Wonks: Power prices won’t ease until 2028 despite renewable ramp-up
Power prices will take five years to plateau, according to the latest market outlook from Cornwall Insight.
This follows historic levels of volatility across wholesale markets following Russia’s invasion of Ukraine, which has exacerbated fears of gas supply shortages across Europe this winter.
It has also seen a vast ramp up in coal burning, which has caused carbon costs to spike.
The conflict in Ukraine has also caused European countries to target higher levels of renewables deployment.
Consequently, the energy specialist expects power prices will decline later in the decade as happens as more domestic interconnectors come online, increasing competition for GB export renewables.
This is because it forecasts that the electrification of the economy will increase demand, levelling out the power price.
The demand growth will mostly met by low-carbon, low marginal cost generators and as a result power prices will not significantly increase, although they are likely to remain above pre-pandemic levels.
Meanwhile, the report forecasts higher growth in offshore wind than previously expected, after the government ramped up its target for offshore wind capacity in its supply security strategy to 50GW by the end of the decade.
Cornwall Insight predicts the Government will reach its target.
The latest data from RenewableUK suggests 86GW of offshore wind is currently in various stages of development.
The boost in wind generation is also expected to accelerate the shift from closed-cycle to open-cycle turbines – which can run more flexibly to maintain system security.
To meet the ramp up in renewables, Cornwall Insight warns increased battery capacity will also be needed to allow the grid to operate more flexibly, with a shortfall in battery capacity likely to prove a bottleneck to renewable expansion until 2025.
Supplies tight this winter, warns National Grid
The report follows forecasts from National Grid that supplies will be tight this winter, but sufficient supplies should ensure demand is met even during the expected peak in early December.
However, its base-case scenario assumes that the UK’s interconnectors to Netherlands and Belgium are able to provide 5.7 GW of net imports when the country needs it.
This includes 2.7 GW of additional interconnector capacity that was not available last winter.
During the heatwave last month, the National Grid was forced to pay record sums to secure energy to avoid power shortages.
This culminated with NGESO paying an all-time high of £9,724 per MWh on Wednesday 20 July to import power from Belgium, according to data from market analyst EnAppSys – as first reported in The Telegraph.
Cornwall Insight has also published it’s forecasts for the price cap, predicting that energy bills will remain historically elevated until at least 2024.