Analysis of Global Power Market

Analysis of UK Power Market Wholesale Power Price in the UK • • The wholesale power price in the UK kept increasing in the last 3 years, especially in 2018, the wholesale power price increased significantly and reached the highest point, which was mainly driven by the increasing gas price in the UK. UK power prices are primarily driven by gas prices, which have become the marginal price setter since the retirement of uneconomical coal power plants and the increase of non-dispatchable generation in the system. UK power prices are therefore correlated to gas and carbon prices and supply-side dynamics. As a power importer, the UK also imports a considerable amount of power from the EU countries, hence the current uncertainty of the Brexit plan may further affect the power price in the future. In the future, regarding the power supply side, with the close of coal-fired power plants or conversion of them to gas power plants, the gas power plants may have more share of new flex capacity in the UK. Meanwhile, renewable energy will gradually become mainstream sources of power generation, which may push up power wholesale prices due to its relatively high LCOE. On the other hand, unlike the conventional power plants of which fuel costs vary depending on the price of gas and coal, the renewable energy power generation plants have no fuel cost, which may lead to the wholesale price affected less by the variation of fuel prices. For the demand side, although the improvement of power efficiency may mutedly reduce the demand, the economic growth and the popularity of electric vehicle in the UK will drive the power consumption growth in the future. As a result, the gas price will still affect the wholesale price when the power demand is high such as during the winter, however, during the low demand periods, the wholesale price may be stable. Additionally, the growing share of renewable energy power generation and the stable increasing power demand may increase the wholesale power price slightly. Moreover, the Brexit may further raise the power price. As a power importer, the UK imports a considerable amount of power from the EU countries, such as German and Netherland, every year. The Brexit may increase the import power price which will lead to the increasing domestic power price in the UK. Moreover, the current uncertainty of the Brexit plan will cause the uncertainty of the exchange rate which will also have an impact on the import power price. Average Wholesale Power Price, UK, 2016-2023E GBP/MWh 80 58.2 60 52.0 52.2 52.9 53.5 54.2 46.3 42.6 40 20 20 2016 2017 2018 2019E 2020E FROST 2021E 2022E 2023E Source: Ofgem, Frost & Sullivan SULLIVAN 27

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