Aurora presentation
Speaker:
Mateusz Wronski
Renewables 2.0: The subsidy-free revolution
Agenda
1. Revolution
2. Impact
3. Challenge
Octopus Investments64MW 173MW
Last 12 months have seen landmark developments in subsidy-free renewables across Europe, with first projects emerging in GB
Source: Aurora Energy Research
Offshore wind auctionsVattenfall700MW
Markbygden650MW
Offshore wind auctionsOrsted & EnBW1380 MW
Renewables auctions3000 MW
April 2017 March 2018
Hive Energy46MW
Anesco10MW
Total/Reactive Technologies310MW
Whirlwind Power10MW
Hive Energy350 MW
Capacity delivered
RES140MW
-512
-2,386
356
NPV, 2018 entry
Revenue increase
25
Cost decrease
1,850
NPV, 2010 entry
Costs,2010 entry
2,742
Revenues, 2010 entry
78%
Present value of revenues and costs, 2010-2018£/kW
CostsRevenues NPV
Example: solar PV in GB Dramatic cost improvements have brought renewables to the cusp of viability without government support
Source: Aurora Energy Research
• Global learning curve
• Economies of scale
• Understan-ding of risks
• LT PPAs
• Debt financing
• Gas + CO2
cost rise
• Higher LF
• Cannibalisa-tion
Present value of revenues and costs, 2018-2025£/kW
Source: Aurora Energy Research
7
-512
NPV 2018
Cost decrease
344
35
Revenue increase
140
Cost of capital (13%=>8%)
NPV, 2025
NPVDe-risking CostsRevenues
Example: solar PV in GB Further cost declines, rising prices and lower cost of capital will see unsubsidised solar break even in GB in early 2020s
Key drivers:
2035203020252020 2040
Both solar PV and onshore wind will become investible in GB without subsidy by mid-2020s
Source: Aurora Energy Research
235
+9.3%
Total revenue stacking in 2035
Additional revenue streams2
6
16
2
Revenue stacking wholesale revenues
211
Reduction to access other markets
4
Wholesale-only revenues in 2035
215
Ancillary services TotalWholesale marketCapacity marketBalancing Mechanism
Revenues of an offshore wind farm in 2035 for revenue-stacking model, GB£ per kW, 2016 real
Revenue stacking can provide material upside and bring forward subsidy-free deployment, but policy change is necessary
Source: Aurora Energy Research
70104
2
40
97
11 12
2020
31
26 3
166
37%
2030
2722
13
2025
Additional renewables capacity since 2017,GW
Total capex spending on renewables since 2017£bn 2016, cumulative
73 9931
56
155
36%
Subsidised
Subsidy-free
20302025
9421
2020
354
Subsidised renewablesSubsidy-free solarSubsidy-free onshoreSubsidy-free offshore
Across North-West Europe, above 60 GW – over a third of all renewables investment - can be deployed subsidy-free by 2030
Source: Aurora Energy Research
Agenda
1. Revolution
2. Impact
3. Challenge
1
4
7
12
22-21
Aurora subsidy-free RES
Aurora no subsidy-free RES
BEIS 2017 projection (gas)
Current pipeline of projects
DECC 2012 projection
Subsidy-free RES nearly eliminate the need for new baseload gas assets –a dramatic shift to very recent expectations
Source: Aurora Energy Research
GB new-build CCGT, 2017-2030GW
9
15
21
3
2030
24
2025
161
2020
90
GB flexible capacity,GW
Source: Aurora Energy Research
No subsidy-free RESAdditional deployment from subsidy-free RES
Unsurprisingly, flexible back-up assets stand to gain
11.7 12.511.0
6.4 5.3 7.9
Base
Peaking
Battery
Cheaper solarMore expensive wind
Cheaper windMore expensive solar
GB peaking and battery capacity in 2030,GW
Source: Aurora Energy Research
Type of RES is critical for flexible capacity: solar favours batteries, while wind pairs better with peakers
100
20
2018 2020
120
40
140
02030
160
20262022 2028
80
2024
60
-20
GB system carbon intensity,gCO2e/kWh
Subsidy-free RES No subsidy-free RES
CCC’s recommended 2030 target
Subsidy-free RES would make meeting ambitious carbon targets significantly easier
Source: Aurora Energy Research
Agenda
1. Revolution
2. Impact
3. Challenge
250
2010 2015
150
400
2020
350
300
2035
200
2005
50
0
450
2030
100
20402025
Onshore wind capture priceClean gas price Baseload electricity price
The merchant nature of investment means exposure to increasingly complex drivers of capture prices
Source: Aurora Energy Research
GB priceIndex, 2001=100
Historical data
Realistic “Worst Case”
“Traditional” merchant
Cannibalisation
System composition
Understanding relationships between these risks allows to establish a robust “Worst Case” scenario for debt financing
-16
-6
-6
-10
-12
Impact on GB onshore wind capture price 2030, GBP/MWh
Low fuel and carbon prices
High RES build-out
DescriptionRisk category
High nuclear
Low flexibility (low EVs, dumb EV charging, low I/C, high battery CAPEX)
Base: £46/MWh
Combination accounting for feedback loops
Source: Aurora Energy Research
Policy is vital – market access and subsidy-free CfDs could bring forward first deployment by up to a decade
20402030 203520252020
First deployment of subsidy-free offshore wind under alternative policy scenarios
Current policies
Full access to Capacity, Balancing and Ancillary Markets (‘revenue-stacking’)
Zero-subsidy CfD and ‘revenue stacking’
Source: Aurora Energy Research
4
Key take-aways
