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© OECD/IEA 2014
Different Ways of Handing More Responsibility to Generators of Variable RES-E in EU Electricity MarketsA comparison of policy instruments
Simon MüllerRenewable Energy Division
INTERNATIONAL WORKSHOP ON CHANGING RENEWABLES SUPPORTIN THE EU ELECTRICITY MARKETS, Paris, 14 October 2014
© OECD/IEA 2014
The Grid Integration of Variable Renewables Project - GIVAR
Third project phase at a glance
7 case studies covering 15 countries, >50 in-depth interviews
Technical flexibility assessment with revised IEA FAST tool
Detailed economic modellingat hourly resolution
© OECD/IEA 2014 2
© OECD/IEA 2014
Seconds Years 100km 1km
Low short run cost
Non synchro-
nous
Stability
Uncertainty
Reserves
Variability
Short term changes
Asset
utilisation
Abundance Scarcity
Locationconstrained
Trans-mission
grid
Modularity
Distributiongrid
Properties of variable renewables and impact groups
Systems are different – impacts will vary too
But common groups of effects
© OECD/IEA 2014 3
Balancing Profile / Utilisation LocationStability
© OECD/IEA 2014
Main persistent challenge: Balancing
Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability;combined effect of wind and solar may be lower, illustration only. © OECD/IEA 2014 4
0
10
20
30
40
50
60
70
80
1 10 20 30 40 50 60 70 80 90 100 110 120 130 140Hours
Net
load
(G
W)
0.0% 2.5% 5.0% 10.0% 20.0%
Larger rampsat high shares
Higher uncertainty
Larger and more pronounced changes
Illustration of Residual power demand at different VRE shares
© OECD/IEA 2014
Netload implies different utilisation for non-VRE system
Main persistent challenge: Utilisation
Note: Load data and wind data from Germany 10 to 16 November 2010, wind generation scaled, actual share 7.3%. Scaling may overestimate the impact of variability;combined effect of wind and solar may be lower, illustration only. © OECD/IEA 2014 5
0
10
20
30
40
50
60
70
80
90
1 2 000 4 000 6 000 8 000
Net
load
(G
W)
Hours
0.0% 2.5% 5.0% 10.0% 20.0%Maximum
remains high: Scarcity
Lower minimum:
Abundance
Changed utilisationpattern
Base-load
Mid-merit
Peak
Mid-merit
Peak
Mid-merit
Base-load
-
-
© OECD/IEA 2014
Value factor = 1 average market price, >1 above, < below
As share of VRE rises, average value per MWh decreases
The value of variable renewable energy
© OECD/IEA 2014 6
© OECD/IEA 2014
VRE plant design may be able to contribute to minimisingthese costs
Example: classical vs advanced wind turbine design in North-West Europe
Why expose VRE generators to risks associated with balancing / utilisation?
© OECD/IEA 2014 7Source: Hirth, Mueller, 2014, unpublished
© OECD/IEA 2014
0
20
40
60
80
100
120
EUR
/MW
h
time
Market revenue Premium
Fee
d-i
n t
arif
fPolicy instruments and resulting remuneration
© OECD/IEA 2014 8
Ce
rtif
icat
es
0
20
40
60
80
100
EUR
/MW
h
time
Market revenue Certificates
0
20
40
60
80
EUR
/MW
h
time
Feed-in tariff
0
20
40
60
80
100
EUR
/MW
h
time
Market revenue Reference price Surplus
Ene
rgy
pre
miu
ms
(pe
r M
Wh
)
0
20
40
60
80
100
EUR
/MW
h
time
Market revenue
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
Market revenue Premium
EUR
/MW
Cap
acit
y p
rem
ium
s (p
er
MW
)
© OECD/IEA 2014
German premium model*Variable per MWh premium
Calculate (monthly) average per MWhmarket remuneration of technology class (wind, solar etc.) ex post
Calculate premium (p) on to of market remuneration (m) to reach target remuneration (t)𝑴𝑾𝒉𝒕 = 𝑴𝑾𝒉𝒎 +𝑴𝑾𝒉𝒑
Top-up each MWh of generation by 𝑴𝑾𝒉𝒑
Implications: Removes (most of) priority dispatch
Exposes generators to imbalance costs
Bid up to short-run cost minus premium
Partial exposure to volume risk
Removes technology market value risk
Examples: Germany and Spain
© OECD/IEA 2014 9
Spanish premium model*Variable per MW premium
Calculate (yearly) average per MW market remuneration of technology class (wind, solar etc.)
Calculate premium (p) on to of market remuneration (m) to reach target remuneration (t)𝑴𝑾𝒕 = 𝑴𝑾𝒎 +𝑴𝑾𝒑
Pay out 𝑴𝑾𝒑 to each MW, subject to
minimum availability/production
Implications: Removes (most of) priority dispatch
Exposes generators to imbalance costs
Bid up to short-run cost
Full exposure to volume risk
Removes technology market value risk
* Description of main concept of instrument
© OECD/IEA 2014
Feed-in
tariffPer MWh premium Per MW premium
Quota +
certificates
variable fixed variable fixed
Balancing
riskshielded exposed exposed exposed exposed exposed
Profile risk /
energy valueshielded shielded exposed shielded exposed exposed
Bid below
short run cost
(neg. prices)
- Yes* Yes* No No Yes*
Quota /
banding riskNo No No No No Yes
Inherent
technology
neutrality**
No No Yes No Yes Yes
Different instruments –different risks for generators
© OECD/IEA 2014 10
* Unless supplementary provision removes incentive** Providing same incentive to different technologies does not bear
the risk of choosing technologies with lower net benefit
© OECD/IEA 2014
The magnitude of these risks depends on system flexibility!
Flexible demand
Supply
More flexible PP
Less must run, direct marketing of RE
Sector coupling (mobility heat)
Demand SupplySource: connect energy economics, Marco Nicolosi
© OECD/IEA 2014
Wholesale markets Sufficient liquidity
Short program time units
Trading close to real time
Large-scale geographic integration
System service markets Non-discriminatory access
Remuneration at marginal value
Imbalance market / cash-out pricing Significant portfolio effect for VRE!
Trading arrangements need to allow small participants to access aggregation benefits (after-day market, short-selling?)
… and market design
© OECD/IEA 2014 12
© OECD/IEA 2014
System friendly
VRE
Technology spread
Geographic spread
Designof power
plants
Investm
ents
Three pillars of system transformation
Dynamic system
New investment
required
Op
eratio
ns
Balancing areas and markets: cooperation & consolidation
Market and system operations
Stable system
New investment
required
Sufficient existing flexibility resources
© OECD/IEA 2014 13
© OECD/IEA 2014
Passing price signals to generators that better reflect the value of electricity instrumental to … Optimising short-term operations
Drive innovation within a technology group
Allow for competition between technology groups
Provide feed-back mechanism to control deployment volume
Passing prices too directly can be problematic: High capital intensity of VRE (and other low-carb) raises importance
of cost of capital > sensitive to risk
Currently sub-optimal market design
Pricing of CO2 and other externalities challenging
Drop in market value due to transitional overcapacity
Lack of visibility on future system flexibility
Conclusions
© OECD/IEA 2014 14
