the future of electricity: a market with costs of zero ... › conference › iaee2017 › files ›...

© Imperial College Business School

The Future of Electricity:

A Market with Costs of Zero?

1Richard Green, IAEE European Conference, 2017

Marginal

Supply

2

GW

£/MWh

Nuclear CCGT OCGT

Marginal Cost

Prices reflect Marginal Costs

Demand and Supply

3

GW

£/MWh

Nuclear CCGT OCGT

Marginal Cost

4

Annual Generation Costs

£/kW-yearOpen Cycle Gas Turbine

Combined Cycle

Gas Turbine

Nuclear

Hours per yearOCGT

cheapest

CCGT

cheapest

Nuclear

cheapest

5

Load-duration and Capacity

OCGT

cheapest

CCGT

cheapest

Nuclear

cheapest

Hours per year

GW

Nuclear

CCGT

OCGT

6

Generator Costs & Revenues

£/kW-yearOpen Cycle Gas Turbine

Combined Cycle

Gas Turbine

Nuclear

Hours per yearOCGT

cheapest

CCGT

cheapest

Nuclear

cheapest

0

10

20

30

40

50

2009 2010 2011 2012 2013 2014 2015 2016

Electricity Gas Coal

per MWh of electricity


British Energy Prices

7

£/MWh

Source: ElectricInsights.co.uk

0

10

20

30

40

50

2009 2010 2011 2012 2013 2014 2015 2016

Electricity Gas Coal

per MWh of electricity


British Energy Prices

8

£/MWh


© Imperial College Business School 9

German Energy Prices:

a market working well?

0%

20%

40%

60%

80%

100%

120%

140%

€0

€10

€20

€30

€40

€50

€60

€70

2002 2004 2006 2008 2010 2012 2014

Gas price / 45%

Electricity price

Prices

(€/MWh)

Installed capacity

(relative to peak load)

Source: Green and Staffell, Oxrep, 2016

Austrian


German Energy Prices:

The Merit Order Effect

0%

20%

40%

60%

80%

100%

120%

140%

€0

€10

€20

€30

€40

€50

€60

€70

2002 2004 2006 2008 2010 2012 2014

Gas price / 45%

Electricity price

Prices

(€/MWh)

Installed capacity

(relative to peak load)

Source: Green and Staffell, Oxrep, 2016

Austrian


Renewables in a Power Market

The long-run adjustment

Demand and Supply

13

GW

£/MWh

Nuclear CCGT OCGT

Marginal Cost

The merit order effect

14

Capacity and Load

OCGT CCGT Nuclear Hours per year

GW

Nuclear

CCGT

OCGT

After renewables

0

10

20

30

40

50

60

70

80

90

1999 2001 2003 2005 2007 2009 2011 2013 2015

Solar

Wind

Conventional

Peak Demand

Great Britain


Generating Capacity

15

GW

Source: Digest of

UK Energy Statistics

0%

10%

20%

30%

40%

50%

60%

70%

80%

1999 2001 2003 2005 2007 2009 2011 2013 2015

UK-wide, including Northern Ireland


Generators’ Load Factors

16Source: Digest of UK Energy Statistics

Coal

CCGT

0

10

20

30

40

50

60

70

80

90

1999 2001 2003 2005 2007 2009 2011 2013 2015

Solar

Wind

Conventional

Peak Demand

Great Britain


Capacity and Peak Demand

17

GW

Source: Digest of

UK Energy Statistics

-600

-500

-400

-300

-200

-100

0

100

200

0

10

20

30

40

50

60

70

80

Nuclear Biomass Gas Coal Hydro Peaking Imports Wind Solar D P R

A Low-Carbon Christmas

£/MWh

GW

Day-ahead Price

25 December 2016 26 December 2016 27 December 2016


-600

-500

-400

-300

-200

-100

0

100

200

0

10

20

30

40

50

60

70

80

Nuclear Biomass Gas Coal Hydro Peaking Imports Wind Solar D P R

A Low-Carbon Christmas

£/MWh

GW

Real-time Price

Day-ahead Price

25 December 2016 26 December 2016 27 December 2016


Supply and Demand

£/MWhDemand

GW

Marginal Cost

Price

-100

0

100

200

300

400

500

600

700

800

A volatile market

April May June July Aug Sept Oct Nov Dec Jan Feb Mar

£/MWhDay-ahead Electricity Price (half-hourly)

Great Britain, April 2016-March 2017


-100

0

100

200

300

400

500

600

700

800


Day-ahead Prices in 2016

22

£/MWh


hours0 1000 2000 3000 4000 5000 6000 7000 8000

-100

0

100

200

300

400

500

600

700

800

Surplus over annual average fuel cost



23

£/MWh


hours0 1000 2000 3000 4000 5000 6000 7000 8000

Black bars are for coal-fired plant, blue for gas

-50

-25

0

25

50

75

100

125

150




24

0 1000 2000 3000 4000 5000 6000 7000 8000

£/MWh


hours


-50

0

50

100

150




25

0 1000 2000 3000 4000 5000 6000 7000 8000

£/MWh


0%

50%

100%

Cumulative surplus

Gas

Coal

hours


0

10

20

30

40

50

0 2000 4000 6000 8000

2016 Demands


2016 Load-duration curves

More need for peaking plant?

