Fundamentals model to 2050

Here, we go into the details of our Fundamentals model.

This sets the power price forecast in wholesale, dynamic frequency response, and bids and offers across GB for each half-hour to 2050.

First, we build an available supply stack for each half-hour

We take an initial build-out of generators on the system and their forecast load factors. We assign each generator a short-run marginal cost and rank the available volume to form a supply stack. We forecast demand, and where it intersects the supply curve, we 'clear' the half-hourly auction and get a price.

To begin with, we remove all storage and interconnectors from this supply stack, so this is a GB-only price, without storage.

Then, we add storage to the party

Given the GB-only price, without storage, we then add storage back in and recalculate the price.

This is because the short-run marginal cost for storage depends on the charging cost, which changes based on the day. The actions of the storage fleet discharging also reduce national peak pricing.

So, we use an optimization model for battery, other, and pumped storage to decide when the fleet charges and discharges based on this GB-only price without storage, and are very careful that the actions of the fleet of storage do not cause unintented price spikes. This can be a problem with 10's of GW on the system!

We then add the storage fleet charge actions to national demand, and discharge actions to the supply stack to get a GB-only price, with storage.

Finally, we add interconnection

Once we have a GB-only price, we add in interconnection.

We model prices in the rest of Europe with the same logic (based on their fuel mix, forecast load factors, and forecast demand) and allow power to flow between GB and the other side of the interconnectors into each region, to minimise costs on each side of the boundary.

Then, we get a half-hourly price for GB with storage and interconnection.

Could storage be charged from cheap European interconnected power?

In reality, yes. But we had to make a decision when modeling which one to do first, and we decided that interconnectors are often used closer to real-time to deal with imbalances.

Using the wholesale price to set prices in ancillary and balancing markets

The wholesale power price allows us to assess the opportunty cost for storage in ancillary markets - namely Dynamic Frequency Response services - Dynamic Containment, Moderation and Regulation.

We then further use the wholesale supply stacks to set the pricing of accepted bids and offers in the Balancing Mechanism.