Download The German Power Market 2.0

The German Power Market 2.0
Session 2: Adapting liberalised power markets
– Minor tweak or major overhaul?
Dr. Marco Nicolosi
IEA Workshop: Renewables in the Mainstream
Paris, March 24th 2015
Take-aways
• A flexible power market can guarantee security of
supply and support renewable integration
simultaneously
• Some flexibility options can increase the market
value of variable renewables
• To achieve a level-playing-field for flexibility options,
barriers and price distortions need to be removed
• A capacity reserve can secure the transition period
until the market is sufficiently flexible
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2
Two sides of the challenge
90
80
Low wind feed-in,
cold winter evening:
Low RES, high load
70
GW
High residual load, high prices
60
50
40
30
20
residual load [GW]
10
0
10.12.2013
11.12.2013
biomass
run-of-river
12.12.2013
wind
13.12.2013
solar
14.12.2013
conventional plants
consumption
Windy, sunny
Sunday noon:
High RES, low load
90
80
70
60
GW
Low residual load,
low prices
50
40
30
20
10
time [hours]
Source: Data from Entso-e (2013) and EEX (2013)
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0
13.06.2013
14.06.2013
biomass
run-of-river
15.06.2013
wind
16.06.2013
solar
17.06.2013
conventional plants
3
consumption
Definition of flexibility
• Finding a match between demand and supply requires ‘flexibility’
• Flexibility adds the time dimension to the static concept of the
economic term ‘elasticity’
flexible
demand
inflexible
supply
flexible
supply
price
inflexible
demand
price
quantity
quantity
Sufficient flexibility in relevant areas of the supply and demand curve
guarantees security of supply
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Flexibility supports security of supply and
renewables integration I
3.000
supply
demand
inflexible
2.500
day-ahead price [EUR/MWh]
2.000
1.500
1.000
flexible
500
0
-500
-1.000
-1.500
-2.000
inflexible
inflexible
-2.500
-3.000
25.000 27.000 29.000 31.000 33.000 35.000 37.000 39.000 41.000 43.000 45.000 47.000 49.000
volume [MW]
demand
supply
• Some areas of the supply and demand curve are inflexible
• Inflexible areas could (theoretically) lead to a mismatch
Source: Own illustration, Data from EEX (2013).
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5
Flexibility supports security of supply and
renewables integration II
3.000
increase flexibility
of demand
import
+
peak plants replace
base-load plants
2.500
day-ahead price [EUR/MWh]
2.000
1.500
1.000
supply
500
0
-500
-1.000
-1.500
-2.000
-2.500
reduction of must-run &
renewables direct
marketing
coupling of sectors
(power-to-heat/e-mobility)
+
export
-3.000
25.000 27.000 29.000 31.000 33.000 35.000 37.000 39.000 41.000 43.000 45.000 47.000 49.000
volume [MW]
demand
supply
• An increase in flexibility leads to security and more meaningful price signals
• More flexibility options are available than the energy transition requires
Source: Own illustration, Data from EEX (2013).
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Market effects of barriers
Reasons for ‘must-run’ (technical and economic)
• Reactive power
• Heat-driven combined heat-and-power plants
• Reserve power
• Inflexible power plants
• Must-run renewables
• Must-run hydro
’must-run’
effects
’must-demand’
effects
Reasons for ‘must-demand’
• Inflexible consumption
• Grid-based incentives
• Electric heating
• Lack of information
• Reserve power
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7
Reduce barriers to flexibility
Market design
Regulatory design
• Open reserve power markets
• Short-term auctions & products
• prequalification
•
•
•
•
•
Improve balancing responsibility
Avoid price caps
Competitive wholesale markets
Enable efficient cross-border trade
Avoid explicit capacity
remuneration, which weakens
price signal
• Adjust implicit incentives for
privileged consumers (e.g. grid
tariffs & RES support) to react on
wholesale power price
• Increase combined heat-andpower flexibility
• Avoid price distortions in all
policies
• Enable renewable market access
• Provide reactive power must-runfree
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8
In a nutshell
• Security of supply and RES-integration require flexibility
• Sufficient flexibility potential is available to allow for
market-based competition
• Competitive and well connected markets are a great and
efficient source of flexibility
• The EOM incentivises the optimal flexibility mix on the
basis of reduced market and regulatory barriers
• Capacity markets are likely to create path dependencies
and regulatory uncertainty, while reserve mechanisms
are reversible, once the market is sufficiently flexible
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9
Connect Energy Economics GmbH
Tel. +49 30 8093312 30
[email protected]
www.connect-ee.com