Aurora presentation Renewables 2.0: The subsidy-free ... · Keynote speakers of our 2018 Forum...

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

sebastian.just@auroraer.com +44 (0)7827 810 656 2-3 Cambridge Terrace, Oxford OX1 1TP