1Subsidy-free renewables are quickly becoming investible, creating a 60bn GBP investment opportunity in North-West Europe alone
2The additional renewable capacity deployed without subsidies displaces baseload thermal generation and boosts opportunities for flexible assets
3Investment in unsubisidised RES requires understanding increasigly complex merchant risks; establishing a credible „Worst Case” is vital in risk management
Long-term policy clarity, ensuring level playing field across all markets, and subsidy-free CfDs, could be policy game changers for subsidy-free deployment
Aurora’s GB Renewables Service
▪ Forecasts of wholesale prices and capture prices until 2040, and other revenue streams: embedded benefits, ROCs, balancing mechanism, and ancillary services revenues accessible by renewables
▪ Regional capture prices and embedded benefits, ready to use in asset valuations and for financing cases
▪ All forecasts under High and Low (“break-even”) scenarios, including lower bound income forecasts for financing cases
▪ Impact of P10/P90 weather years on prices and revenues, reflecting negative correlation between load factors and capture prices
▪ Expected volumes and prices for future CfD rounds
▪ Forecasts of imbalance costs and subsidy cut-offs
▪ Market updates, policy review and outlook plus projection of technology cost and performance
▪ Investment case analysis for different subsidy-free business models for offshore wind, onshore wind and solar, including pairing with batteries and revenue stacking
GB Renewables Market Forecast, published twice a year1
Intelligence to build a successful renewables business, based on bankable price forecasts
Strategic insight reports4▪ Regular in-depth analysis offering unrivalled insight on critical topics for the GB renewables
industry – prepared in connection with the Group Meetings
▪ Planned topics to be covered:
– How low can capture prices go? Understanding merchant risks in subsidy-free world
– Additional revenue stream from participation in balancing mechanism and ancillary services markets
– Co-location business models for wind and solar with battery storage
▪ At least two reports are published per annum
Group Meeting participation5▪ Our subscribers participate in our regular Group Meetings to discuss highly relevant topics to the
industry, and network with other industry participants
▪ In collaboration with our subscribers, we select the topics, prepare in-depth analysis, present our views and implications, and invite participants to challenge them
▪ Future meetings are planned on (indicative):
– Design of Equivalent Firm Capacity (EFC) auctions and prospects for additional revenues for renewables
– De-risking strategies for merchant price risk and the development of a corporate and utility PPA market
▪ Participants will include leading offshore wind, onshore wind and solar developers, renewables-focussed investment funds, financiers, grid operators as well as government
▪ At least two meetings are held each year in London
Analytics and data platform EOS6
▪ Access to detailed historical and real-time GB wind farm and other market data
▪ Data includes output, load factors and capture prices on all large wind farms and other large power stations, power price and commodity price data
▪ Data can be viewed, charted and downloaded
Bilateral meetings & analyst support7
▪ Bilateral workshops with senior members and subject experts of Aurora’ team to discuss Aurora’s analyses and views on the market
▪ Short-notice support by our analysts on questions arising from our research
Granular forecast data in Excel, published twice a year2▪ Full forecast dataset in Excel until 2040 including:
– Wholesale price forecast, capture prices by technology and region
– ROC and CfD prices, capacity market, balancing market, ancillary services prices
– All under various scenarios including lower bound case
– All relevant cost projections: CAPEX, OPEX, imbalance prices & subsidy cut-offs
– Detailed investment case data for various subsidy-free business models
Giving you everything you need to build your own investment case
Monthly market summaries3▪ Monthly summaries on key performance parameters of the GB market to put market results into
perspective, to assist management in staying on top of developments
– GB Wind Performance Summary: monthly snapshot of financial and operating performance for individual wind farms
– GB Power System Performance Summary: key operating characteristics for the GB power system like demand, fuel mix and capacity margin
Invitation to Aurora’s annual Spring Forum8
▪ In our by invitation-only annual Spring Forum in Oxford industry leaders discuss the challenges of the energy industry of tomorrow
▪ Keynote speakers of our 2018 Forum included Claire Perry (Minister for Energy, BEIS), Magnus Hall (CEO, Vattenfall) and Alastair Phillips-Davies (CEO, SSE)
For more information and pricing, contact Sebastian Just, Head of CommercialAurora Energy Research
[email protected] +44 (0)7827 810 656 2-3 Cambridge Terrace, Oxford OX1 1TP