Posted on: 13/08/2021
Last month we hosted a seminar event centred around net-zero where we gathered insights and perspectives from industry experts and customers. In this blog Senior Originator, Jack Rankin reflects on the discussions from a breakout session he led on the day, covering: the requirement for new-build renewable generation assets; supporting these projects with an online trading tool to lock-in wholesale prices up to five years ahead; and the role technology plays in enabling generators to execute complex hedging strategies and tap into new revenue streams.
The publication this week of the Intergovernmental Panel on Climate Change (IPCC) sobering Sixth Assessment Report has again pushed limiting global warming up the agenda. In the report were some hard-hitting truths about the irreversible effects of climate change and a huge focus on the importance of reducing carbon emissions to net-zero. Last month, I led a breakout session as part of the SmartestEnergy 'Net Zero Week' Festival where attendees shared interesting viewpoints on the transition to net-zero. One of the discussions that stood out was around the important role that new-build renewable generation plays in reaching the UK’s net-zero carbon targets. To put this into context, National Grid’s Future Energy Scenarios 2021 Report predicts there will need to be between 70GW and 100GW of wind and solar capacity by 2030 to achieve net-zero, that's an increase of at least 94% from the 36GW of wind and solar capacity recorded in 2020.
How do we continue to support new-build renewable generation?
The renewables landscape has changed rapidly over the last 3-5 years, with subsidies falling away and limited new government support schemes, making the commercial case for funding and investment more challenging. The majority of generator revenues comes from the wholesale power price, meaning access to the longer-term wholesale market and a robust hedging strategy is critical to demonstrate project returns.
Whilst showcasing the SmartFlex trading portal in the breakout session a couple of weeks ago, we looked at the benefits of a Flexible PPA contract with liquid medium-term wholesale pricing and the features of an online trading platform that can support new and existing renewable generators, helping them get the most value from their asset(s):
1) React to market price movements and make instant trades to capitalise on price volatility.
2) Track the market and see live prices with access to five-year seasonal baseload prices – to elaborate on this point, this is hugely beneficial for longer term PPA customers and new-build projects, as generators can lock-in prices five years ahead, giving them fixed revenue certainty for a five-year period. Typically, generators would only have access to three years’ worth of seasonal prices so this is a key benefit of the SmartFlex platform.
3) Set limit orders and email price triggers to act upon market opportunities at the click of a button.
Wholesale prices are at a very high point at the current time, with seasonal prices for Winter 21 in excess of £100 (see chart below). Hear from our pricing experts in our upcoming Generator Revenue Streams webinar on the 1st September for the latest generator revenue price forecasts.
The role of technology in the net-zero transition
In addition to prices being high, they are also structurally more volatile. With renewables replacing baseload generation, the grid relies on flexibility to help bridge the gap between energy supply and demand. Paired with external market conditions, such as unseasonal weather and intercontinental supply, energy prices are becoming extremely volatile, see Winter 21 on the chart above reaching £100/MWh in the last month. As we rely on data to manage the system in real time, the role of technology has never been more important to manage our complex system.
We recognise the role technology has to play in enabling our customers to manage their assets and benefit commercially as they play a leading role in the net-zero transition. To view a demo of our trading technology platform, watch the recording of my breakout session (from 6 mins 30 secs).
With a strategic focus on platform development from a company perspective, we will develop our SmartFlex trading tool continually alongside our product development roadmap to offer our customers access to even more revenue streams as market opportunities continue to evolve.