power market reform roundtable
TRANSCRIPT
Australia’s dilemma
2001 Mandatory Renewable Energy Target:
2% of electricity from renewables by 2010
2011 Renewable Energy Target:
20% of electricity from renewables by 2020
But 20% of what? Target set at 45,000 GWh
2011 RET split into “large” and “small” with target of 45,000 GWh given to LRET.
Some States have own targets.
2014 Target revised down to “updated” 20% = 27,000 GWh
2
Problem
Demand has stagnated due to
• Fall off in industrial demand;
• Rapid increase in retail prices; and
• Off-grid PV connections
But generation capacity has increased due to investment in wind, therefore
• Wholesale prices have fallen;
• Under-utilisation of CCGT;
• Poor returns on capital invested; and
• Loss of long-term price signal.
3
Low SRMC generators entering the market
The following illustrations are indicative only!
Reality has been GREATLY simplified for illustrative purposes.
4
5
Figure 1 Infra-marginal rent in the absence of wind
Price ($/MWh)
Demand
Capacity (MW)
WP
Baseload technology: nuclear
Intermediate technology: CCGT
Peaking technology: OCGT
Infra-marginal rents
Baseload technology: coal
Figure 1 Infra-marginal rent in the absence of wind
Price ($/MWh)
Demand
Capacity (MW)
WP
Baseload technology: nuclear
Intermediate technology: CCGT
Peaking technology: OCGT
Infra-marginal rents
Baseload technology: coal
6
Figure 2 Infra-marginal rent with wind
Price ($/MWh)
Demand
Capacity (MW)
WP
Baseload technology: nuclear
Intermediate technology: CCGT
Peaking technology: OCGT
Wind
Infra-marginal rents
Baseload technology: coal
Figure 2 Infra-marginal rent with wind
Price ($/MWh)
Demand
Capacity (MW)
WP
Baseload technology: nuclear
Intermediate technology: CCGT
Peaking technology: OCGT
Wind
Infra-marginal rents
Baseload technology: coal
Solutions: incentives
• Spain: specific compensation (FIP)
• UK: CfD-price guarantees (FIT)
FIT and FIP protect producers from revenue risk, but efficiency benefits of exposure to market prices is lost.
Green certificates introduce market exposure, but raise revenue risks and consequently capital costs.
7
The dawn of a UK capacity market
After 2 decades, 2014 sees the end of the UK’s energy-only market: as from December it will co-exist with a capacity market. Pricing capacity auctions will be held 4 years ahead of each delivery year.
Beneficiaries of UK low-carbon support (e.g. CfDs) not eligible! Designed to support CCGT and/or OCGT?
Three key forms of agreement:
1. 10 year contracts to support new generation assets;
2. Up to 3 year contracts to support major refurbishment of existing assets; and
3. 1 year contracts for existing generators.
Blueprint for the rest of Europe?
12
13
Thank you!
Energy Studies Institute29 Heng Mui Keng TerraceBlock A, #10-01Singapore 119620
For enquiries:
Ms Jan LuiTel: (65) 6516 2000Fax: (65) 6775 1831Email: [email protected]