UK wholesale electricity prices to climb 37% by 2020 as wind develops

The UK’s installed wind electricity generation capacity will increase by 250% by 2020 compared with today’s levels, a factor that will change the shape and level of wholesale prices, according to a government-commissioned report.

The UK has 9.4GW of wind power generation capacity, although this is set to increase to 23.6GW in 2020, 31.3GW in 2025, and 36.8GW by 2030, according to the study.

It forecasts that the average wholesale price garnered by these wind projects will range between £61.00-63.30/MWh in 2020, £63.70-65.90/MWh by 2025 and £62.50-65.60/MW by 2030.

By contrast the balance of the year for 2012 for the whole of the UK’s generation fleet was about £45.50/MWh, pointing to a 37% rise by 2020 using the midpoint of the forecast range.

The figures indicate a decrease in wholesale electricity prices by 2030 compared with 2025, a figure that will please policy makers who have bet a great deal of political capital on renewables pulling down prices over the longer term compared with a fossil-fuel heavy supply system.

The report was commissioned by the UK Department of Energy and Climate Change and the Scottish government.

The average prices achieved by wind farms at in different regions will differ, based on 2012 wind speed data and the power demand curve.

The report identified onshore wind plants on the Shetland Islands as likely to achieve the highest price, followed by onshore plants at the Western Isles and the Orkney Islands.

“For 2020, for example, with 13.3GW of onshore wind plants and 10.3GW of offshore wind plants on the system, the market price achieved by an onshore wind plant in the Shetland Islands could be almost £2.00/MWh higher – roughly 3% of baseload price – compared to a typical Scottish onshore or offshore plant,” said the report.

“By 2030 this could be as high as £3.00/MWh, more than 4% of baseload price, further illustrating the diversity benefits that onshore wind plants in the Scottish Islands offer,” it continued.

However, it added that it will not be possible to capitalise on the price increases should the contracts for difference (CfD) mechanism proposed under electricity market reform be in place.

“Under the renewables obligation, which is a premium support mechanism, generators are exposed to wholesale electricity prices and hence the diversity benefit should accrue to the generator through the improved price capture,” it pointed out.

“However, under the proposals for intermittent CfDs with EMR the benefit would be ‘sterilised’ since the contracts are settled with reference to a day-ahead price, making plant largely indifferent to the market price when they are generating.”