It’s time to start thinking about designing a zero carbon electricity market

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Around COP26, we heard a lot about the UK’s leadership in offshore wind – and rightly so. The 10 GW of offshore wind currently installed in UK waters represent a third of the current installed capacity worldwide, and by the end of the decade that capacity will quadruple, with the UK aiming for 40 GW of offshore wind. by 2030.

Importantly, the process of deploying offshore wind on this scale has brought technology costs down, so this early UK success means other countries will soon overtake the UK in terms of offshore wind capacity. absolute. UK success will lead to global success, amplifying the impact of any emissions savings we could have achieved at home.

Part of the UK’s success stems from the introduction of Contracts for Difference (CfD) as part of the Electricity Market Reform or EMR in the early 2010s. CfDs reduced the risk of wind projects offshore by providing a legally sound, government-backed contract that guarantees a fixed price for output generated over 15 years, thereby reducing the costs of financing large capital-intensive infrastructure.

CfD has helped companies like SSE deploy the technology on a large scale – in our case, including the 3.6 GW Dogger Bank offshore wind farm, a joint venture with Equinor and Eni, which will be the largest in the world once. built, at record prices of around £ 40 / MWh (2012 tariffs).

The CfD will continue to deliver value to consumers in the UK in the near term, and its versions will deploy significant amounts of renewable energy around the world over the next decade. However, to ensure the sustainability of these benefits, we need to start thinking about how the design of the electricity market will need to evolve to support an electricity system based on zero marginal cost renewables, first to decarbonise the electricity. electricity by 2035, then expand to decarbonise the rest of the economy through electrification.

Maintaining the status quo just won’t be the cheapest route, and a recent analysis commissioned by SSE at LCPBy 2050, there are up to £ 20 billion in savings from switching to an electricity market design that equally values ​​all low-carbon generation.

This is where we come back to the UK’s success and ambition in offshore wind – it has placed the UK at the forefront of the challenges of system integration and market design for energies. variable renewables. We are eager to learn from others, it is others who seek to learn from us.

The UK government pledged to examine the need for broader market reforms in its recent Net Zero Strategy, having launched a call for testimonies on this subject at the end of 2020. Ultimately, it is not a question of “if” an EMR2 will take place, but “when”, and the United Kingdom Climate Change Committee (CCC)called for the completion of an electricity market reform by 2023, and it’s a call we would echo as well.

The challenge for policymakers is how and when to implement the long-term reforms that are needed while maintaining the current momentum on low-carbon investments. It is not an easy task, but a clear and predictable timetable for the changes will be essential. Above all, we need to do the heavy lifting, or think seriously, now.

To help start a discussion on the future design of the electricity market, we have partially funded an initial analysis by leading academics from the UK Energy Research Center (UKERC) as part of our COP26 program.

Posted today to coincide with Science and Innovation Day at COP26, UKERC’s initial research – ‘Risk and investment in zero carbon electricity markets – examines different decarbonisation pathways of NG-ESO’s Future Energy Scenarios (FES), including up to 100-120 GW of offshore wind by 2040, then analyzes the impact of the “price cannibalization” of the wind production aligned with wholesale electricity prices, and this means for the “catch prices” for offshore wind farms and the risks of investing in new offshore wind projects.

The report clearly highlights the advantage of a structure like the CfD in reducing the risks for new renewable energy projects and therefore the cost of capital. However, this is clearly only part of the puzzle and we need to look at the entire power system, including how to minimize system costs and maximize the contribution of existing assets.

As technological developments in floating offshore wind, integrated offshore grids and offshore electrolysis will increase the impact of offshore wind in the UK and internationally, the development of a plan for a zero carbon electricity market design through EMR2 to be the most impactful next step the UK can take in supporting the decarbonization of electricity globally.

Disclaimer

SSE plc published this content on November 09, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 09 November 2021 17:04:07 UTC.


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