February 2019 update of LONG-TERM ELCERT OUTLOOK is now available to the customers.
The backdrop for this update is the recent proposal from the regulators of the scheme regarding a stop mechanism for the Swedish part of the Elcertificate scheme. To market participant’s surprise the regulators recommended a pure date stop by the end of 2030. If the proposal goes through the parliament, all new renewable production commissioned in Sweden before the end of 2030 will have the possibility to receive elcertificates for 15 years after commissioning even if the total capacity exceeds the volume targets (46.4 TWh) set by the authorities. As the demand side stays unchanged, a date stop mechanism in 2030 will most likely lead to a very high surplus of elcertificates throughout the scheme period.
This news brings uncertainty regarding how the elcertificate price will develop the coming years. The general opinion among market participants is that the price will be low in the second half of the 2020s when surplus grows to high levels, but it is uncertain how fast it will decrease.
The February update covers
- A summary of the proposed stop mechanism
- Updated underlying assumptions including Swedish date stop in 2030, new capacity forecast for the years 2022-2030 as well as updated capacity prognosis for 2019-2021.
- Predicted development of the elcertificate balance and price until 2043 from a model run with 75 different weather scenarios.
During 2017, a large number of investment decisions for new renewable projects were taken in Norway and Sweden, including several large wind projects. By the end of 2017, 20.3 TWh of new renewable production was already commissioned as part of the common target of 28.4 TWh. Further, the total of 16.5 TWh was under construction, while projects with investment decisions taken are also adding several additional TWh to the scheme.
With these numbers in mind, most market players would agree that the question is definitely no longer if, but when and by how much the common target will be surpassed. The end of the common scheme period in 2021 is approaching, and time is limited for Norwegian market players to make additional investments decisions for projects to be realized within the common target. Now, the main uncertainty over the coming years is the build-up rate within the extended Swedish 18 TWh target, which was agreed on by the Swedish parliament last year. This target will be reduced corresponding to the overbuilding of the common 28.4 TWh target in 2021, and the remaining volumes are rapidly decreasing as more investment decisions are taken. NVE and Energimyndigheten are currently working on a proposal for how a stop mechanism for the extended target should be designed. The analysis will include several alternatives, including a volume based stop mechanism, a time based and combinations of these. The results of this work will be presented late December 2018, hopefully before investment decisions for all of the additional 18 TWh already are taken. Together with the outcome of Energimyndigheten’s current work on increasing transparency on the supply side of the system, the stop mechanism will contribute to a decreased uncertainty for market participants during the final phase of the scheme, and prevent overbuilding of the target.
The elcertificate price stayed low during 2017 after the crash in January. However, in 2018 the price has approached 100 SEK level, and the market activity is increasing. We believe that the current prices are supported by lower than normal wind production, and we expect future weather trends to continue causing uncertainty. Together with deviations in the expected demand and faster development of new capacity compared to the quota curve, it could put the elcertificate price under pressure. In our report, we also open up for the possibility of a front-heavy adjustment of the quota curve in order to reduce the accumulated balance.
Therefore, reliable price analyses are more important than previously as decision basis for investments. The trend of a falling capture rate or cannibalism for wind power production in the future is becoming very important, particularly in Sweden. Our report covers this topic and points out why we believe this is getting increasingly important to make assertion of it in the investment decisions. We also offer customized analyses on this topic as an additional service for those who are interested.
This year’s edition of the Long-Term Elcertificate Outlook includes and analyses how these and other changes will affect the elcertificate market regarding the build-up, balance and price development until 2045. During the past years, we have been using a fundamental model, developed together with SINTEF, covering the elcertificate and power market based on the EMPS model. The portfolio of new renewable production and the pace of the build-up of new power generation within the scheme are estimated based on our detailed database on power plant level. This detailed overview of the supply side of the market gives the basis for our forecast of new renewable production that is expected to be developed, divided both geographically and technologically.
The Long-Term Elcert Outlook 2018 is providing you a stochastic approach for analysing the future development of the common Swedish-Norwegian Elcertificate market. The main advantages of the EMPS model are the integration of the elcertificate market within the Nordic power market and that it enables us to take into consideration the stochastic nature of consumption, wind and hydro power. Historical weather data for a long period covering different weather types is used to analyse the variability of both the future renewable production and power demand. This provides us with 75 different weather scenarios each with different developments for production of renewables and consumption. Among other things, the weather scenarios enable us to prepare duration curves together with average weekly prices for elcertificates with probability distribution.
- Updated statistics per forth quarter of 2017
- Updated power price development by the end of week 15, 2018
- Recent forecasts for expected new renewable generation and demand development
- Introduction to capture rate and development of the capture rate for the Swedish Elspot areas for the period 2014-2017
- Development of elcertificate balance and price until 2045 for 3 different scenarios:
- Overbuilding of the 28.4 TWh target and remaining of the extended 18 TWh target being realized during 2025
- Overbuilding of the 28.4 TWh target followed by a linear development from 2022 to 2030 of the remaining of the extended 18 TWh target
- Increase quotas to reduce accumulated balance, front-heavy curve
- Extensive report containing the summary of assumptions, discussion and analysis of the results
- Discussion of the elcertificate market framework and the future development of the elcertificate
market including Progress Reviews
- Stochastic approach to modelling with estimation of variability of wind and hydro
- Fundamental scenarios analysing the uncertainty in the market
- Detailed results with average weekly prices for elcertificates with probability distribution, demand
and supply forecasts for elcertificates by country and technology in Excel-sheets
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