Table of contents. 1 Introduction System impacts of VRE deployment Technical flexibility assessment of case study regions...

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1 Table of contents Foreword Acknowledgements...5 Executive summary Introduction...21 Background...21 Context...21 The variability challenge...22 Flexibility Case study areas...24 This publication References System impacts of VRE deployment...27 Properties of VRE generators...28 Power system properties...45 Integration effects and system adaptation...48 References Technical flexibility assessment of case study regions...53 Overview of case study regions and system attributes...54 Current and projected VRE deployment levels...56 Generation levels and short-term forecast...57 Long-term projections...58 FAST2 assessment...59 References Costs and benefits: the value of variable renewable energy...67 Social versus private perspective...68 Going beyond generation costs...68 Integration costs and the value of VRE...69 Comparing the value of VRE to generation costs...81 Other benefits Summary...82 References...82 OECD/IEA, System-friendly VRE deployment Timing and location of deployment...86 VRE system service capabilities...88 Size of infrastructure and VRE curtailment...90 Economic design criteria...90 Technology mix...92 Table of contents

2 Policy and market considerations...93 References Operational measures for VRE integration...97 Power plant operations Transmission and interconnector operation Balancing area co-operation and integration Definition and deployment of operating reserves Visibility and controllability of VRE generation Forecasting of VRE generation Market design for operational measures Policy and market considerations References Flexibility investment options Measuring costs and benefits of flexible resources Grid infrastructure Dispatchable generation Storage Demande-side integration References System transformation and market design VRE growth and system evolution Strategies for flexibility investments VRE integration and total system costs Market design Discussion References Conclusions and recommendations Current experience and technical challenges Economics of VRE integration System transformation strategies Catalysing the transformation Future work OECD/IEA, 2014 Annexes A LCOF methodology B Key modelling assumptions C FAST2 assumptions and case study attributes D Market design scoring E Acronyms and abbreviations The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems

3 OECD/IEA, 2014 List of figures ES.1 Total system cost of a test system at different degrees of system transformation...15 ES.2 The three pillars of system transformation Exceptional load variability in Brazil during the 2010 Soccer World Cup, 28 June Illustration of the merit-order effect Shift in German spot market price structure, Aggregation effect of solar PV power plants in Italy Sample weeks of aggregated wind power and solar PV output Illustration of the balancing effect for different annual shares of VRE Comparison of maximum 30-minute changes (upward/downward) in France in Illustration of the utilisation effect for different annual shares of VRE Impact of the utilisation effect on optimal power plant mix Improvement in wind power forecasts in Spain, Increase of reserve requirements as a function of wind power penetration Total length of 345 kilovolt circuit-kilometres in Texas Evolution of power flows at a German substation, Regional distribution of installed wind power capacity in Italy, Planned solar PV capacity in different regions of Japan, as of June Generation mix of case study power systems, Overview of GIVAR III case study power system properties Current and projected annual generation shares of wind power and solar PV in case study regions Growth in demand and VRE generation in GIVAR III case study regions, Projected annual generation shares of wind power and solar PV generation, 2035 and FAST2 analysis of case study system flexibility LCOE of selected power generation technologies, Comparison of modelled balancing costs from different integration studies Incremental reduction of peak demand when adding solar PV Non-VRE power generation at different shares of wind power and solar PV Total residual system costs for meeting net load for different technologies and shares in annual demand Illustration of the relationship between system value and LCOE Distribution of solar PV installations in the grid area of E.ON Bavaria, Germany Evolution of wind power capacity without FRT and number of power losses >100 MW by voltage sags in Spain Cost increase of wind power and solar PV generation as a function of curtailed energy Comparison of two different wind turbine designs and resulting variability pattern Impact of panel orientation on solar PV production profile, month of May in Germany Seasonal variations in European electricity demand and in electricity generation from solar PV, wind power, and a 60% wind power, 40% solar PV generation mix Impact of dispatch interval length on reserve requirements Requirement for frequency restoration reserves in Germany Benefit of larger balancing areas and faster market operations Functioning of the CECRE Table of contents 9

