IEM: Electricity Market II. Filip Černoch cernoch@mail.muni.cz Electricity market – current situation • Tension between the aim of a) freely operating single market and b) ambition to secure low-carbon energy system. Renewables • 13% in gross energy consumption. 29,9% of gross electricity generation (2015). • 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. Gross Electricity Generation, EU28, TWh Problem No. 1 – Oversurplus of generating capacity Installed electricity capacity (EU 28, MW) vs. electricity supplied (GWh) Net generating capacity, 2011-2015, GW Blue – hydro, red -nuclear, orange – fossil fuels, green – renewable (excl. hydro) Yearly energy consumption, 2011 – 2015, TWh EU wholesale electricity prices Merit-order effect 9 . Production from non-dispatchable RES, May 2015, Germany Decrease in revenue for CCGTs (€MW/month) . Solution 1: Energy-only market • Generators paid solely on the basis of the volume of power that they produce. • No remuneration for being available during peak hours when intermittent sources aren´t producing. • Peak loading pricing theory = capacity adequacy is maintained because prices will rise if market players anticipate an impending shortage and invest accordingly. • Political constraints. • Boom and bust cycle. • Limited ability of the system to store electricity, supply and demand uncertainty, inelastic demand, steepness of the supply curve = high price volatility when reserve margins are low. Solution 2. 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/payments Problem No. 2 – impact of volatile sources on electricity trade Production from non-dispatchable RES, May 2015, Germany Physical infrastructure Cross-border electricity interconnection as ratio of total generating capacity, 2014 MS above the 10 % treshold MS below the 10 % treshold Austria 29% Ireland 9% Belgium 17% Italy 7% Bulgaria 11% Romania 7% Czech Republic 17% Portugal 7% Germany 10% Estonia 4% Denmark 44% Lithuania 4% Finland 30% Latvia 4% France 10% UK 6% Greece 11% Spain 3% Croatia 69% Poland 2% Hungary 29% Cyprus 0% Luxembourg 245% Malta 0% Netherlands 17% Slovenia 65% Sweden 26% Slovakia 61% Thermal capacity of interconnectors Trades and flow of electricity 2014/2015 Remedial measures Unscheduled flows reduce the amount of tradable cross-zonal capacity and affect the social welfare distribution. Structural solutions: • Improvement the capacity calculation methodology. • Improving bidding zone configuration. • Investments in the transmission network. Short term emergency sollutions: • Changing the grid topology. • Re-dispatching. • Counter-trading. • Curtailment of allocated capacities. • Phase-shifters. Electricity market – current situation = Electricity markets 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. Winter Package (electricity market design part) • 30.11.2016 – to facilitate clean energy transition, cut CO2 emission by at least 40% by 2030, incentivize cross-border trade. • With goals of emphasizing energy efficiency, renewables and empowering consumers on electricity markets • To remove price caps and price regulations, harmonisation of network tariff setting rules, removing priority dispatch for bigger RES capacities (over 0,5 MW) – they are to be responsible for their imbalances. • Reinvesting congestion rents to network investments. Winter Package (electricity market design part) • Regional operational centres (regionally integrated TSOs) to coordinate capacity calculations, regional sizing of reserve capacities, facilitate regional procurement of balancing, outage planning… • Capacity mechanisms acknowledged but restricted – nondiscrimitinatory, consulted with neighbours, open to non-domestic capacities, no fossil plants with emission over 550 gCO2/kWh (no coal without CCS). • Powers to the consumers on retail markets. • New powers to ENTSO-E, ACER, regional centres, DSOs… = stakeholders struggle to deal with the complexity of the legislation proposals. Sources • IEA (2014): Energy Policies of IEA Countries – The European Union. • ENTSO-E (2016): Electricity in Europe 2015 . • ACER/CEER (2016): Annual Report on the Results of Monitoring the Internal Electricity Market in 2015. • EC (2017): EU Energy in Figures.