EY launches Power Price Model to help forecast the future of the energy sector

EY’s energy team has launched a new GB Power Market Outlook, which considers several scenarios, including different assumptions around commodity prices, decarbonisation trajectories and the regulatory framework, to provide a central, low and high view of market power prices and the generation mix out to 2050.

The energy sector is changing rapidly as technology improves, customer preferences change and the drive for decarbonisation accelerates. The ability to forecast and analyse how power markets may evolve is crucial for the sector to understand risks and opportunities relating to generation assets, network investments and the role of different technologies such as EVs and hydrogen in the energy transition.

What is also important is understanding the implications of changes in government policy or economic regulation, such as changes to carbon prices, renewable subsidies, capacity markets or network charges.

Anthony Legg, EY Head of Power & Utilities, Economic Advisory commented: “The outlook for the electricity sector is increasingly uncertain, with the energy transition towards a net-zero future underway. The pace and means of change are unknown and new technologies and business models are evolving quickly. This has important implications for greenfield and brownfield transactions, valuations and accounting and tax advice relating to power sector assets, as well as for policy & regulation of the sector. As a result, it has never been more important to be able to forecast the future of the sector and to understand the implications of different scenarios.

“Offshore wind and other technologies are becoming more and more cost competitive, but the corollary of this is that those technologies may have less and less support from government subsidies and be more exposed to merchant power price risk. At the same time, the UK has committed to net-zero by 2050, but what will be the implications of this in terms of power prices, types of new power stations needed in future, and returns for investors in conventional and renewable generation?”

Concluding, Legg said: “EY has developed its own detailed power market modelling capability to enhance our clients’ understanding of these issues so that we are able to provide better advise and offer more detailed and thought-provoking insights into the energy transition and decarbonisation of the UK economy in coming years.”