Research from Cornwall Insight shows that the role of contracts for difference (CfD) generators in the electricity market in Great Britain continues to expand, and Allocation Round 4 (AR4) to be held later in 2021 will expand this role further
The consultancy suggests that as more wind power comes online, price volatility will increase and the system balancing action required will grow.
Cornwall Insight’s analysis shows that 5.2 GW of installed capacity was supported by the CfD scheme by the end of 2020, providing GB with 22.0 TWh of renewable generation. The first three months of 2021 saw operational capacity under the CfD rise to 5.6 GW, with a total of 6.4 TWh of generation from these assets.
Cornwall Insight expects CfD capacity will rise to 6.8 GW by the end of 2021. Generation from the CfD fleet is forecasted at 25.8TWh across 2021. Almost 10% of total generation will come from offshore wind, which represents a large proportion of the increase, with almost 3.0 TWh of the forecast 3.8TWh increase coming from this technology.
Cornwall Insight analyst Lee Drummee said, “The big driver of the CfD capacity this year is offshore wind. In fact, forecasts indicate that over next winter, monthly generation from the CfD fleet could total between 2.5 TWh and 3.0 TWh. While this is still only around 10% of monthly demand levels for the winter months, the variable nature of wind generation is increasingly impacting the market over these periods.
“Already in 2021, we have seen the standard deviation of day-ahead power prices – a good proxy measure for volatility – increase substantially compared to previous years. While also driven by wider weather and plant outage factors, low wind output across Q1 2021 is also a driver.
“Cornwall Insight has updated its capture price views for wind technologies to reflect the increasingly cannibalised nature of wind values in the power market. These are now significantly below the typical baseload price view, meaning wind assets earn a discount against typical market prices.
“Our forecasts also show these factors will increase in the future as further offshore wind developments enter the scheme. Meanwhile, the system will also become more sensitive to periods of high demand and still weather conditions which can see significant price spikes, as observed in January this year.
“Apart from the power price impact of greater renewable penetration, the rise in intermittent generation also poses greater challenges for National Grid ESO and the generation market regarding system balancing. Actions taken by the ESO on the BM to keep the system balanced on a second-by-second basis are also expected to increase.
“Over the coming years, the CfD regime will be instrumental in changing the generation landscape with 1.9 GW scheduled to come online in 2022 and a further 9.9 GW between 2023 and 2027 under previous AR2 and AR3 rounds. The upcoming AR4 auction could procure up to an additional 12 GW of further capacity, with a substantial proportion expected to be reserved in the auction for offshore wind in a new ‘Pot 3’ category.
“Our Renewable Pipeline Tracker shows that more than 7 GW of shovel ready offshore wind projects could enter the AR4 auction. The pipeline beyond this is even larger, with over 30 GW of preliminary offshore wind projects in an early ‘scoping’ stage and actively engaging in current Crown Estate Offshore Leasing Rounds.”