Concepts and experiences with capacity...
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© OECD/IEA 2016 RE-POWERING MARKETS Market design and regulation during the transition to low-carbon power systems Manuel Baritaud Bruegel Brussels, 24 February 2016
Transcript of Concepts and experiences with capacity...
© OECD/IEA 2016
RE-POWERING MARKETS Market design and regulation during the transition to low-carbon power systems
Manuel Baritaud Bruegel Brussels, 24 February 2016
© OECD/IEA 2016
Power markets must evolve to facilitate a low-carbon transition
Competitive electricity markets are being challenged by the need to decarbonise
A power market transformation is already underway
Demand is stagnating in OECD Europe
Renewables met 62% of growth in capacity in OECD Europe since 2000
New technologies progressing (smart grids, demand response, storage)
Electricity security is becoming more critical
The massive investments required call for an improved market framework
© OECD/IEA 2016
Key dimensions of market framework for decarbonisation
Competitive markets
Low-carboninvestments
Operationalefficiency/
Carbonpricing
Consumption
o Carbon regulation
o Reliability standards
Networkefficiency
o Regional planning
o Retail competitive prices
o Taxation and levies
o Network cost allocation
o Demand responseproduct definition
Type of regulation
o Long-term contracts
o Network tariff structure
o Integration in markets
o Energy prices with a high temporal resolution
o Auctions set support level
o Energy prices with a high geographical resolution
o Dynamic pricing offers
o Congestion revenues
o Transmission auctions
o Carbon price (trading scheme)
o Low-C long-term support
o Capacity requirements o Capacity prices
o Demand response participation
o Scarcity pricing
o Market rules
Reliability and adequacy
Additional policy:
Supportschemes
Short-termenergy
markets
Additional policy:
Capacitymarkets
Regulation
Retail pricing o Distributed resources
Objective Policy
© OECD/IEA 2016
Power-sector cumulative investment by type, 450 Scenario, OECD Europe, 2015-2040
Coal 85 Gas 116
Oil 2 348
Wind 852
Solar 357
Hydro 143 Bioenergy 126
Other 98
Transmission 184
Distribution 674
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
Fossil Fuels Nuclear Renewables T&D
Billion
dollars (20
14)
Massive investment needed during the transition will take place in competitive markets. Their design is key for decarbonisation while ensuring electricity security.
Low-carbon power and networks require the largest investment
© OECD/IEA 2016
Massive investments needed during the transition will take place in competitive markets. Their design is key for decarbonisation while ensuring electricity security.
Competitive electricity markets are being challenged by the need to decarbonise
Capacity additions in OECD Europe by technology, 1960-2014
0
10 000
20 000
30 000
40 000
50 000
60 000
1960 1970 1980 1990
0
10 000
20 000
30 000
40 000
50 000
60 000
1960 1970 1980 1990 2000 2010 2014
MW
Start of industry
restructuring
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Current wholesale prices and long-term risks call for continuing support
Long-term arrangements are still needed to make up the difference in low-carbon generation costs and to keep financing costs low for capital-intensive investments.
Renewable capacity built by support instruments, OECD Europe, 2005-14
0
20
40
60
80
100
120
140
160
180
FiTs TGCs Fixed Feed-in
Premiums
Variable FiPs Grants Tax schemes Not supported
GW
Not exposed
to energy price risk
Exposed
to energy price risk
Not supported
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Integrating high shares of wind and solar
New operational requirements with high shares of renewables (data for Germany using scaled wind data)
Source: Adapted from IEA (2014) THE POWER OF TRANSFORMATION
0
10
20
30
40
50
60
70
80
1 10 20 30 40 50 60 70 80 90 100 110 120 130 140
Load
leve
l (G
W)
Hours
20%
Load
Potential over-generation
0
10
20
30
40
50
60
70
80
1 10 20 30 40 50 60 70 80 90 100 110 120 130 140
Load
leve
l (G
W)
Hours
20%
Load
Net load with 20% of wind energy in the generation mix
0
10
20
30
40
50
60
70
80
1 10 20 30 40 50 60 70 80 90 100 110 120 130 140
Load
leve
l (G
W)
Hours
20%
LoadLoad
Contribution to peak demand
Forecast errors
Larger ramps
Participation into markets provides an important feedback loop by revealing the value of different low-carbon technologies.
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When and where to operate and invest?
Markets prices with a high geographical and temporal “resolution” can provide incentives for efficient and secure coordination of more complex power resources
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Capacity mechanisms: are they needed?
Getting scarcity prices right during capacity shortage is a pre-requisite but capacity mechanisms are increasingly used to create a safety net during the transition.
Simplified decision tree: energy-only market versus capacity mechanism
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Network regulation
Decarbonisation involves a modernised regulatory framework to accommodate the deployment of renewables and distribution distributed energy resources
0.00
0.05
0.10
0.15
0.20
0.25
2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Network
average price
(AU
D pe
r kW
h)
SA Power Networks (SA) Ausgrid (NSW) Endeavour Energy (NSW)
Essential Energy (NSW) CitiPower (VIC) Jemena (VIC)
Powercor (VIC) SP-Ausnet (VIC) United Energy (VIC)
Network tariff development in Australia Future organisation of the power sector
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Modernizing retail tariffs
Prices have to better reflect the underlying level and structure of costs in order to induce efficient investment in solar PV and batteries on the consumer side.
Cost components and tariff structure of selected retail electricity prices (average for Paris, Berlin and Amsterdam)
Variable 93%
Fixed 7%
Energy 35%
Network and metering
26%
Levies and taxes 19%
VAT 21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Costs components Tariff structure
USD
/kW
h
© OECD/IEA 2016
Conclusion: Re-powering markets
Decarbonisation of the power sector is forcing a rethinking of electricity market design
Incremental changes – re-powering - can facilitate the transition:
Short-term markets with detailed and transparent information on when and where to operate and invest
Consistent framework for low carbon support, CO2 pricing and markets
Electricity security requires reliability standards and pricing scarcity right, with capacity mechanisms providing an additional safety net
A comprehensive market framework balances rules set by regulators and competitive markets
Many recommendations are relevant outside Europe, including IEA partner countries
© OECD/IEA 2016
Thank you
http://www.iea.org/topics/electricity/publications/re-poweringmarkets/
