1 NBS-M017 – 2013 CLIMATE CHANGE: GOVERNANCE AND COMPLIANCE Electricity Market Reform Aims to integrate both the Wholesale and Low Carbon Electricity Markets.

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Presentation transcript:

1 NBS-M017 – 2013 CLIMATE CHANGE: GOVERNANCE AND COMPLIANCE Electricity Market Reform Aims to integrate both the Wholesale and Low Carbon Electricity Markets. Provides support for both Renewables and Nuclear and in future Carbon Capture and Sequestration Basic Time Line Feed in Tariff - Contracts for Difference for Renewables begin 1 st April 2014 April 1 st 2014 – March 31 st 2017 New Renewable Generators can opt for either Renewable Obligation or FIT – Cfd Existing Renewable Obligation Generators can opt to swap to FIT – CfD From April 1 st 2017, all new renewable generation and nuclear covered by FIT – CfD, supported by a Capacity Market.

NBS-M017 – 2013 ELECTRICITY MARKET REFORM Options considered: Premium Feed in Tariff – the scheme adopted by Spain The Renewable Obligation (i.e. the current UK system) - a form of variable Premium Feed in Tariff – used in UK and as a variant in Japan Fixed Feed in Tariff – the approach used by Germany One way contract for Difference – as used by the Netherlands One Way contract for Difference with auction to set the strike price – as used by Denmark Two way contract for difference as now proposed for UK Two way contract for difference with auctioning to set Strike Price.

ELECTRICITY MARKET REFORM Feed in Tariff Wholesale Price Feed in Tariff – used in Germany A fixed price contract for n years - price set by Government and adjusted periodically Also used in UK as Non Fossil Fuel Obligation NFFO phases 3 – 5 had auctions to set the Feed In Tariff Price – i.e. lowest level to satisfy the required level of deployment Developers have a fixed income thereby reducing risk Fixed Feed in Tariff

ELECTRICITY MARKET REFORM Fixed Premium Feed in Tariff – has been used in Spain Renewable Generators get paid average Wholesale Price Plus a fixed premium over contract period. A variant allows generators to trade in wholesale market to influence this market - Might lead to increased wholesale prices Wholesale Price Premium Feed in Tariff

ELECTRICITY MARKET REFORM Renewable Obligation as used in UK is a form of Variable Premium Feed in Tariff Renewable Generators get paid average Wholesale Price Plus a VARIABLE premium over contract period. Premium varies according to supply and demand in Renewable Market. - Independent of wholesale prices Wholesale Price Premium Feed in Tariff Renewable Obligation

ELECTRICITY MARKET REFORM One way Contract for Difference - The Netherlands. In Denmark Strike Price is set by Auction. If wholesale price is above Strike Price, no return of excess. As Renewable Generators participate in Wholesale Price, they can influence this and if their actual wholesale contract is below average price – they benefit. Would help to keep Wholesale Prices down. Strike Price Average Wholesale Price Actual Wholesale Price negotiated by generator Additional benefit to generator One Way Contract for Difference

ELECTRICITY MARKET REFORM Two way Contract for Difference as proposed for UK If wholesale price is above Strike Price, excess is returned. As Renewable Generators participate in Wholesale Price, they can influence this and if their actual wholesale contract is below average price – they benefit. Would help to keep Wholesale Prices down. Strike Price Average Wholesale Price Actual Wholesale Price negotiated by generator Additional benefit to generator Two Way Contract for Difference

Of the four different methods albeit with variations: Renewable Obligation Premium Feed in Tariff One Way contract for difference, with or without auctioning Two Way Contract for Difference with or without auctioning The two way CfD is likely to have greatest control on prices. Both CfD methods have the potential to reduce Wholesale Prices if Renewable Generators can keep any margin under the average wholesale price they can negotiate. However, the greatest deployment of renewables may not occur with CfD ELECTRICITY MARKET REFORM

NBS-M017 – 2013 ELECTRICITY MARKET REFORM Draft Strike Prices (£/MWh) 2014/152015/162016/172017/182018/19 Advanced Conversion Anaerobic Digestion Biomass Conversion 105 Dedicated Biomass (with CHP) 120 Energy from Waste (with CHP) 90 Geothermal Hydro 95 Landfill Gas 65 See: Electricity Market Reform: Delivering UK Investment /EMR_Spending_Review_Announcement_-_FINAL_PDF.pdf

NBS-M017 – 2013 ELECTRICITY MARKET REFORM Draft Strike Prices (£/MWh) 2014/152015/162016/172017/182018/19 Offshore Wind Onshore Wind Sewage Gas 85 Large Solar PV Tidal Stream 305 Wave 305 Nuclear 92.5 See: Electricity Market Reform: Delivering UK Investment /EMR_Spending_Review_Announcement_-_FINAL_PDF.pdf