European power prices - Challenges and opportunities for wind Andreas Gandolfo November 28, 2018 - R-Meetings
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European power prices Challenges and opportunities for wind Andreas Gandolfo November 28, 2018
Introduction What is BloombergNEF 1 Eneco, R-meeting, November 28, 2018
2 Eneco, R-meeting, November 28, 2018
Power prices in Europe The challenge for wind 3 Eneco, R-meeting, November 28, 2018
Ten years of stable power prices
Real 2007 power prices in select European markets, indexed to 2007
100 = 2007, real 2007
250
Above the red line United Kingdom
real prices are up
200
Nordpool
Spain
150
Netherlands
100
France
50 Germany
Below the red line
real prices are down Italy
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Bloomberg Terminal, Bloomberg NEF.
4 Eneco, R-meeting, November 28, 2018Why are power prices stable
Wind and solar as a share of total EU 28
Commodity prices in Europe, indexed to 2007
capacity and generation
100 = 2007
180 30%
160
25% Capacity
140
Gas
120 20%
100
15%
80
Generation
60 10%
Coal
40
5%
20
0 0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Bloomberg Terminal, BloombergNEF. Note: TTF hub prices used for gas Source: BloombergNEF. Note: EU 28 is the 28 countries of the European Union
5 Eneco, R-meeting, November 28, 2018European power prices unlikely to
rise
U.K. power price outlook Germany power price outlook
GBP/MWh, real 2010 EUR/MWh, real 2010
60 60
Outlook Outlook
50 50
40 40
30 30
20 20
10 10
0 0
2010 2015 2020 2025 2030 2035 2040 2010 2015 2020 2025 2030 2035 2040
Source: Bloomberg NEF Source: Bloomberg NEF
6 Eneco, R-meeting, November 28, 2018What is keeping European power
prices from rising
Wind and solar as a share of total European
Coal and gas price outlooks indexed to 2010 capacity and generation
100 = 2010
200 80%
Outlook
180 Gas
70%
Outlook
160
60%
140
50%
120
100 40%
80
Coal 30%
Capacity
60
20%
40 Generation
10%
20
0 0%
2010 2015 2020 2025 2030 2035 2040 2010 2015 2020 2025 2030 2035 2040
Source: BloombergNEF Source: BloombergNEF
7 Eneco, R-meeting, November 28, 2018How much wind and solar do we
expect in Europe
Cumulative installed generating capacity Generation by technology
GW TWh
2,500 4,000
3,500
2,000
3,000
2,500
1,500
2,000
1,000
1,500
1,000
500
500
0 0
2015 2020 2025 2030 2035 2040 2015 2020 2025 2030 2035 2040
Flexible capacity Solar Wind Other Hydro Nuclear Fossil fuel Solar Wind Other Hydro Nuclear Fossil fuel
Source: BloombergNEF. Note: Other includes biomass, and geothermal Source: BloombergNEF. Note: Other includes biomass, and geothermal
8 Eneco, R-meeting, November 28, 2018Why do wind and solar depress
prices
What does it cost different technologies to generate a megawatt-hour of electricity
currency per megawatt-hour
60
50
40
30
20 Subsidy
Variable O&M
10 Emissions
Fuel
0
-10
-20
-30
Coal Gas Wind Solar
Source: BloombergNEF. Note: O&M stands for operation and maintenance, not all subsidy schemes pay out during negative power prices
9 Eneco, R-meeting, November 28, 2018We have already seen wind and
solar push prices down
German electricity generation by fuel type and power price for the week of October 23, 2017
GW
80 80
60 60
40 40
20 20
0 0
-20
-40
-60
-80
-100
23/10/2017 24/10/2017 25/10/2017 26/10/2017 27/10/2017 28/10/2017 29/10/2017
Solar Wind Other Nuclear Fossil fuel Load Day ahead price
Source: Bloomberg Terminal, Bloomberg NEF
10 Eneco, R-meeting, November 28, 2018Renewables capture a discounted
price
U.K. historical realized prices by technology German historical realized prices by technology
GBP/MWh EUR/MWh
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017
Coal Gas Solar Wind Average Coal Gas Solar Wind Average
Source: Bloomberg NEF Source: Bloomberg NEF
