Fundamentals Model

Our long-term revenue forecasts for energy storage are based on fundamentals model scenarios, providing a comprehensive outlook on demand, renewables, commodities, capacity expansion, and price formation for the coming decades.

What is a Fundamental Model?

At its core, a fundamental model is a detailed simulation of the electricity market. Unlike purely statistical models that rely on historical price trends, a fundamental model simulates the physical and economic dispatch of power plants to meet electricity demand. The key significant factors—from fuel costs and carbon prices to transmission grid constraints and renewable energy availability are taken into consideration. By modeling the supply and demand balance on an hourly basis, prices, asset utilization, and investment signals are drawn from the ground up.

Fundamentals Model
Fig 2. Fundamentals Model

How is it Generated? Inputs and Outputs

Generating a fundamental model forecast involves gathering extensive data and running powerful simulations.

Key Inputs:

  • Demand Forecasts: Projections of electricity consumption, factoring in economic growth, energy efficiency, and the electrification of transport and heat.
  • Commodity Prices: Long-term forecasts for natural gas, coal, and carbon (EUA) prices.
  • Technology Assumptions: Costs, efficiencies, and lifetimes for all generation technologies, including solar, wind, batteries, and thermal plants.
  • Renewable Profiles: Hourly generation profiles for wind and solar assets based on historical weather data.
  • Policy and Regulations: National and international energy policies, renewable energy targets, and capacity market regulations.
  • Grid Topology: Representation of the transmission network, including transfer capacities between market zones.

Key Outputs:

  • Wholesale Price Forecasts: Hourly, monthly, and annual electricity price projections.
  • Generation Mix: The projected dispatch from each technology type to meet demand.
  • Capacity Expansion: Endogenous results on which new technologies are built, where, and when.

TYNDP and Role of Forecasting Pathways

Because the future is uncertain, long-term forecasts are rarely presented as a single pathway. Instead, scenario frameworks are used to explore a range of possible futures.

For modeling European electricity markets, the European Network of Transmission System Operators (ENTSO-E) develops several trajectories within its Ten-Year Network Development Plan (TYNDP). The TYNDP outlines the pan-European vision for the electricity grid, and its pathways (i.e. scenarios) provide different views of how Europe’s power system could evolve:

  • Global Ambition: A pathway where the EU successfully achieves its net-zero targets, supported by global cooperation, rapid electrification, and strong technological innovation.
  • National Trends: A slower transition pathway where each country pursues its own policies, reflecting fragmented ambition levels and a slower rollout of new technologies.
  • Distributed Energy: A more bottom-up scenario driven by households, communities, and prosumers with widespread adoption of rooftop solar, local storage, and energy efficiency.

These pathways are not predictions but narratives of possible futures. They allow modelers to test sensitivities and better understand the range of risks facing the energy system. The grid expansion projects and scenarios defined in the TYNDP directly impact fundamental models by setting the future transmission capacities between countries, which is a key driver of price convergence and the business case for new generation assets.

Re-Twin Modeled Pathways

Re-Twin develops the fundamental model forecasts in collaboration with partners, such as from FFE and MAON, which allows capturing different pathways and approaches to the evolution of power markets. The forecasts are updated regularly (typically every 3 to 6 months) to ensure they reflect the latest market developments.

To capture a range of possible futures, we model several pathways with every partner model. These are often aligned with established frameworks like those developed for the TYNDP Scenarios, which provide consistent storylines for policy ambition and technological development across Europe.

Details around the latest available long term forecast pathways are provided on the Forecast Scenarios page.

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