Market design: goals and challenges

Clean Reliable Cheap

10








11

40.8GWNew capacity for auction that was announced in 1Q

18.9GWNew capacity for auctionannounced just in India

The rise (and success) of renewable energy auctions

50.9GWCapacity auctioned in 2017

Senegal 2018$47.81/MWh

Armenia 2018$46/MWh China 2018

$55.57/MWh

India 2018$37.91/MWhIndia 2018

$38.48/MWh

Germany 2018$56.54/MWh

Germany 2018$55.31/MWh

Brazil 2018$21.08/MWhBrazil 2018

$36.82/MWh

WindPV

Key:

Selection of 1Q 2018 record average auction winning bid

Source: Bloomberg New Energy Finance. Note: this slide has been corrected to show the annual capacity auctioned is for 2017.

12


India solar and wind auction bids vs. coal and gas LCOE

10.95

7.497.00

5.51 5.254.63 4.34

2.44 2.91

2.43 2.44

2010 2011 2012 2013 2014 2015 2016 2017 2018YTD

Rupees/kWh

Gas LCOE 1H 2018Coal LCOE 1H 2018Solar - lowest bidsWind - lowest bids

13

Source: Bloomberg New Energy Finance. Notes: Figures refer to an estimated project LCOE, taking into account tariff, inflation, merchant tail and a project lifetime. Horizontal axis refers to commissioning year.

European offshore wind: levelized auction prices

Zero-subsidy bid

Anholt

Horns Rev III

Near-shore

Krieger's Flak

Gemini

Borssele I & IIBorssele III & IV

Hollandse Zuid I&II

Early CfD -- Dudgeon, Burbo, Walney

Early CfD -- Beatrice, Hornsea 1

CfD R1 -- East Anglia 1

CfD R1 -- Neart Na Gaoithe

CfD R2 -- Triton Knoll

CfD R2 -- Hornsea 2, Moray Firth

Gode Wind 3

BRW II

OWP West He Dreiht

Thornton Bank (I-III)

Northwind

Nobelwind

Rentel

Norther

MermaidSeastarNorthwester II

0

50

100

150

200

2012 2014 2016 2018 2020 2022 2024 2026 2028

Netherlands

Denmark

U.K.

Germany

Levelized bids (2016 $/MWh)

Belgium

14








15

Source: Bloomberg New Energy Finance based on National Grid

U.K. current frequency response requirements

TypeResponse

time DurationMinimumcapacity

Most suitabletechnologies

Enhanced 1 sec 15 min 1 MW Battery storage

Mandatory

Primary 10 sec 20 sec 10 MW (can be from

aggregated smaller units)

Conventionalgeneration, DR, Battery storage

High-frequency 10 sec Indefinite

Secondary 30 sec 30 min

Firm

Primary 10 sec 20 sec 10 MW (can be from

aggregated smaller units)

Conventionalgeneration, DR, Battery storage

High-frequency 10 sec Indefinite

Secondary 30 sec 30 min

16

Source: Bloomberg New Energy Finance based on National Grid

Current vs proposed frequency response services

Current New

Product Responsetime Duration Product Response

time Duration

Enhanced 1 sec 15 min None

Primary & High 10 sec 20 sec

Dynamic pre-fault

1 sec 10-30 minutes

Dynamic post-fault

Secondary 30 sec 30 min Static containment

17

Battery storage is much better at providing frequency response

Fossil fuel generator providing frequency response

18

Battery storage is much better at providing frequency response

Fossil fuel generator providing frequency response

Battery storage providing frequency response

19








20


DE

AT

CZ

PL DE

AT

CZ

PL

North-south transmission Loop flows through neighbouring countries

Germany: illustrative north-south transmission versus loop flows

21

U.S. power market has thousands of nodesU.S. northeast node prices, 2017 – through July

Highest prices

Median prices

Lowest prices

Locational Marginal Prices (LMPs)

• Each spot on the map is a node where power trading can occur• Prices can be quite different in different locations

22

Price differences are caused by transmission constraints…

Highest prices

Median prices

Lowest prices


Transmission lines

Transmission constraints cause nodal power price divergence. Load-heavy regions like Maryland (BGE Zone) tend to have high prices while generation-heavy regions like parts of Pennsylvania (PPL Zone) tend to have lower prices.

