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© OECD/IEA 2014
Electricity Market Design under Long-Term Decarbonisation
Paris, 8 October 2014
David Hunter, EPRI Manuel Baritaud, IEA
© OECD/IEA 2014
IEA Electricity Security Advisory Panel (ESAP)
Launched in 2014: 1st High Level Plenary meeting in June 2014
Set up a working group on electricity security and market design
Unique platform for stakeholders (system operators, regulators, traders, utilities…)
Exchange experiences and best practices among IEA countries
Support IEA work programme on Electricity Security an market design
© OECD/IEA 2014
Workshop electricity market design under long term decarbonisation
Carbon pricing (Cf. IETA-IEA-EPRI workshop)
Challenges in competitive markets
What can we learn from modelling?
What can we learn from experiences
© OECD/IEA 2014
Workshop electricity market design under long-term decarbonisation
Long-term decarbonisation objective: 2050
High capex/ low marginal costs
Low load factor
Energy-only market
1 Existing markets
Low-carbon support schemes
Capacity markets
2 Long term
market design
Unified framework?
3
© OECD/IEA 2013
The world faces a challenge
Energy’s carbon intensity is stuck AND we need to decouple economic growth from energy use
© OECD/IEA 2013
Electricity can power sustainable growth
But the source of electricity is of utmost importance
2011
© OECD/IEA 2013
Electricity can power sustainable growth
The 2DS pathway disconnects primary energy used in generation from emissions
2011 2050 2DS
8 © 2014 Electric Power Research Institute, Inc. All rights reserved.
The electricity sector faces an evolving
landscape and many challenges:
• Depressed wholesale prices
• Environmental & regulatory
policy
• New technologies
• Influx of natural gas (US)
• Intermittent renewables
• Distributed generation
• Customer requirements
• New entrants
Source: FirstEnergy, RWE
9 © 2014 Electric Power Research Institute, Inc. All rights reserved.
In detail:
• Declining conventional generation revenue
• Overgeneration
• Little relationship between prices and value/costs
RWE AG PAGE 10
Utilities of today – challenged by declining
conventional generation revenue. Example: RWE
13-10-2014 08/10/2014
Overgeneration is the Most Significant Integration
Challenge
Chart shows increasing
overgeneration above 33%
– Overgeneration is very
high on some days under
the 50% Large Solar case
– Fossil generation is
reduced to minimum levels
needed for reliability
Renewable curtailment is a
critical strategy to maintain
reliability
– Reduces overgeneration
– Mitigates ramping events
11
33% RPS
40% RPS
50%
RPS
Source: PG&E (with modifications)
12 © 2014 Electric Power Research Institute, Inc. All rights reserved.
The value of variable renewables decreases
with increasing concentration
0%
10%
20%
30%
40%
50%
60%
70%
0 1000 2000 3000 4000 5000 6000 7000 8000
Frac
tio
n o
f In
stal
led
So
lar
Cap
acit
y
Sorted Load Hours
100
200
300
400
500
600
700
800
900
1000
Solar GW
∫ underneath = capacity factor ~ 13%
0 1000 2000 3000 4000 5000 6000 7000 8000
Sorted Load Hours
0%
10%
20%
30%
40%
50%
60%
70%
0 1000 2000 3000 4000 5000 6000 7000 8000
Frac
tio
n o
f In
stal
led
So
lar
Cap
acit
y
Sorted Load Hours
100
200
300
400
500
600
700
800
900
1000
Solar GW
∫ underneath = capacity factor ~ 13%
Solar’s percent contribution to capacity decreases as more is added,
but pricing supports are constant
50%
40%
30%
20%
10%
0%
Fra
ctio
n o
f In
stall
ed C
ap
aci
ty
Contribution of solar to EU residual
load curve
13 © 2014 Electric Power Research Institute, Inc. All rights reserved.
New EU-REGEN model gives key policy
insights
• Jointly developed by EPRI and Ifo Institute,
Munich
• Selected model characteristics:
– Optimized investment/rental with high-
resolution dispatch
– Renewable resources and load based on
hourly shapes
– Continental scope with country-specific
detail and cross-border power flows
• Based on US-REGEN model developed with
13 US member companies
• Wide range of applications in energy and
environmental policy and technology issues
Scandinavia
Great Britain
France
Iberia
Italy EE-SE
EE-SW
EE-NW
EE-NE
Alpine
Germany
Benelux
CONSEIL D’ADMINISTRATION – 30/09 & 01/10 2014 - CONFIDENTIEL
Different designs of power systems Adapted to countries
with fast growing residual
demand. Price spikes
driving economical
investment
Adapted to sluggish
residual demand.
Capacity remuneration
and price spikes driving
investment in the eligible
assets Power system
Non-contracted asset
in merchant
environment
Contracted asset in
non-merchant
environment
Energy Only
Market (EOM)
EOM & Capacity
Auctions
EOM & Capacity
Payment
PPA
Hybrid
Markets
Adapted to countries :
-still developing their
power infrastructures,
- governmental
guaranties required
- subsidies for power,
when power is a driver
of health/economic
development
-Security of supply is a
key issue
Ris
k th
at p
rice
s w
on
’t
en
ab
le o
pe
rato
rs to
re
co
ve
r
the
ir c
osts
R
eg
ula
tory
ris
k
COPYRIGHT©PÖYRY 8 OCTOBER 2014
FUTURE MARKET DESIGN 15
The key choice is to decide where we should be sitting on the
carbon pricing vs. direct low carbon support policy spectrum
Policy options
Absolute Market
Dual Support
Coordinated European Planning
Building National
Solutions
Carbon pricing solutions Support payment
solutions
Mar
ket
Inve
stm
ent
com
pe
nsa
tio
n
O&
M
cost
s
Inve
stm
en
t co
sts
Low O&M costs (wind, PV…)
New renewable support scheme
Minimum equivalent operating
hours
Operating limit
Specific compensation
(€ / year)
Equivalent operating hours (h)
“full load”
Specific Compensation adjustment based on the current performance of each facility
Electrical Energy Research Center - CEPEL
Auctions´ Results
Source: CCEE
Energy
Who?
© OECD/IEA 2014
Key takeaways:
The electric grid is part of the solution
Demand side response must be part of the equation
Market design must adapt to new technologies
Available financing depends on risk
Prices need to better align with value
No consensus on more or less market intervention
