The increasing proportion of energy derived from solar PV and wind is altering how the energy market in the UK functions. Already, there is an established link between the forecast renewable output and the electricity prices for delivery the next day. When wind output is expected to be strong it decreases the requirement for fossil fuel based generation to meet demand, which puts downward pressure on wholesale power prices.
Recently, trading has also highlighted the influence of renewable energy on within-day pricing, with renewables changing the relationship between baseload and peak prices. Base load refers to the minimum required power through a 24-hour period. Peak power relates to the additional power that is required above the amount required in each hour of the day. Generally, the daytime demand for power generation or load is higher than the night hours, with weekdays having a higher demand than weekends and seasons affecting the level of demand so that summer evenings are much reduced.
The demand load has always been defined by the demand on central generation but now that so much embedded generation exists there is an effect on the demand for traditional generation. Both wind and solar PV have influenced in-day prices recently by affecting in day demand and that trend looks set to continue. For the first time in the UK on Saturday the 25th of March, the amount of electricity demand in the afternoon was lower than it was during the night period.
In April, when solar generation was high, day-ahead peak prices fell below that of baseload. When analysing the prices over the course a day, we can see that the fall in price overlaps with the rise of solar power output and vice versa. This trend will only become more pronounced as we move into the summer months. It is likely that we will experience more days when the demand during the day is lower than night time demand.
Of course, solar PV is not the only renewable having an impact. Government data shows installed solar generation to be just over 10TWh, whilst wind generation was 37TWh last year. Wind forecasts are now routinely reflected in the day-ahead prices, with prices going up based on declining wind forecasts and down based on increased wind forecast.
Presently, there is no real sign of price volatility shown in the forward curve. Peak prices still remain above the baseload for next summer and day to day forward power prices are still mainly tied to the changes in the gas market. For now, gas is still the main influencer on the electricity market, however, if wind and solar output continues to increase in the coming years this could change. What is true to say though is that concerns about supply security are relieved by the increased availability of renewables, this may help to provide a more stable market in the long run.