This report looks at the various downside risks for flexible assets and explores how these risks can be managed. It also provides the preliminary H2 market outlook and key recent policy and market developments in the flexibility space.
Key takeaways from the analysis include:
- The short term outlook for batteries is positive, with new services emerging as potentially valuable revenue streams; Dynamic Containment participants have seen revenues of £17/MW/h, though these are not likely to persist. Signs of optimism are emerging for peakers through periods of low system margins
- Relative to our previous update, Aurora’s H2 2020 forecast sees a decrease in wholesale prices of £2.7/MWh (or -4%) from 2023 due to the removal of BSUoS from generators. The same change also leads to an overall reduction of 0.4 GW of gas recips and 0.8 GW of batteries by 2030
- Understanding merchant risks becomes increasingly important as the availability of longer-term contracts is likely to continue to diminish for flexible assets. Considering a combination of plausible downsides, Aurora’s P90 for batteries and gas recips see a reduction in IRRs of ~4-5% relative to our Central case
- Offtake agreements have become an emerging risk mitigation option for flexible asset developers. Though revenue floors are currently typically low or costly to obtain, developers can limit downside risk exposure while increasing bankability through an offtake agreement
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