Renewables and power prices - Electricity Policy Research Group

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Renewables and power prices - Electricity Policy Research Group

Renewables integration

and wholesale electricity

market design

Guido Cervigni,

Dmitri Perekhodtsev

EPRG Spring Research Seminar,

24-25 May 2012

Cambridge


Agenda

• 2030 outlook for renewable power generation in

Europe

• The impact of renewable generation on wholesale

electricity prices and system operations

• How will the European “standard” market design

fare with a large share of renewables

2


2030 outlook for wind and

solar generation in Europe

3


Renewable generation in Europe

60.00

Wind and PV Generation Capacity (% of total installed capacity)

50.00

40.00

30.00

20.00

2010

2020*

2030*

10.00

0.00

AT BE DK FR DE GR IL IT PT ES SE NL UK

• Renewable capacity in 2030: 309 GW

• 59 GW PV (6%)

• 250 GW Wind (27%)

Source: EU Energy trends to 2030 – Baseline scenario

4


The impact of renewable generation

on wholesale electricity prices and

system operations

5


Short-term

• Average price fall and price‐volatility across hours

increase

• Greater intraday activity

• Higher demand for and prices of ancillary services

6


Long-term

• Fewer base‐load thermal capacity

• Greater share of flexible thermal capacity (gas) and

demand‐side flexibility

• Higher price volatility and possibly average price

7


Load duration curves net of wind 2011 (first

1000 hours)

MW

6500.0

6000.0

5500.0

5000.0

4500.0

4000.0

0% 1% 2% 3% 5% 6% 7% 8% 9% 10%

MW

Demand

59000

57000

55000

53000

51000

49000

47000

Demand net of wind

Denmark

45000

0% 2% 3% 4% 6% 7% 9% 10%

MW

4800

4600

4400

4200

4000

3800

3600

3400

3200

3000

0% 1% 2% 3% 5% 6% 7% 8% 9% 10%

MW

60000

55000

50000

45000

Gross demand

Ireland

Demand net of wind

40000

0% 1% 2% 4% 5% 6% 7% 8% 10%

Gross Demand

Demand Net of Wind

Gross Demand

Demand Net of Wind

Germany

GB


Larger intra-day activity - Germany

Source: Balancing and

Intraday Market Design:

Options for Wind Integration

Frieder Borggrefe, Karsten

Neuhoff, January 2011

Intraday volumes in Germany increase from 5.66 TWh

(2009) to 10.3TWh in 2010

The increase is primarily due to the sale of renewable

energy by the TSOs on the EPEX Spot market.

Source: BNAMonitoring reports 2010, 2011

9


SO and intraday volumes - Spain

50,000

45,000

GWh

40,000

35,000

30,000

25,000

20,000

Mercado

intradiaro

Energia total

gestionada en los

servicios de

ajuste del sistema

15,000

10,000

5,000

0

2008 2009 2010 2011

Sources: Red Electrica de España, annual reports 2008‐2010; OMEL monthly reports Dec 2008‐2011

10


Wind penetration and balancing costs

Source: IEA Wind Task 25, Final report phase one

2006‐2008 11


Wind and congestions

…. The high level of flows on the interconnectors

leads to overloading of the network in Germany

and neighbouring countries Poland, Czech

Republic, Slovakia and Hungary….

(Entso‐e President letter to EU Energy Commissioner, 17 April 2012)

Source: European Wind Integration Study (EWIS)

12


Constraint costs - GB

Constraint costs 2006‐2011 (Million £)

Source: National Grid

13


SO costs and renewable curtailment -

Germany

• Congestion management cost increase in 2008 caused

by high wind generation and reduction in 2009 by low

wind

Source: Deutscher Bundestag, 2010, Kunz, F., 2011, “Congestion Management in Germany: The Impact of Renewable

Generation on Congestion Management Costs”

• Wind production curtailment (Einspeisemanagement)

for network congestion up 69% in 2010 compared to

2009, from 73GWh to 150GWh.

Source: German Wind Energy Association (BWE), Ecofys, Federal Network Agency

14


SO costs and renewable curtailment - Italy

• SO costs (per MWh consumed)

• Wind production curtailment:

– 2009: 700 GWh

– 2010: 470 GWh

– 2011: 300 GWh

Source: Terna

15


How will the European “standard”

market design perform with a larger

share of renewables

16


Product standardization of wholesale

electricity: the European approach

A high level of product standardization up to (almost)

real‐time

• 1 MWh scheduled is the same

product regardless of where it will

be produced or consumed

+1MWh

+1MWh

-1MWh

• 1 MWh delivered or consumed

with any time pattern during the

1

same balancing interval (hour, halfhour)

is the same product

MW

hour t hour t hour t

17


A bright line between trading markets and

ancillary service / balancing markets

Electricity market transactions

(Long Term, Day‐ahead, Intra‐day)

Gate

Closure

< 0,5‐2 hours >

Real

Time

Time

System operations – related transactions

Imbalance

settlement

Transactions happen simultaneously close to real‐time

• “standard” products: market participants / self‐balancing

• “real” products: SO /balancing, reserves, congestion management

Opaque interactions between the two markets

• cross‐border capacity to address internal issues (Italy, Sweden)

• SO’s veto right on schedules’ updates (Spain, Belgium)

• “regulated” redispatch markets (German proposal)

18


Implications /1: a lose connection between

“trading” and “system-operations” prices

Market transactions

(trading, unit-commitment, self-balancing)

Different prices for much

related products !

forward

P T

T‐1h

Delivery (T)

Time

SO

P T

Imbalance

P T

System operations

(redispatch, reserve, balancing)

Cash-out “prices

(tagging, peak-shaving, averaging,

penalties, fixed cost allocation)

19


Implications /2: surplus redistribution and

adverse bidding incentives

Lots of redispatch, i.e. market participants paid to “give

up” their rights to schedule what they want

Regulatory‐antitrust mitigation measures… difficult to

implement:

• GB market power licence conditions …

• Spain: “restriction market” cases

• Germany: regulated redispatch market proposal

20


Implications /3: short-run inefficiency

Not a necessary result, provided that

• the SO is required to redispatch deeply, i.e. to exploit

all trading opportunities with positive net gain

• the SO has the necessary freedom to do that (they can

trade in all timeframes)

… but more redispatch makes the “market” outcome

less meaningful

21


Implications /4: generation investment

The “European‐style” market design:

• needs some regulatory / administrative elements as part

of the price‐formation mechanism

• sacrifices some price‐cost reflectivity for productstandardization

This produces a certain degree of opacity that may

increase risk of investment in generation and in

demand‐side flexibility

Capacity markets: sweeping the dirt under the carpet

22


Conclusion: addressing the increasing role of

near real-time transactions

The optimist view: massive network investments will

reduce the (price) gaps between standard and “real“

products

Otherwise: more regulatory patches (and possibly

higher cost of supply) and non‐written rules to keep

the current system going

Or may be a closer look at the US model

23

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