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‘This winter is going to be challenging’: Stability key to preparing the power market of the future

The Renewable Energy Trading Summit is taking place in London over 7-8 June 2022. Image: Current/Molly Lempriere

The Renewable Energy Trading Summit is taking place in London over 7-8 June 2022. Image: Current/Molly Lempriere

Talk quickly turned to market stability in light of the current energy crisis within the How are we preparing for power markets of the future? panel discussion at the Renewable Energy Trading Summit today (7 June).

Over the past year, National Grid ESO has spent around £3 billion on ancillary services and balancing markets, according to Cian McLeavey-Reville, senior manager at National Grid ESO. This was up significantly from previous years on the back of high gas prices, providing a key source of revenue to market participants.

Volatility is expected to last through the rest of the year, and in particular over the winter period as demand increases, panellists at the event in London agreed.

“It's no surprise that we're going through a difficult time in the global energy sector and undoubtedly, this winter is going to be challenging,” said McLeavey-Reville. He pointed to the operator's upcoming Winter Energy Outlook, as providing further insight into how potential stresses will be managed.

Beyond Britain, market integration has been a key focus for boosting stability recently, said Simone Mori, head of Europe at Enel Group, but decarbonisation has to stay at the heart of its operations. With the energy crisis, reactive policies that could lead to fragmentation have to be avoided.

As countries look to bolster their resiliency following the current period of volatility, there is increased focus on market design. For National Grid ESO this includes evaluating the potential of locational pricing, which could help send the most effective signals to generators and providers of flexibility.

According to research from the Energy Systems Catapult, commissioned by Octopus Energy in May, locational pricing could save £30 billion by 2035.

But there are a number of key considerations with such a redesign, added McLeavey-Reville, not least how much of the nodal prices are passed onto consumers. Additionally, as such a large change to the current market, it would create risk.

As we move towards the power markets of the future, how portfolios of generating assets are managed to maximise the amount of flexibility on offer – as well as the revenue streams – is also developing.

“I think the subsidy regimes, that thankfully we're coming out of now, did lead to a certain amount of laziness, with very passive asset managers being able to sort of count the subsidies,” said Louise Shaw, partner for energy and infrastructure corporate finance at EY.

“Whereas now we're looking at very proactively managed energy portfolios.”

There are barriers that remain, such as communication between investors and traders, but these are beginning to be broken down as the market continues to develop.

The Renewable Energy Trading Summit is run by Current±’s publisher Solar Media, and is taking place at the Leonardo Royal London City, London, UK over 7-8 June 2022. Find out more about the event here.

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