Generator Revenue Streams: Looking Ahead
Blog

Both market fluctuations and regulatory change continue to impact generator incomes. In this blog, Head of Renewable Sales, Chris Smith outlines SmartestEnergy’s forecasts for generator revenue streams and explains the changes in selling strategies we are seeing from Generators.

 

1-Year View of Market PPA

The last 12 months have been noticeably volatile in the market, with prices £7-£10/MWh higher than 12 months ago for both Summer and Winter 19 contracts.

The Winter 19 contract started trading at £47/MWh over this period, before peaking at £65/MWh in January 2019. The contract now trades lower at £57/MWh. Comparatively, Summer 19 has gone from £41/MWh, up to £60/MWh, before coming back down to current levels of around £48/MWh.

For generators, the volatility creates both opportunity and risk. Our observations suggest that generators are now opting for longer trading horizons via flexible product structures.

This is aimed at enabling them to make multiple decisions over time – with the hope of capturing a higher average weighted price.

Interestingly, despite the drops in power prices from their previous highs, we’ve observed a clear trend of Market Power Purchase Agreements offering better value than the Feed-in Tariff (FiT) Export Tariff.

 

Indicative Triads View

Last winter saw the trend of reducing peak demand continue. The key cause of this has been more parties looking to move load to less expensive periods or remove demand from the power network completely.

Increased amounts of embedded generation looking to optimise around market spikes and capture revenue from Triads, has also contributed to the reduction in demand.

Peak demand is indicatively down by 1.8 GW from last year - provided that the current estimates remain as the final Triad periods. According to these predictions, we also had a Triad in November for the first time since 2013 - and based on the indicative figures - no Triad in February, in line with the largely mild spring weather.

Its also worth remembering the Ofgem changes which mean that from next winter, Scottish generators will receive no Triad embedded benefit, whilst many other areas will receive much smaller Triads in 2020/21.

Given that this has been a notable revenue stream for a lot of peaking and baseload assets, more flexible trading strategies are becoming ever more important if generators are to optimise their revenues.

 

Renewable Obligation Certificate (ROC) Value

In better news for generators, the recycle value for Compliance Period (CP) 17 has been forecasted by external parties at £8.26/ROC.

Looking forwards, we now have a confirmed CP 18 buyout price of £47.78/ROC. From CP 2018 to CP 2019, our central case forecast levels-off, estimating a ROC value around the £55.10 mark.

Overall predictions are for costs to continue rising, before eventually flattening out once all remaining generation queued for RO accreditation is deployed.

 

Balancing Services Use of System (BSUoS) Forecast

Projections from National Grid foresee the BSUOS embedded benefit value increasing significantly over 2019. Average BSUoS prices are forecast to hit around £3.70/MWh, up from their prediction of £2.35/MWh for March 2019.

This is largely due to the tripping of the England-Scotland 'bootstrap' interconnector and forecast high winds requiring greater curtailment.

This appears to be good news for embedded generators. However, in the longer term BSUoS is under scrutiny as an embedded benefit. Ofgem proposals from the Targeted Charging Review could see BSUoS reduced to zero or even become a cost to embedded generators.

In the worst case, the swing could be between £5-£5.50/MWh on generator revenues.

 

It’s fair to say then that price volatility and policy uncertainty is creating a challenging environment for generators. Whilst some revenues are rising, others at risk of being removed, so its important to stay up-to-date with future revenue streams predictions. Make sure you're in the loop and catch up on our latest webinar here.

 

About the author

Chris joined SmartestEnergy’s Renewables team in 2017 from Danish energy trading company Neas Energy. He works with generators to develop solutions to help them maximise returns in a changing environment for renewable projects. Chris began his career in the energy sector in 1996 with Eastern Natural Gas. He went on to work as a Generation Services Senior Business Development Manager at RWE npower, developing PPA solutions for customers. He has also worked on the supply side with industrial and commercial users. His role as Business Development Manager at Neas saw him build its UK PPA and CHP portfolio from market entry. Chris has a BA in Business Studies from De Montfort University, Leicester.

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