UK and European energy systems are rapidly becoming weather-based as development of renewables increases. Current market modelling approaches do not expose the full implications of weather variability, nor do they look at how these patterns may evolve with climate change. This variability affects price formation, related price capture and revenue and so is a growing area of concern for those financing renewable developments.
To address this challenge, Environmental Insight Partners worked closely with a group of leading energy industry stakeholders – including Copenhagen Infrastructure Partners, Danske Commodities and Orsted – to develop and demonstrate a new technology for simulating market dynamics that enables the exploration of the full probability distribution of weather and climate variability and thus also price and revenue distributions for new renewable developments.
An end-to-end market modelling framework was developed and demonstrated with outputs designed to complement and supplement existing market leading assessments.
Process
The project was funded by Innovate UK through its Small Business Research Initiative and followed two phases. An initial 3-month Discovery Phase which involved workshops with industry collaborators to explore the problem space and then demonstrate the technical feasibility of our ideas.
A successful Discovery Phase led to a subsequent 12-month Demonstration Phase. This was informed by further engagement with our industry stakeholders and focused on the development and practical demonstration of a new market modelling framework that could consume multi-decadal weather time series as the basis for simulating price formation moving beyond current, sampling-based methods. The work also involved demonstrating an ability to run what is an incredibly data-intensive process cost efficiently using a novel data processing infrastructure. The Demonstration Phase also pulled together the analysis components of a consultancy offering which would use the resulting technology to provide new strategic insights into the evolving impact of weather and climate-related variability on system prices, investment cases and portfolio valuations in markets characterised by increasing penetration of intermittent renewables.
Solution
We successfully demonstrated an end-to-end market modelling framework that integrated properly weather-conditioned demand and supply models with bespoke dispatching capabilities (single node and multi-node). Outputs from the single node process included reports on historical weather structure, how this could evolve and the implications for price formation, long-term price outlooks (curves plus full price variability matrices) and price capture analysis (curves plus full revenue distribution matrices). The multi-node process enabled analysis of curtailment risk considering system constraints as well as producing zonal price outlooks.
Impact
The new technology demonstrably moves beyond the current state-of-the-art in market modelling. The major differentiator versus current market leading assessments is the ability to base market simulations on long-duration weather time series rather than typical meteorological years or some form of historical sampling. This enables probabilistic price outlooks, moving beyond the current deterministic products to enable decision-makers to explore volatility and better understand upside potential and downside exposure.
Testimonial
Tim Kummerfeld, Head of Physical Asset Management at Danske Commodities:
“This is highly relevant technology that has potential to profoundly impact hedging of intermittent generation.”
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