Decarbonisation targets in the UK will have a profound effect on electricity markets, altering the patterns of demand and the power generation mix, says Stephen Woodhouse, director at Pöyry Management Consulting. A rise in low-carbon capacity, in his view, requires tradable balancing resource options.
The UK Energy Bill in its current form is "unlikely to realise this potential" of Combined Heat and Power Generation, says Graham Meeks, director of the British Combined Heat & Power Association (CHPA). He called on policy makers to extend the small scale Feed-in Tariff capacity threshold in addition to the proposed Contracts for Difference (CfD).
The first capacity auction in the UK, to be held in 2014, will be on Demand Side Management (DSM) and not power generation capacity. "The potential prioritisation of these technologies could, depending on the volumes and prices auctioned, materially reduce the need for subsequent auctions for new build gas to power assets," warns Jim Fitzgerald, associate partner at The Advisory House.
Investment in US wind power is expected to plunge this year in spite Congress agreeing to a one-year extension of the wind energy Production Tax Credit (PTC) and Investment Tax Credits (ITC), analysts warn. Gas power generation at record low costs and a flurry of wind capacity start-ups in Q4-2012 is set to put a lid on new projects.
"Disruptive changes" such as slowing electric load growth, falling peak-load power prices due to demand response mechanisms and expanding distributive generation are challenging power producers in the US. "We as an industry have to meet the challenge and embrace these trends. If we don't, they are going to run over us," says Jon Wellinghoff, chairman, Federal Energy Regulatory Commission (FERC).
Flexible rather than conventional gas generation could save Britain between £380 million to £550 million by 2020 and up to £1.54 billion by 2030 alone through reduced balancing costs incurred by National Grid, research commissioned by Wärtsilä through Redpoint Energy and Imperial College London shows. The modelling is based on replacing 4.8GW of conventional CCGTs with 4.8GW of gas-fired Smart Power Generation.