4 OECD/IEA, Comparison between power market designs in case study regions Mean absolute forecast error as a percentage of wind power capacity in Finland, Analysis of reported costs for transmission projects LCOF for transmission investments LCOF for distribution grid investments Major challenges to deployment of grid infrastructure Modes of operation of wind power and CHP Comparison of initial ramping gradient of different technologies Heat rate increase at part-load operation of a coal power plant LCOF for flexible generation Cost-benefit of coal plant fleet retrofit in IMRES test system Cost-benefit of adding reservoir hydropower generation to the IMRES test system Major challenges to deployment of dispatchable generation Possible locations for grid-connected energy storage Worldwide installed electricity storage capacity Examples of power system applications and suitable storage technologies LCOF for different electricity storage applications Cost-benefit of adding storage to the IMRES test system Major challenges to deployment of storage Types of DSI programmes DSI options as a function of response time and mechanism Cost per smart meter vs. implementation scale Value of lost load for selected industrial load-shedding processes LCOF for selected DSI applications Cost-benefit of adding DSI to the IMRES test system Major challenges to deployment of DSI Non-VRE generation mix and capacity factors under different IMRES scenarios Priorities for VRE integration in stable and dynamic systems Evolution of nuclear and pumped hydro storage capacity in IEA member countries Electric heating in Great Britain Possible prioritisation of flexibility options Summary of benefit to cost ratios for the North West Europe case study Summary of benefit to cost ratios for selected scenarios in the IMRES test system Total system cost and savings in the IMRES Transformed scenario at 45% VRE penetration and simultaneous deployment of flexible generation and DSI Total system cost and savings in the IMRES Transformed scenario at 45% VRE penetration and simultaneous deployment of storage and DSI Total system cost of IMRES system at different degrees of system transformation Solar PV generation and resulting net load on a typical sunny day in Italy (left: July 2012; right; doubled solar PV) Utilisation of Italian PHS and deployment of solar PV A.1 Illustration of the LCOF approach B.1 Overview of inputs and outputs in IMRES B.2 Overview of IMRES structure, including its main technical features B.3 Overview of BID The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems

5 OECD/IEA, 2014 List of tables 1.1 GIVAR III case study regions Overview of differences between wind power and solar PV Actual and projected wind power and solar PV capacity (GW) in case study regions, Indicative generation cost for the residual plant mix per MWh for different technologies Level of system adaptation and resulting system value of VRE The value of wind power forecasts in the ERCOT case study region Selected dimensions of power market design LCOF definition for different flexibility options Contribution of grid infrastructure to VRE integration Economic parameters of typical transmission grid infrastructure Economic parameters of distribution grid infrastructure Interconnections between countries in North West Europe in the increasedinterconnection case (MW) Assessment of flexible generation according to dimensions of flexibility Contribution of dispatchable generation to VRE integration Cost and typical capacity factors for various generation technologies Technical characteristics of selected storage technologies Contribution of storage to VRE integration Economic parameters of selected electricity storage technologies Classification of selected DSI processes Response time of selected DSI processes Contribution of DSI to VRE integration Cost parameters of selected DSI technologies in household/commercial applications DSI assumptions in IMRES modelling Contribution of different flexibility options to VRE integration A.1 Key assumptions for LCOF of transmission lines A.2 Key assumptions for LCOF of distribution grids A.3 Key assumptions for LCOF of dispatchable generation A.4 Key assumptions for LCOF of storage B.1 Generation mix in the IMRES test system at 0% VRE penetration B.2 IMRES selected sensitivities B.3 Fixed and variable costs of IMRES generation technologies B.4 Start-up costs of thermal generation B.5 Costs of flexibility resources B.6 Investment cost for selected generation technologies B.7 Generation mix of baseline run B.8 Net Transfer Capacity (NTC) between analysed countries in baseline run B.9 Additional NTC characterising the increased-interconnection run B.10 Additional NTC characterising the reservoir hydro + interconnection run C.1 Flexibility characteristics of dispatchable generation C.2 Installed total capacity and number of units of dispatchable generation in case studies Table of contents 11

6 C.3 Characteristics of interconnection, demand-side response and storage in case studies D.1 Scoring of market design in Texas (ERCOT) D.2 Scoring of market design in Italy D.3 Scoring of market design in Spain and Portugal D.4 Scoring of market design in Ireland D.5 Scoring of market design in the Nordic Market D.6 Scoring of market design in Germany and France D.7 Scoring of market design in Great Britain D.8 Scoring of market design in India D.9 Scoring of market design in Japan D.10 Scoring of market design in Brazil List of boxes ES.1 Modelling tools used for this publication The challenge of low load and high VRE generation CREZ in Texas Wind power and solar PV: both variable but not the same Hotspots: VRE deployment can result in local concentrations Do variable renewables need back-up capacity? Integrating electricity and heat in the Danish power system Distributed and central storage: location matters Seconds to hours and beyond: timescale matters Storage impact on households: solar PV self-production in Germany Do wind power and solar photovoltaic (solar PV) crowd out mid-merit generation? Who benefits from flexibility investments? The definition of new flexibility products in California and the Irish power system OECD/IEA, 2014 The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems