Auctions in power systems with high shares of renewables Dr. Paolo Frankl, Head, Renewable Energy Division, IEA AURES, Brussels - 20 November 2017
Renewables dominate power generation growth Electricity generation growth by fuel 3 500 3 000 2 500 2 000 1 500 1 000 500 0 TWh Coal + Gas Renewables Coal + Gas Renewables Coal + Gas Renewables 2005-10 2011-16 2017-22 Other renewables Hydropower Solar PV Wind Coal Natural gas Renewable generation to expand by over a third with its share increasing from 24% in 2016 to 30% in 2022, rapidly closing the gap with coal
Renewables growth more and more dependent on wind and solar Renewable electricity capacity growth by technology 1 200 1 000 Capacity growth (GW) 90% 80% 70% Additional - accelearated case Other renewables 800 600 60% 50% 40% Hydropower Solar PV 400 200 0 1999-2004 2005-10 2011-16 2017-22 30% 20% 10% 0% Wind % from wind and solar PV (right axis) Solar PV enters a new era, becoming the undisputed leader in renewable power capacity growth; PV also accounts for 60% of the upside potential in the accelerated case
China continues to lead growth while India overtakes the EU Renewable capacity growth by country/region 500 450 400 350 300 250 200 150 100 50 0 Capacity growth (GW) China United States EU India Japan Brazil Africa & Middle East 2011-16 2017-22 main case Additional accelerated case The forecast is 12% more optimistic vs. last year mainly due to solar PV revisions in China and India; Growth could be 27% higher with enhanced policies addressing regulatory uncertainties and grid integration
Renewable policies spurring more competition Renewable capacity growth (2016-2022) by type of policy defining remuneration levels and by region 100% 80% Competition 60% 40% 20% Administrative 0% China Europe North America Latin America Asia and Pacific Africa Middle East Competitive set remuneration levels with long-term contracts will drive almost half of new capacity growth globally; the timing of policy transition in China may accelerate further this trend
Competition driving VRE costs down Announced wind and solar PV average auction prices by commissioning date 20 Capacity (GW) USD/MWh 300 15 250 200 10 150 5 100 50 0 2012 2014 2016 2018 2020 Solar PV utility-scale auction capacity Onshore wind auction capacity Onshore wind average price (right axis) Solar PV average price (right axis) 0 Price discovery through competitive auctions effectively reduces costs along the entire value chain; Auctions with long-term contracts will drive almost half of new capacity growth over 2017-22
Wind and solar transforming power sector - system integration becomes key VRE share in annual electricity generation 2016-22 Denmark Ireland Spain Germany United Kingdom Italy Australia United States China India Brazil Japan PV share in 2016 Wind share in 2016 Additional PV share in 2022 Additional wind share in 2022 0% 10% 20% 30% 40% 50% 60% 70% 80% % of total generation More flexible power systems, adapted market design and policies will have to play a key role in integrating larger shares of wind and solar in a secure and cost-effective way
+ From Generation Costs to System Value A metric that recognizes the spatial and temporal characteristics of VRE output is needed the where, when and how of power generation System value (SV) considers the overall benefits/costs arising from the addition of a wind or solar power generation source to the power system LCOE and SV are complementary: LCOE focuses on the level of the individual power plant, while SV captures system-level effects LCOE Installation costs Operation and maintenance costs (fuel, emissions) Financing cost Other soft costs - SV Reduced fuel and emission costs Reduced costs/ need for other generation capacity Possible reduced grid costs and losses Increased wear and tear for other power plants Additional grid infrastructure costs Reduced utilisation rates of non-vre assets Curtailment
Key action and policy areas 24/7 Action area Integrated planning: wind and solar embedded in energy strategy Location: siting VRE closer to existing network capacity and/or load centers Technology mix: balanced mix of VRE resources can foster lasting synergies Optimising generation time profile: design of wind and solar PV plants System services: wind and sun contribute to balance system Local integration with other resources such as demand-side response, storage Policy example Denmark: integrated energy strategy Location: new auction design for wind and PV Technology mix: Integrated Resource Plan California: incentive to produce at peak times System services: wind active on balancing market Australia: incentives for self-consumption
Concluding remarks towards Next-generation RE policies Renewables to dominate global electricity growth, driven by rapid cost reductions accelerated by competitive procurement Wind and solar PV to reach high shares in many power systems. Even in large markets (US, China, India, etc..) the shares of VRE is expected to surpass 10% by 2022 Call for redefinition of rules and selection procedures for new VRE power plants procurement, not focusing solely on costs but also on value of energy generated. Next-generation RE policies, including auctions Need for technology diversity Need for dynamic assessment of system impacts and benefits