Aurora anticipates the impact on baseload prices beyond 2028 will be minimal
OXFORD (AURORA ENERGY RESEARCH)—Aurora Energy Research’s latest GB Flexible Energy Market Forecast report indicates a significant decrease in baseload electricity prices, projected to drop by £19/MWh (20%) from 2024 to 2028, primarily due to lower gas and carbon prices.
The leading global power analytics provider expects gas prices to average 69.7p/th until 2027, representing a 22% decline from Aurora’s previous forecast back in January. This decrease is attributed to reduced gas demand as well as high levels of gas storage across Europe. While carbon prices are forecasted to average £65.8/tCO2 during this period, with UK Allowances (UKAs) continuing to trade at a significant discount to EU Allowances (EUAs).
Despite these short-term trends, Aurora anticipates that the impact on baseload prices beyond 2028 will be minimal. The current forecast is heavily influenced by the recent drop in gas and carbon futures, driven by strong gas supplies, high storage levels, and an oversupply of UK Emissions Trading Scheme (ETS) allowances.
However, factors such as the delay at Hinkley Point C, Britain’s next nuclear plant, are applying upward pressure on prices. In the long term, however, higher capital costs and expectations of increased interest rates are likely to drive baseload prices. Additionally, a new perspective on renewable curtailment suggests merchant assets will curtail at a short-run marginal cost of zero, potentially exerting downward pressure on prices.
The GB Flexible Energy Market Forecast also highlights the performance of gas reciprocating engines and battery storage. Regarding the former, average annual cashflows are projected to rise by 42% to £95/kW/year between 2024 and 2030, driven by higher Capacity Market (CM) prices. As for battery storage, average annual cashflows are expected to decrease by 22% to £91/kW/year in the same period, due to lower short-term gas prices and higher skip rates in the Balancing Mechanism (BM). In the longer term, margins are projected to decline by 3% from 2031 to 2040, and by 1% from 2041 to 2050.
Will Stephenson, Senior Associate, Aurora Energy Research commented:
“Aurora’s latest forecast of the GB power market reflects the uncertainty that is being felt in the market. Battery storage assets have achieved reduced margins over the last 18 months, as frequency response markets have saturated, and the Balancing Mechanism has not been able to properly utilise their flexibility. Meanwhile, gas peaking engines have seen worse energy trading performance but continue to be rewarded through the Capacity Market for their cost-effective contributions to security of supply.
“Reform to the Balancing Mechanism remains a key uncertainty over the coming years, as National Grid ESO is taking iterative steps to improve their systems. With Futures gas prices low and domestic power demand hit by mild weather and high retail bills, it’s unsurprising to see that Gresham House have secured fixed price contracts (tolling agreements) for fourteen of their projects with Octopus Energy to manage their merchant exposure. Flexible generation and storage technologies are naturally more prone to volatility in performance from year to year. Investors need to keep this in mind if they are to make the most of the opportunity that flexible energy presents, but managing your exposure to the market in times like these could prove to be a prudent move.”
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Aurora Energy Research’s latest GB Flexible Energy Market Forecast is available now. Get in touch for further information.
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ABOUT AURORA ENERGY RESEARCH
Established in 2013, Aurora Energy Research is a leading global provider of power market forecasting and analytics for critical investment and financing decisions. Headquartered in Oxford, we operate out of 14 offices worldwide covering Europe, North & South America, Asia, and Australia. Our comprehensive services include market outlook packages for energy industry participants, advisory support, and innovative software solutions. We foster diversity with a team of over 600 experts with backgrounds in energy, finance, and consulting, offering unparalleled expertise across power, renewables, storage, hydrogen, carbon, and fossil commodities. Our mission is to facilitate the global energy transition through widely trusted quantitative analysis and high-quality decision support.