11 Eneco, R-meeting, November 28, 2018And the discount does not go
away
U.K. outlook on realized power price German outlook on realized power price
GBP/MWh, nominal EUR/MWh, nominal
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
2015 2020 2025 2030 2035 2040 2015 2020 2025 2030 2035 2040
Gas Wind Solar Average Gas Wind Solar Average
Source: Bloomberg NEF Source: Bloomberg NEF
12 Eneco, R-meeting, November 28, 2018What can wind and solar expect to
make
U.K. wind realized margins in power market and U.K. solar realized margins in power market and
O&M* costs and margin needed for ROI** O&M* costs and margin needed for ROI**
GBP/kW, nominal GBP/kW, nominal
160 70
Margin
needed
140 60 Margin
needed
120
50
Missing
100 money
40
80
30
60 Realized
Realized margin
margin 20
40
10 O&M costs
20
O&M costs
0 0
2018 2020 2025 2030 2035 2040 2018 2020 2025 2030 2035 2040
Source: Bloomberg NEF Note: *O&M stands for operation and maintenance **ROI Source: Bloomberg NEF Note: *O&M stands for operation and maintenance **ROI
stands for return on investment stands for return on investment
13 Eneco, R-meeting, November 28, 2018Finding the missing money Revenue opportunities for renewables 14 Eneco, R-meeting, November 28, 2018
What revenue options are there
Revenue options
Selling energy Selling services
Wholesale market Capacity markets
Subsidy auctions Balancing markets
Power Purchasing
Agreements (PPA)
15 Eneco, R-meeting, November 28, 2018Selling energy – guaranteeing
revenue
Sell energy through Get paid for energy by
Wholesale power High uncertainty,
The market with both upside and
market
downside risk
The Low uncertainty,
Generator Auctioned subsidy with limits on upside
state/government
and downside risk
Medium uncertainty,
Power purchasing Consumers of potential for upside
agreement electricity and downside
16 Eneco, R-meeting, November 28, 2018Selling energy – Auctions: where in Europe Source: BloombergNEF 17 Eneco, R-meeting, November 28, 2018
Selling energy – Auctions:
volumes and prices
Average clearing price of European Union
Capacity clearing in European Union auctions auctions
GW EUR/MWh
14 300
Solar
12
250
5
10
200
8
150
6 Wind
100
4 8
2
Solar 50
2 4
Wind 3
2
1 1
0 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: BloombergNEF. Note: 2018 is year to date Source: BloombergNEF
18 Eneco, R-meeting, November 28, 2018Selling energy – PPAs: where and
what technologies
European renewable PPAs by country European renewable PPAs by technology
MW MW
2,500
2,500
2,000
2,000
1,500
1,500
1,000 1,000
500 500
0 0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
or or
earlier earlier
Sweden Netherlands Norway United Kingdom Other Wind Solar
Source: BloombergNEF Note: Other includes Finland, Belgium, Poland, Germany,
Italy, Ireland, Spain, and Iceland Source: BloombergNEF
19 Eneco, R-meeting, November 28, 2018What to do? Ideas to navigate the
future
U.K. wind realized margins in power market and U.K. wind example margins from different
O&M* costs and margin needed for ROI** sources
GBP/kW, nominal GBP/kW, nominal
160 160
Margin Margin Other
needed needed revenue
140 140
120 120
Market
Missing revenue
100 100
money
80 80
60 60
Realized PPA revenue
margin
40 40
20 20
O&M costs O&M costs Subsidy revenues
0 0
2018 2020 2025 2030 2035 2040 2018 2020 2025 2030 2035 2040
Source: Bloomberg NEF Note: *O&M stands for operation and maintenance **ROI Source: BloombergNEF. Note: Purely hypothetical scenario, not representing
stands for return on investment modelled or observed data, other revenue could include payments for grid services
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21 Eneco, R-meeting, November 28, 2018Copyright and disclaimer
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