Impact of low carbon technologies on the British wholesale electricity market

Abstract

Since the late 1980s, the energy sector in Great Britain has undergone some core changes in its functionality; beginning with the early 1990s privatisation, followed by an increased green ambition, and commencing a transition towards a low-carbon economy. As the British energy sector prepares itself for another major overhaul, it also puts itself at risk for not being sufficiently prepared for the consequences this transition will have on the existing generating capacity, security of supply, and the national electricity market. Upon meeting existing targets, the government of the United Kingdom risks becoming complacent, putting energy regulation to the backseat and focusing on other regulatory tasks, while introducing cuts for thriving renewable and other low-carbon energy generating technologies. The government has implemented a variety of directives, initiatives, and policies that have sometimes been criticised due to their lack of clarity and potential overlap between energy and climate change directives. The government has introduced policies that aim to provide stable short-term solutions. However, a concrete way of resolving the energy trilemma and some of the long-term objectives and more importantly ways of achieving them are yet to be developed. This work builds on analysing each low-carbon technology individually by assessing its past and current state in the British energy mix. By accounting for the changes and progress the technology underwent in its journey towards becoming a part of the energy capacity in Great Britain, its impact on the future wholesale electricity prices is studied. Research covered in this thesis presents an assessment of the existing and incoming low-carbon technologies in Great Britain and their individual and combined impact on the future of British energy economics by studying their implications for the electricity market. The methodological framework presented here uses a cost-minimisation merit order model to provide useful insights for novel methods of electricity production and conventional thermal energy generation to aid with the aftermath of potential inadequate operational and fiscal flexibility. The thesis covers a variety of scenarios differing in renewable and thermal penetration and examines the impact of interconnection, energy storage, and demand side management on the British wholesale electricity prices. The implications of increasing low-carbon capacity in the British energy mix are examined and compared to similar developments across Europe. The analysis highlights that if the optimistic scenarios in terms of green energy installation are followed, there is sufficient energy supply, which results in renewable resources helping to keep the wholesale price of electricity down. However, if the desired capacity targets are not met, the lack of available supply could result in wholesale prices going up, especially in the case of a natural gas price increase. Although initially costly, the modernisation of the British grid leads to a long-term decrease in wholesale electricity prices and provides a greater degree of security of supply and flexibility for all market participants.