23

…and by differences in fuel costs

Highest prices

Median prices

Lowest prices


Gas pipelines

Utica ShaleMarcellus Shale

Tetco

The fact that low-priced power sits atop the Marcellus Shale is not a coincidence. Generators sourcing cheap, Appalachian gas from pipes like Tetco M3 made power cheap in Pennsylvania and New Jersey in 2016. Meanwhile expensive Transco gas propped up prices in Maryland andVirginia.

Cheap Marcellus gas

Expensive Gulf gas

24








25

Source: National Grid, RTE, Tennet, Elia, Eirgrid, Bloomberg New Energy Finance. Note: includes France, U.K., Ireland, Belgium, Netherlands dispatchable DR. Doesn’t include energy trading and imbalance management.

Demand response: Belgium, France, U.K., Ireland, Netherlands

26

Source: Bloomberg New Energy Finance. Note: strategic reserves are included under capacity

Opportunities for demand-side resources in European markets

Country Ancillary services Energy Capacity Distribution

Austria

Belgium

Finland

France

Germany

Ireland

The Netherlands

Norway

Switzerland

U.K. (GB)

Market access granted

Restricted access & limited participation Pilot No accessNo participation or

activity

27








28

Source: Bloomberg New Energy Finance, energy regulators Source: Bloomberg LP

Falling power prices Retail customer switching

Utilities in liberalized markets are facing pressure to their core business

0%

5%

10%

15%

20%

25%

2008 2010 2012 2014 2016

Churn rate (%)

Netherlands

Belgium

U.K.

Germany

Italy

Spain

Ireland

Population-weightedaverage

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016 2017 2018

Euros per megawatt-hour

Germanbaseloadmonth-ahead

Germanbaseloadyear-ahead

French nuclear

outages

29

What about the three main goals?


30

For:

● Renewable projects (and other generation?)● Wholesale power trading (locational?)● Balancing services● Local flexibility services● Retail energy supply● Distributed energy services● Other services (eg, connected home)

Competitive, liquid, transparent markets!

Cheap

31


Paying to guarantee reliability

Capacity mechanisms

3. Targeted payment

4. Central buyer

Targeted

2. Reserve6. Market-

wide payment

5. De-central obligation

Comprehensive

1. Tender

Beneficiary receives public financing for

construction of plant that will operate in

wholesale market as any other plant.

Same as tender, but plant is only

activated to produce electricity when

absolutely necessary.

Set payment to a subset of capacity,

e.g. particular technology type, or

only to capacity providers that meet

specific criteria.

The volume of capacity required is set and the market

determines the capacity price at through a central bidding process.

Market participants, often suppliers, are given obligation to contract sufficient capacity to cover

the demand of their customers.

Set payment to all capacity that can help meet peak

demand.

Types of capacity mechanisms

Strategic reserve

Reliable

Lignite reserve

32

Source: National Grid, Twitter

Eliminating greenhouse gas emissions: U.K.

Clean

“For the first time since the 1880s the UK electricity network has clocked up over 72 hours without the need for coal generation.”

April 24, 2018

“Friday 21st April was the first 24-hour period since the 1880s where Great Britain went without coal-fired power stations.”

April 21, 2017

33


Powering Past Coal

Clean

34

Source: Bloomberg New Energy Finance. Note: monthly-average long-run operating margins.

U.S. coal fleet colored by operating margins

U.S. power sector emissions down 28% since 2005

Clean

Coverage.

Renewable EnergyPower & UtilitiesGasCarbon Markets & Climate NegotiationsEnergy Smart TechnologiesStorageElectric VehiclesMobility and Autonomous DrivingFrontier PowerEmerging Technologies

Bloomberg New Energy Finance is a research firm that helps energy professionals generate opportunities. With a team of experts spread across six continents, BNEF provides independent analysis and insight, enabling decision-makers to navigate change in an evolving energy economy.

BNEF research and analysis is accessible via web and mobile platforms, as well as on the Bloomberg Terminal.

Client enquiries:Bloomberg Terminal: press <Help> key twiceEmail: [email protected]

Learn more: about.bnef.com | @BloombergNEF

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36

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