towards2030-dialogue Electricity markets and renewable energy

Transcription

1 towards2030-dialogue Electricity markets and renewable energy Based on work by Arthur Henriot and Jean-Michel Glachant Hugo Gil Research Fellow Renewable Energy towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 1

2 Contents Work Package 5: Electricitymarket design & RES integration 5.1 Summary of key challenges 5.2 Design elements to cope with these challenges 5.3 Identification of potential electricity market design trends 5.4 Implications of design elements on RES policy pathways towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 2

3 Contents Work Package 5: Electricitymarket design & RES integration 5.1 Summary of key challenges 5.2 Design elements to cope with these challenges 5.3 Identification of potential electricity market design trends 5.4 Implications of design elements on RES policy pathways towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 3

4 Summary of key challenges Design elements to cope with challenges towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 4

5 Summary of key challenges Design elements to cope with challenges towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 5

6 Generation - Merit-order effect Resource adequacy - Conventional generation dispatched less often and get lower average prices - Overinvestment of the 2000's exacerbated by economic crisis (lower demand) - Generation revenues more and more subject to price peaks - Are they attractive enough? - Are they politically acceptable? Uncertain policies - Modification of RES support mechanisms - OK: Technology costs are falling, so should incentives (even phased-out) - But: Market value of RES may drop even faster - Cannibalization effect: a race between learning rates and market value towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 6

7 Efficient grid expansion Transmission and generation - From centralized to indicative planning - What about now with RES? - Resources are localized (and sometimes far from load) - Incentives will play a role in transmission expansion - Significant investments will be required for resources located at specific locations - ENTSO-E (TYNDP 2014): 80% of PCIs are related to the integration of RES - TSOs finance investments with debt: would rates be enough to keep good risk ratings? - National upgrades to push congestion to the borders : inter-tso planning Transmission and distribution - What to do with the decentralization of the power system? towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 7

8 The need for flexibility Ramps will continue to grow - And also extreme ramps: low capacity factors for flexibility provision? - Flexibility needs change with country - Which technologies and how to remunerate it? - embedded in prices - separate product - Flexibility: a prerequisite to generation adequacy towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 8

9 Resource adequacy Summary of challenges Efficient grid expansion The need for flexibility Operation at distribution level towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 9

10 Summary of key challenges Design elements to cope with challenges towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 10

11 "Melting Pot" Which market for RES? - RES costs down: RES can be exposed to same risks, incentives of conventional generators - Market would find a new equilibrium - RES will need to operate as conventional sources for system stability "Salad Bowl - Current market features were designed on the basis of predictable and manageable outputs - But, differences of RES are structural towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 11

12 Why not? Melting-pot? - Investment in RES will not be viable without incentives - Low market value (cannibalization) - Investment incentives to mid-merit units undermined - A new market equilibrium would not be possible Why? - Current difficulties by conventional generators might be due to overcapacity - We might be just in the middle of a shock to an existing long-live asset base - In the short-run low prices affect technologies with higher variable costs - In the long-term evolution of residual load affects base-load - If the Legacy fleet can be transformed to embrace flexibility, base-load capacity will be substituted by mid-merit plants - A new market equilibrium can be found - Other benefits, but is it worth the risk? towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 12

13 Is it worth the risk? Why expose RES to accurate price signals when output is tied to resource availability? Non-dispatchable RES cannot adjust output: what s the efficiency gain in exposing RES to prices? Melting-pot integration with feed-in tariffs or premiums transfer risks (to conventional generators and consumers) towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 13

14 Design elements Wholesale market design - Shorter clearing periods for the procurement of flexibility - Locational signals for grid expansion - Exposure to higher price differentials - Bring market closure closer to delivery towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 14

15 Design elements Coordination tools - Long-term coordination: capacity mechanisms (under): - A common set of inputs and scenarios shared by stakeholders - A multilateral framework for allocating responsibility of delivery when needed - A method to allocate consumption rights in times of scarcity - Network investment and operation at regional scale - Tools at European level needed for coordination of operations, planning and benefits and cost allocation - Network and generation investment - Tradable connection rights, locational network tariffs, TSO discretion for new connections - TSO-DSO collaboration - Define each other s jurisdictions. DSOs have a limited role but a huge responsibility - Unlock potential of distributed resources - DER can provide flexibility, contribute to adequacy, defer network investments, needed for DSO management - Changes in the retail market are needed. towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 15

16 Solutions Can have secondary effects - DER development may add complexity to transmission planning - Capacity mechanisms may distort flexibility provision Are partial substitutes - Cost recovery of fixed costs ensured via scarcity pricing or capacity mechanisms Are complementary - Melting-pot integration impossible without dynamic retail pricing - DER management facilitates DSO system operation but active TSO-DSO collaboration needed Challenges Resources Adequacy Need for flexible resources Efficient grid expansion System operation at the distribution level Contribution of wholesale market evolutions Allowing resources to earn scarcity rent Complementary revenues from wellintegrated balancing markets RES market integration can reduce uncertainty Cost- reflection and remuneration of flexibility value Contribution of coordination tools Better coordination of generation assets can reduce uncertainty and ensure adequacy Coordination of transmission investment and system operations at the European level allows a more efficient multinational approach to resources adequacy The development of flexible resources can be ensured by procurement through dedicated mechanisms BUT it might be more restrictive and hence more expensive than a market-based procurement Stronger locational Coordination tools between signals in the wholesale market might reduce the need for grid expansion Cost-reflection and transparency in the system costs might induce the development of efficient distributed solutions generation and transmission assets as well as between the different transmission operators allow more efficient grid expansion Coordination tools between transmission and distribution network operators will be needed to handle local issues efficiently. Contribution of distributed solutions Distributed resources and demand response can contribute actively to resources adequacy But ensuring a stable revenues stream to assets that will be only used as backup of distributed resources might prove challenging Distributed resources and demand response can also be a source of flexibility The development of distributed resources might reduce the need for grid expansion BUT it creates higher risks of stranded transmission assets as consumers leave the grid The development of distributed resources will give many options to system operators at the distribution level towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 16

17 Further material is online Report and Issue Paper Electricity markets and RES integration Key challenges and possible solutions Interested in further background information? à Interested in the dialogue process? à towards2030-dialogue Stakeholder dialogue workshop Brussels, 12 November 2015 Slide 17

18 FSR Training Portfolio Regulation of the Power Sector FSR Training on Renewable Energy: Regulation and Integration Coming up May 2016