26

40

42

44

46

48

50

52

0 100 200 300 400 500

(Detail)

Gross

Net

Gross

GW

Hours/yearSource: ElectricInsights.co.uk

0

10

20

30

40

50

0 2000 4000 6000 8000

2016 Demands


2016 Load-duration curves

More need for peaking plant?

27

40

42

44

46

48

50

52

0 100 200 300 400 500

(Detail)

Gross

Net

Gross

Net


GW GW

Hours/year Hours/year

0

50

100

150

200

250

300

350

400

450

0 1 2 3 4 5 6 7 8

Usage over 17 years of demand and weather data

More risk for peaking plants?

28

No Renewables

No Renewables

Current Renewables

(15 GW Wind, 12 GW PV)

Double Renewables

(30 GW Wind, 24 GW PV)

Current

Renewables

Double

Renewables

100-hour mean annual running time 20-hour meanGW

Hours/year

• Scheduling model with start costs and no-load costs

– Capacity assumed infinitely divisible

• Reserve requirement of 3GW in all periods

• Demands from GB load profiles, scaled to common base

• Demand reduction linear in price above £40/MWh

• Renewable profiles for wind and PV from Iain Staffell and

Stefan Pfenninger: renewables.ninja

• Assume 15 GW onshore wind

• Assume 50 GW offshore wind

• Assume 15 GW Solar PV

The Model With No Name


A market of the future…

29

-100

0

100

200

300

400

500

-10

0

10

20

30

40

50

Gas OCGT Wind Solar Spilled Demand Price (RHS)

Week 7 of “2010”


A simulated future

30

GW £/MWh

-100

0

100

200

300

400

500

-10

0

10

20

30

40

50


Week 7 of “2010”


A simulated future

31

GW £/MWh

-100

0

100

200

300

400

500

-10

0

10

20

30

40

50


Week 44 of “2010”


A simulated future

32

GW £/MWh

-100

0

100

200

300

400

500

-10

0

10

20

30

40

50


Week 44 of “2010”


A simulated future

33

GW £/MWh

-100

0

100

200

300

400

500

-10

0

10

20

30

40

50


Week 44 of “2010”


A simulated future

34

GW £/MWh

overall Gas OCGT Solar Wind

Relative revenues by type of plant


A barrier to renewables?

35

-100

0

100

200

300

400

500

600

700

800

A volatile market


£/MWhDay-ahead Electricity Price (half-hourly)

Great Britain, April 2016-March 2017


-10

0

10

20

30

40

50

60

70

80

A less volatile market


€/MWhDay-ahead Electricity Price (half-hourly)

Norway, April 2016-March 2017



Renewables in an Energy Market


Supply and Demand

£/MWhDemand

GW

Marginal Cost

Price


Supply and Demand

£/MWhDemand

GW

Marginal Cost

Remaining Resource

Future Demand

Opportunity Cost

( )

Price

Available

Resource

Finn’s bathtub, from Forsund (2007) Hydropower Economics


Reservoir Levels

GWh

Time

Energy Capacity

Low price minimises

the risk of throwing

away energy

High price minimises

the risk of running out

of energy

Low

price

again

-100

0

100

200

300

400

500

600

700

-10

0

10

20

30

40

50

60

70

Nuclear Wind Solar Storage Demand Price (RHS)

Week 7 of “2010”


A simulated future

42

GW £/MWh

-100

0

100

200

300

400

500

600

700

-10

0

10

20

30

40

50

60

70

Wind Solar Gas OCGT Spilled Demand Price (RHS)

Week 7 of “2010”


A simulated future

43

GW £/MWh

-100

0

100

200

300

400

500

600

700

-10

0

10

20

30

40

50

60

70

Nuclear Wind Solar Storage Demand Price (RHS)

Week 44 of “2010”


A simulated future

44

GW £/MWh

-100

0

100

200

300

400

500

600

700

-10

0

10

20

30

40

50

60

70

Wind Solar Gas OCGT Spilled Demand Price (RHS)

Week 44 of “2010”


A simulated future

45

GW £/MWh

Thermal Market Storage Market

Average Gas Peaking Solar Wind

Revenues by type of plant


A more level playing field?

46

Peaking/

Storage

0

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18Seasonal Storage (LHS) Peaking Storage (RHS)

8760 hours of “2010”


Stored Energy Levels

47

TWh

Jan Mar SepMay Jul Nov DecOctAugJunFeb Apr

GWh

10

40

30

20

0

0

2

4

6

8

10

12

14

16

18

0

2

4

6

8

10

12

14

16

18Seasonal Storage (LHS) Peaking Storage (RHS)

8760 hours of “2010”


Stored Energy Levels

48


TWh GWh

10

40

30

20

0

-75

-50

-25

0

25

50

75

100

125

-15

-10

-5

0

5

10

15

20

25

Peaking Seasonal Price (RHS)

Week 47 of “2010”


Storage flows and prices

GW £/MWh

0

20

40

60

80

100

120

0

5

10

15

20

25

30

Seasonal Storage Price

8760 hours in “2010”


A storage-renewable market

50

GWh £/MWh


• Balancing

• Uncertainty

• Transmission

• Distribution

• Inertia

• What happens with intermediate amounts of storage


What have I left out?

• Markets based on power will have volatile prices in a

high-renewable world

• Storage can smooth these prices, creating markets based

on energy

• Prices would be set to meet the energy constraint over

long periods of time

• Would we value generators on their expected energy

output?


Conclusions

the future of electricity: a market with costs of zero ... › conference › iaee2017 › files ›...

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