Forecasts from Cornwall Insight’s ‘Benchmark power curve’ suggests that up to ~46GW of new build renewable technology, ~11GW onshore wind, ~10GW solar and ~25GW offshore wind, may need to be developed by 2030 to keep pace with 2050 net zero targets.
This large-scale deployment of very low/zero marginal cost wind and solar technologies, as well as increasing interconnection in the 2020s, is likely to have a depressive impact on wholesale power prices out to 2030.
Further modelling also shows that with an increase in high intermittent generation levels, it is likely the market will see a corresponding rise in price volatility.
James Brabben, Wholesale Manager at Cornwall Insight, commented on the findings: “The net zero target is defining the shape of the future power market in terms of absolute value and volatility.
“This is certainly true in the period to the 2030s before we see material changes in power demand from widespread electrification in heat and transport.
“We have been given a glimpse of what the future may hold during the COVID-19 lockdown.
“High renewables generation, caused by low demand over lockdown, created up to 15% discount rates for solar and wind technologies against average day-ahead prices over April and May 2020.
“Our forecast shows similar discount levels could be the norm in the 2020s, especially as more offshore wind comes onto the system, and before we see power demand climb significantly from the electrification of heat and transport.
“With forecasts like these, the prospect of lower and more volatile prices creates uncertainty for those investing in ‘subsidy-free’ or merchant capacity, especially if you need to attract risk-averse investors.
“One potential solution to the cannibalisation issue in a net zero world is reform to the wholesale markets, so short-run costs no longer set prices.
“This would be a courageous initiative, but nothing should be off the table given the scale of the net zero challenge.
“A programme to consider such reforms and which are desirable for net zero should, we think, be considered.”
The volatility in the power price in 2019 was valued at £13/MWh, but between 2020-24 modelling suggests an increase in volatility in all scenarios to between £18.2/MWh and £23.1/MWh.
This could rise to over £50/MWh by the 2030s.
Frank Gordon, Head of Policy of Renewable Energy Association (REA), commented on the research: “We strongly welcome the findings of this report that we need more renewable power in the UK.
“As the National infrastructure Commission made clear, the UK can and should be aiming higher in terms of our renewables build out.
“Appropriate policy support measures, such as more Contracts for Difference auctions, are needed by Government as they can overcome concerns such as reduced wholesale power prices and this is something the industry are already working on.”