Renewables in the UK have a bright future.

Energy from renewable sources is increasingly becoming an important part of Britain’s overall power mix as the country has in recent years moved to reduce carbon emissions by shifting away from coal and increasing the percentage of supply secured from green sources.

Governments around Europe have been under increasing pressure to deliver clean energy from sources such as wind and solar power and, as a result, the proportion of power generated by renewables has risen markedly in recent years. This has brought about major changes to the way in which the market operates and how we create the electricity that powers our homes.

Back in 2008, as GB demand peaked at around 387 terawatt hours, fossil fuels generated around 80% of GB’s overall power. Forty-three per cent of this total came from dirtier coal or oil sources and only 7% came from renewables.

Since then, several schemes have been introduced to support renewables projects, from feed in tariffs (FiTs) and renewables obligation certificates (ROCs) to the more recent contracts for difference (CfD), which guarantee companies a fixed price for generating low-carbon electricity.

Over time these CfD costs have reduced considerably. Costs for offshore wind, for example, have plummeted from around £150 per megawatt hour to £58 per megawatt hour. This has made offshore wind farm developments more attractive and the UK is now recognised as a global leader in this field; Siemens’ £310m wind turbine manufacturing plant in Hull is evidence of this. More generally, advancements in technology have significantly reduced the cost of producing clean energy.

Against this backdrop, renewables now generate a much greater share of Britain’s overall power. In 2016, 22% of total generation came from this energy source while fossil fuels provided only 56%. This contribution from clean energy sources is likely to increase further in the future.

The issue with renewable energy is that, by its very nature, it is intermittent and there is no guarantee that the wind will blow or the sun will shine at any given time in the day. Instead, the market can see long periods of very strong wind or very high peak solar output followed by periods in which levels of power generation from these sources can be very low.

Also, renewable energy generators reduce operating hours at marginal generators that remain required on the tightest days in the year. This results in declining run hours and creates a need for a capacity mechanism and additional financial support for power stations facing declining running hours.

The introduction of this mechanism in Britain has had the effect of stabilising the electricity market to a large extent, albeit with this being offset by the high cost of this service. Despite this high cost and whilst it is still very early days, the market has seen much less extreme pricing activity in September and October 2017 against the levels seen in the previous year and the capacity mechanism has been a factor in this reduction.

Across the wider market, the declining run hours at marginal plants have changed the types of opportunities available across the market.

In previous years, it had been the case that generators would simply have to dispatch in line with changing levels of demand, with activity peaking during the day and reducing overnight in a stable and progressive manner.

By contrast, generation requirements now fluctuate both around changing levels of demand and changing levels of renewables, with these requirements being heavily squeezed overnight on windy days and with the delta increase in requirements being much higher on low wind, high demand days.

This has changed the requirements for operation in the market and has increased the frequency of shorter run operational periods, which has in turn created a need for larger combined cycle gas plants to become more flexible in how they operate and has encouraged the entry of new technology types.

One of the technology types likely to see significant growth going forwards will be batteries which can currently operate profitably around the most extreme activity in the market, but as yet the opportunities for these projects remain within a relatively small market share.

As levels of renewables continue to grow, the need for storage and smarter system management will, however, become vital to the stable operation of the market and this could even see the resurrection of large pumped storage projects, such as Coire Glas, under a cap and floor arrangement.

Renewables have up until this point acted as a market disruptor, acting to decrease activity at the market incumbents, but Britain is now reaching the point where renewables can start to become a creator of new opportunities in the market, both large and small.

We are already seeing this with changes to ancillary services, with batteries and pumped storage increasingly being the primary technologies acting to manage system frequency, with conventional fossil fuel plants playing a declining role.

Currently, the opportunities are still limited in size due to the still relatively low renewable installation levels, but in future years as renewables move from generating within the limits of demand to often significantly exceeding demand for power from consumers, this will all start to change.

Having just been through a major period of market disruption the ongoing growth of renewables is only set to extend this trend into a new, probably even more disruptive phase that will also start to create new opportunities so far never seen in the market.

This growth comes against a background against which, while the UK power market has become greener in recent years, the drive to decarbonise Britain still needs to gather significant pace. While coal has been pushed out of the power market to a large extent, there remains a heavy reliance on gas and oil for our energy needs for heat and transport purposes. Our cars are still producing dangerous levels of emissions and our homes rely heavily on fossil fuels to provide heating. 

Information technology is also driving opportunities for new actors to enter the market. Large commercial and industrial loads are already being scheduled by new innovative demand response companies and are earning revenues from wholesale energy markets and system services. In the future, as the roll out of smart metering progresses along with domestic solar and batteries and schedulable heat loads such as hot water tanks, the home could also start to play in the wholesale market.

Electrification of cars and heating, as well as greater levels of renewable energy generation, will play a significant role in addressing these problems and this in turn will create greater levels of change that will mark the dawn of a very different power market going forwards.

From Phil Hewitt, director of energy data monitoring firm EnAppSys