19 Feb 2020
wind turbines and solar panels

The EY GB Power Market Model

Authors

Anthony Legg

EY UK&I Head of Power & Utilities, Economic Advisory

Economist focused on the Power & Utilities sector. Consultant with worldwide experience. Husband and father of two. Proud gardener.

Anthony Tricot

UK&I Head of Generation and Power Markets, Economic Advisory

Economist focused on the Power & Utilities sector. Consultant with experience in industry and government. Trustee of two community charities.

19 Feb 2020

The ability to forecast and analyse how power markets may evolve is crucial to understanding risks and opportunities.

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. Thus, it has never been more important to be able to forecast the future of the sector and to understand the implications of different scenarios.

With the goal to improve forecasting accuracy, EY is pleased to be launching its proprietary power market model.

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Download the brochure: EY GB Power Market Model (PDF, 611kb)

About the model

This model uses PLEXOS® software to simulate the dispatch decisions and market prices out to 2050. It takes a number of inputs drawn from a range of data sources (including DUKES, FES, TEC and the ITEM Club) to define the market context. It then applies linear optimisation techniques to forecast dispatch decisions and market prices over either the short term or the long term.

The model features 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.

Why use the model?

  • Model accuracy
  • Not a ‘black box’
  • Team experience
  • Supports project finance
  • Better user experience
  • Competitive fees
  • An integrated one-stop shop experience
The ability to forecast and analyse how power markets may evolve is crucial to understanding risks and opportunities relating to generation assets, network investments and power use.

Factors the model considers

Macroeconomic drivers Oil, gas, coal prices, GDP growth
Environmental drivers Emissions (CO2, SOx, NOx)
Energy transition Net zero targets, wind and solar data
Demand forecasts Energy efficiency, EVs, heating
Regulatory drivers CM and CfD, Brexit, network charges
Commercial drivers Hurdle rates, technology costs
Power prices Time and volume-weighted prices
Dispatch decisions Load factors and dispatch optimisation
Changing energy mix Plant retirements and new build
Stochastic analysis Sensitivities to climate risk
Financial analysis Impacts on plant valuations
Policy impact assessment Societal NPV of policy changes

What can the EY GB Power Market Model be used for?

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 to understanding the risks and opportunities relating to generation assets, network investments and power use.

It is also crucial to understanding the implications of changes in government policy or economic regulation, such as changes to carbon prices, renewable subsidies, capacity markets or network charges. Power market forecasting is critical and seamlessly integrated with the services EY teams provide.

  • Transaction due diligence

    Forecasting power and ancillary service prices, generation asset utilisation rates, revenues and profitability for conventional generators and renewables as an input to investment decisions relating to both greenfield and brownfield assets.

  • Government policy and economic regulation

    Supporting policy development by assessing the impacts of regulatory changes on societal outcomes (e.g. consumer bills, carbon emissions).

  • Energy transition and strategy

    Helping quantify the impact of the energy transition under a wide range of scenarios on the generation mix, price of electricity and on the economy generally.

  • Energy trading

    Supporting decisions around hedging power price risk, such as by informing decisions on a reasonable long-term corporate power purchase agreements (PPA) price for subsidy-free renewables.

  • Valuations and audit support

    Supporting clients to value a portfolio of power generation assets and supporting EY audits in checking the robustness of client power market forecasts.

What is unique about the EY GB Power Market Model?

The model provides a market-leading capability to better support EY clients:

Model accuracy

The EY GB Power Market Model takes a robust and quality-assured approach to power price forecasting, using market-leading PLEXOS® software, whilst leveraging the wide breadth of knowledge and access to information from across EY to inform the model assumptions and inputs. It also draws on macroeconomic forecasts from ITEM Club, the only macroeconomic forecasting model that uses the same model as HM Treasury.

Tailored for your needs

EY modellers will be available to meet you and take you through the assumptions, inputs and results in detail, to ensure outputs are tailored to your requirements.

Team experience

The team is drawn from the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem, bringing deep insight into power markets and the approach to power market modelling in government.

Supports project finance

EY’s reputation for robust analysis and power sector knowledge means you, and providers of finance, can have greater confidence in EY forecasts.

Better user experience

EY will be offering access to the forecasts via a customised power market modelling web portal. This will help enable users to easily access our key forecasts, inputs and assumptions via a tablet or portable device.

Competitive fees

The EY power market model products and services, which include a quarterly subscription based service and bespoke transaction support, will be competitively priced compared with existing providers of these services.

An integrated one-stop shop experience

Customers will benefit from the unrivalled breadth of services and detailed service capability. We will be able to seamlessly combine insights from the power modelling into wider EY services. EY teams who support transactions, M&A, taxation and valuations will have access to EY power market modelling capability, allowing deeper insight into market and regulatory developments. EY clients of transaction support services will have access to a broadly integrated suite of due diligence from one place.

Summary

 

The energy sector is changing rapidly, and it has never been more important to understand risks and opportunities relating to generation assets, network investments and power use. Using our bespoke power market model, we can forecast the future and understand how the implications of different scenarios will impact the sector.

About this article

Authors

Anthony Legg

EY UK&I Head of Power & Utilities, Economic Advisory

Economist focused on the Power & Utilities sector. Consultant with worldwide experience. Husband and father of two. Proud gardener.

Anthony Tricot

UK&I Head of Generation and Power Markets, Economic Advisory

Economist focused on the Power & Utilities sector. Consultant with experience in industry and government. Trustee of two community charities.