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COVID-19 Offers Snapshot into the Future of the Energy System

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SmartestEnergy’s ‘Smart Generation: State of the Market Report 2020’ outlines how flexibility and maximising merchant revenue models will be key to successful generation projects in the post-subsidy energy landscape.

SmartestEnergy’s latest report picks up where their Annual Energy Entrepreneurs report series left off, revealing that independent generation continued to deploy 75.4MW of capacity in 2020 despite dwindling subsidy-support and construction delays caused by COVID-19.

However, the future remains positive for the deployment of independent renewables according to the report, which states that the independent sector could account for anywhere between 84GW – 148GW of low carbon and renewable generation as the UK aims to reach net-zero by 2050. Project developers are now looking towards merchant revenue models, co-location with battery storage and innovative contract structures, such as Corporate PPAs, to turn that vision into reality.

The report also details how record low levels of demand caused by the closure of workplaces across the UK in response to the coronavirus, coupled with favourable weather conditions for renewables, created a new scenario for National Grid to deal with as generation was required to turn down in order to help manage the energy system.

In order to do this, the System Operator primarily called upon the Balancing Mechanism (BM) alongside a newly introduced service, Optional Downward Flexibility Management (ODFM), which allows National Grid to turn down assets on the distribution network that they were previously unable to access.

Across the Spring Bank Holiday Weekend (22nd – 25th May) just over 68GW of generation was turned down to help keep the electricity network in balance. As more renewable generation connects to the grid and demand-side energy efficiency improves, scenarios like this are expected to become more commonplace in the future.

Angus Widdowson, Head of Smart Generation, said:

“The slowdown in projects coming online is of course to be expected in a year where the necessary implementation of lockdown conditions led to a stalling for the economy as a whole, as well as knock on effects for the power sector. Ultimately, this has also given us insight into what National Grid requires from the future, renewable dominated energy system.

We are already seeing energy entrepreneurs respond to these emerging challenges and opportunities by taking new and innovative approaches to deployment. Co-location with storage to enable greater flexibility remains front of mind as technologies such as solar reach ever closer to grid parity; maximising revenue streams by operating across multiple markets; flexible approaches to selling power; and Corporate PPAs are all playing a part in helping projects deploy without subsidy.”

Key figures from the report include:

  • Over the past decade, coal has gone from making up 28% of the UK’s overall Fuel Mix in 2010, to 2% in 2020
  • Across the same timeframe, the independent renewable sector has grown from just under 7GW to 24.8GW of capacity (Solar accounting for 8.3GW, Onshore Wind 8GW)
  • Across 2019-20, 279.7MW of independent renewable generation deployed in Scotland
    74MW of operational battery storage is now located with renewables across the UK
  • The average value achieved by assets bid into the Balancing Mechanism by SmartestEnergy between Oct 2019 – Jun 2020 was £66.26/MWh; the total volume traded by SmartestEnergy in the BM across the same time period was 15.69GW
  • Over the Spring Bank Holiday Weekend (22nd-25th May) solar and wind generators achieved an average value of around £2,500/MW when they were turned down as part of ODFM