IEM: Electricity Market Filip Černoch cernoch@mail.muni.cz Key data (2012) • Installed capacity – 952 GW • Total electricity generation 3264 TWh (+5% since 2002) • Electricity generation mix: coal 28,4%, nuclear 27%, natural gas 17,8%, hydro 10,3%, wind 6,3%, biofuels and waste 5,2%, oil 2,2%, solar 2,2%, peat 0,2%, geothermal 0,2% • Electricity consumption by sector: industry 36%, commercial 32,1%, residental 29,6%, transport 2,3% Wholesale electricity market • Cross-border trade has been growing, in 2011 around 10% of gross production. • Germany surplus of 22,8 TWh, France exported 44 TWh (both in 2012), increasing trade activity in Norway, Sweden, Austria, Switzerland (hydroelectric capacities). Wholesale electricity market 6 Wholesale electricity market • Day-ahead market coupling through the coupling of crossborder electricity exchanges. Coupling of regional electricity markets – Nordic market, Central West, North West Europe… • (Day-ahead) market coupling optimises interconnection capacity utilisation (calculation and allocation) and facilitates linking of buyers and sellers on either side of a border • Cross-border capacity allocation is carried out together with the financial energy settlement in one single operation at the exchange (no need for prior reservation of capacity) = implicit auctioning 8 • Wholesale market – price coupling of CE to NWE, Nordpool and SE Europe = day-ahead market. • New regulatory Framework by the end of 2014 • Connect all ´energy island´ by 2015 (Iberian Penisula, Baltic States) • EU generation market still concentraced. In 8 MS more than 70 % of power generation controled by historic incumbent. • Europe is set to retire a substantial share of its power generaticon capacity (coal, nuclear) in coming decade. Third liberalization package 9 Intra-day markets • Intra-day and balancing markets largely national or bilateral • Dutch-German border • Dutch-Belgium border • Nordpool Elbas platform • Dutch-Norwegian NorNed interconnector • Great Britain on BritNed Retail market • Still fragmented, regulated, with low level of switching • Still high generation concentration. In 8 MS more than 70% of generation controlled by historic incumbent Prices • Gap between household (EU-28 average of €140/MWh) and industry (€90/MWh) – different levels of taxation and RES surchages • Since 2008 the wholesale prices have been falling by 1/3, retail prices have increased by 4%/y • Due to the persistence of regulated prices and market concentration, the higher level of levies, taxes and network cost and low responsiveness of consumers to switch suppliers to better offer Prices for household consumers, second half 2014 (eur/kWh) Prices for industrial consumers, second half 2014 (eur/kWh) Impact of IEM on security of supply = power system´s capability to meet changes in requirements through investment, operational and end-use responses • EU market integration and electricity trade increases interdependency among jurisdiction. But lack of integrated policies regarding a fuel mix • + diversification (more flexibility, lower the risk of shortages) • -/+ exposure to market, price and generation development in neighbouring countries • EU legislation, network codes (network security and reliability code, code for operational procedures in an emergency…) • Cooperation of TSOs (Ten year network development plan, regional investment plans…) Electricity market – current situation • Electricity markets still strongly impacted by national energy and climate policy decisions (RES, capacity mechanisms, retail market regulation, carbon prices…). Necessary is • to improve functioning of national markets by limiting state intervention (RES, capacity mechanisms, regulated tarrifs) • to improve cross-border capacity (infrastructure investment, balancing and intra-day markets) • to optimise cross-border flows Renewables • 14,1% in total final energy consumption. 24,1% of electricity generation • Aim of having 27% of RES energy in the EU in 2030 • Main drivers of development are a) goals of the EU b) that lead to national subsidy schemes c) plus increasing competitiveness of technology • RES significantly changes the way the electricity is produced and traded Renewables Production from non-dispatchable RES, May 2015, Germany 24 Merit-order effect 27 . Generation adequacy • Aging generation fleet (20% of coal and oil-fired plants constructed 40-50 years ago. Almost half nuclear capacities run 30-40 years) • During 2016-2025 thermal installed capacity of around 150GW is expected to retire • IEA concludes that „…generation adequacy at the EU-wide system level can be met in most situations but adequacy margins are considerably decreasing until 2025“ Generation adequacy Capacity mechanisms = capacity remuneration • To solve problem of weaken investment incentives • But they replace market-driven investment with central planning – considerable regulatory risk and cost for investors and consumers Capacity mechanisms 31 Sources • IEA (2014): Energy Policies of IEA Countries – The European Union.