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Design elements for a future electricity system: What kind of system and market integration for renewable energy sources? Dr. David Jacobs Transdisciplinary Panel on Energy Change Institute for Advanced Sustainability Studies e.V. (IASS) Friday, 15 March 2012 Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 1 Reasons for market integration Competitiveness “renewables won‘t need support after 2020” System integration: More market integration = better system integration Theory/ideology: Text book market design and the EU target model Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 2 Wind and solar in the future (German) electricity system 80-100% of electricity from RES (2050) Wind and solar will become the backbone of the electricity system (more than 50% of average supply) We need “overcapacity” of wind and solar Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 3 Features of wind and solar PV – consequences for market integration? Cost structure: High capital cost, low O&M, no fuel costs The cost of wind and solar primarily depends on capital costs (which depends on investment security) (Small actors need high degree of investment security) Marginal cost pricing: No marginal costs but integration into marginal cost markets Difficulty to re-finance wind and solar PV in marginal cost markets Limited reaction towards price signals from the market (On/Off; limitation of market shares/overcapacity?) Variability and balancing power: Wind and solar are “weather dependent” (fluctuating) Providing balancing power at national/European level is cheaper than providing it decentrally Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 4 Features of wind and solar PV – consequences for market integration? Cost structure: High capital cost, low O&M, no fuel costs The cost of wind and solar primarily depends on capital costs (which depends on investment security) (Small actors need high degree of investment security) Marginal cost pricing: No marginal costs but integration into marginal cost markets Difficulty to re-finance wind and solar PV in marginal cost markets Limited reaction towards price signals from the market (On/Off; limitation of market shares/overcapacity?) Variability and balancing power: Wind and solar are “weather dependent” (fluctuating) Providing balancing power at national/European level is cheaper than a decentralized solution Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 5 Long-term contracts for wind and solar PV Wind and solar PV should be financed via long-term contracts (outside “the market”) Contracts with feed-in obligation Wind and solar can become a hedge against future fuel price increases Very low tariffs after plant amortisation period Quantity of wind and solar needs to be regulated Flexibility needs to be provided by the supply and demand side and the electricity grid Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 6 Components of a future electricity system Flexibility: Supply side Reduction of “must run” from conventional power plants Long-term contracts for wind and solar CHP (electricity focused) Demand response Storage Heating and transport sector Flexibility of biomass/biogas Incentives for low-carbon technologies (capacity markets) Flexibility: Demand side Energy efficiency Flexibility: Grid infrastructure Grid extension Smart grids EU grid Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 7 Compatibility with the EU level? Re-thinking the EU target model? Financing power plants outside of “energy-only” markets? Legal aspects: Long-term contracts and resulting legal conflicts (free movement of goods) Economic aspects: EU market coupling – financing RES nationally and exporting cheap electricity? Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 8 Thanks for your attention! Institute for Advanced Sustainability Studies e.V. Transdisciplinary Panel on Energy Change, 15 March 2013 9