Rising wholesale prices not the whole picture for generators

The latest SmartestEnergy Embedded Benefits webinar looked in detail at what has been happening to wholesale prices and charges along with forecasts for the future. Webinar presenter and Business Development Manager Matt Neve runs through some of the highlights.

Watching power market movements of late will have put a smile on the faces of some generators as winter approaches.

Recent weeks have seen some of the highest-ever peak electricity prices after a general upward trend which began early in the summer.

Issues with French nuclear generation, increasingly expensive power stations being deployed in the UK to meet demand and concern over high cash-out prices have been among the factors driving higher prices.

The general uplift in prices and the peaks achieved recently means optimisation of generation assets could have a significant impact on returns.

Impact on RO and FiT

There is more good news for renewable generators with regard to ROCs where we expect there to be some scope for recycle value after an extended period when prices have been depressed by factors including large offshore wind farms coming on stream which flooded the market. There is still a significant spread in the potential out-turn of prices but over time we are hopeful that the market for ROCs will stabilise.

Rising wholesale prices are also having a knock-on impact on the Feed-in Tariff (FiT) schemes for generators.

For typical small-scale FiT generators, the increase means that those on a fixed price PPA would be better off than taking the new export tariff although further ahead it is expected that the export tariff could outstrip the value achievable on the wholesale market.

For the FiT CfD, higher wholesale prices means a lower top up is needed under the mechanism to achieve strike prices. Our webinar looked in more detail at what might happen to the FiT CfD schemes in the years ahead under a range of different scenarios.

Embedded benefits under the spotlight

The future of the TNUoS benefit for generators is in doubt and we expect it to be removed or reduced. When any change might happen is also unclear but 2018 seems most likely.

But for now, most generators can look forward to a healthy uplift in benefits under the scheme, although there are significant regional variations. For example, this winter generators in Scotland and the North of England generators should see particularly strong rises in TNUoS and Triad payments, primarily due to the impact of the closure of Longannet.

Next year, most generators should see a 4-5% uplift in Triad revenues and users of SmartestEnergy’s Triad warning service will already have received their first alerts about potential periods this winter. Our webinar looked at when some of the likeliest Triads may be in the months ahead.

The future of payments to generators under BSUoS is also in the balance as part of the wider review of embedded benefits although changes are not expected for several years yet.

For this year, we are expecting the BSUoS benefit for generators to be higher than previously predicted as payments including those under the Black Start cost recovery mechanism and Supplemental Balancing Reserve kick-in.

As well as forecasts on embedded benefits for generators, our latest webinar also reveals the outcome of a poll we conducted on what industry players think about the review of Embedded Benefits. Much to our surprise 46% of attendees voted it overdue, only 20% felt it is unjustified and the remaining couldn't decide.

To watch some of Novembers forecasts, click the videos below:



See more on embedded benefits

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