For the UK Government to achieve its goal of reaching net zero by 2050, the country will need to see an additional 46 GW of renewable energy capacity installed by 2030. That’s according to Cornwall Insight’s ‘benchmark power curve’, which suggests that the 46 GW of new capacity will come from 11 GW of onshore wind, 10 GW of solar and 25 GW of offshore wind.
The UK is already rapidly growing its renewable energy capacity. Recent projects include a solar farm in Herne Bay, Sutton Bridge and Cleve Hill, while the UK still leads in offshore wind. However, it’s important the UK continues that growth to achieve its net zero target by 2050, according to Cornwall Insight.
The need for further growth on current capacity comes as demand for electricity is forecasted to grow exponentially over the next decade or so. That’s largely due to factors such as the electrification of transport, as well as a reduction in the number of homes built using gas heating.
Lower costs but price will be volatile
The cost of installing renewable energy projects is already falling exponentially, and is already said to be less than fossil fuel power plants in many places around the world. However, it’s not just those installing additional capacity that will see benefits from the transition to renewables, consumers are also likely to enjoy lower electricity costs thanks to a depressive impact on wholesale power prices.
Prices will likely be more volatile, however. According to Cornwall Insight, further modelling shows that with an increase in high intermittent generation levels, it is likely the market will see a corresponding rise in price volatility. The volatility in the power price in 2019 was valued at £13/MWh, but between 2020-24 modelling suggests an increase in volatility in all scenarios to between £18.2/MWh and £23.1/MWh. This could rise to over £50/MWh by the 2030s.
James Brabben, wholesale manager at Cornwall Insight, noted, “The net zero target is defining the shape of the future power market in terms of absolute value and volatility. This is certainly true in the period to the 2030s before we see material changes in power demand from widespread electrification in heat and transport.
“We have been given a glimpse of what the future may hold during the COVID-19 lockdown. High renewables generation, caused by low demand over lockdown, created up to 15% discount rates for solar and wind technologies against average day-ahead prices over April and May 2020.
“Our forecast shows similar discount levels could be the norm in the 2020s, especially as more offshore wind comes onto the system, and before we see power demand climb significantly from the electrification of heat and transport.
“With forecasts like these, the prospect of lower and more volatile prices creates uncertainty for those investing in “subsidy-free” or merchant capacity, especially if you need to attract risk-averse investors.
“One potential solution to the cannibalisation issue in a net zero world is reform to the wholesale markets, so short-run costs no longer set prices. This would be a courageous initiative, but nothing should be off the table given the scale of the net zero challenge. A programme to consider such reforms and which are desirable for net zero should, we think, be considered.”
