Lower wholesale power prices in the UK and high renewables capacity are expected to pose a challenge to subsidy-free wind and solar power projects 2030, a research paper from consultancy Cornwall Insight published Monday said.
No new renewables subsidies by 2025
Up to 18 GW may be needed to decommission thermal
The paper entitled "Wholesale Power Price Cannibalisation" said that if capacity and output from renewables were to continue to rise in the coming years, it was expected to have a "canninbalisation effect" on wholesale power prices, which would drop to the extent, that if unchecked it could jeopardize investment in new renewables capacity.
With the withdrawal of government subsidies for new investment, such as the Feed-in Tariff and Renewables Obligation, and the limited spend remaining for the Contract for Difference scheme, the value earned from wholesale power was going to become increasingly important for renewables.
The RO closed to new investment in April 2017, FiT scheme looks set to follow suit in April 2019 and there is only a limited GBP557 million ($750 million) (2012 values) being made available for the allocation of Contracts for Difference in upcoming auctions.
The study said the if the current policy objectives prevailed there would be no new subsidy opportunities ahead of 2025, and possibly years after that, yet additional capacity was required to offset up to 18 GW of thermal plants being decommissioned and might also be needed to meet demand for electrification and heat.
"Furthermore, substitution by low carbon generation is required to continue reducing carbon emissions. The legally binding carbon budgets may yet be tightened, meaning continued efforts to reduce emissions is required in the power sector and not just heat and transport," according to the study.
Study said that for a representative 10-MW onshore wind project, the combined effect of lower wholesale prices would be to reduce revenues from the wholesale market by 34% in 2033 compared with 2018. Solar power is also significantly affected by cannibalization. A representative 5-MW standalone solar project would experience a fall in wholesale market revenues of 22% from 2018 levels by 2031.
The paper posed questions it said needed to be considered by policy makers, such as: Will intermittent renewables be financially viable without subsidy? How will projects be financed in the absence of subsidies or substitute revenues? and what does the projected level of volatility mean for the point at which different sources of flexibility, particularly battery storage, become economically viable?
