Creating the Internal Energy Market in Europe

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A report on EU electricity market rules, which must reflect the energy generation mix of the future and help usher in a flexible power system with a large-scale uptake of wind power and other renewable energy sources. The report recommends: 1- Creating a level playing field for renewable energy sources by tackling structural market deficits. 2-Creating functioning markets covering larger geographical regions within Europe so as to reduce the need to balance variable renewables like wind and solar 3- Developing intraday and balancing markets at national and cross-border levels 4- Creating new markets for 'grid support services', supporting the functioning of the grid to ensure a secure supply of electricity, instead of introducing market distorting capacity payments.

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Creating the Internal Energy Market in Europe

  1. 1. Creating the internal EnergyMarket in Europe
  2. 2. Key findings• Structural market distortions remain the main obstacle for the IEM and wind energy integration – Large incumbents, high market concentration, regulated prices• Support mechanisms for wind and RES should be seen in the context of unfinished liberalisation• Exposure of wind generators to market risks require a level playing field
  3. 3. Key findings (…continued)• Integration of large amounts of wind in a cost efficient manner requires changing current market arrangements
  4. 4. Key findings (…continued)• The EU Target Model (TM) does not effectively enable optimal wind energy integration – No emphasis on wind integration to the extent of NREAPs – No provisions for more competition – Lack of emphasis on intraday and balancing markets liquidity, harmonisation and interactions. These are wind energy integration cornerstones!
  5. 5. Key findings (…continued)• Flexibility is the main feature of tomorrow’s power system – Low marginal costs – Fast ramping power plants – Investment recovery over fewer running hours• Wind energy is able to contribute significantly to system operation and flexibility – Grid support services – System adequacy
  6. 6. Policy recommendations1. Creating a level playing field2. Implementing the EU-wide Target Model with large share of wind power3. Assessing system adequacy properly in a renewable EU integrated power system4. Ensuring cost-effectiveness of the future power system: a market- based approach for ancillary services
  7. 7. Policy recommendations1. Creating a level playing field• Tackle market distortions rather than only focus on RES provisions – Implement and transpose properly liberalisation packages – Provide incentives for extensive use of commercial power exchanges• Design market rules that recognise the intrinsic characteristics of wind energy – Large control zones for smoothing output variability – Shorter trading time horizons for improved forecast accuracy and
  8. 8. Policy recommendations2. Implementing the EU-wide Target Model with large share of wind power• Implement the EU-wide Target Model as a minimum – Provide integrated intraday and balancing markets – Make the best use of available transmission capacity• TSOs must be encouraged to analyse all aspects of firm capacity from wind power and other RES in an integrated system at EU level – Challenge for capacity payments
  9. 9. Policy recommendations3. Assessing system adequacy properly in a renewable EU integrated power system• TSOs must be encouraged to analyse all aspects of firm capacity from wind power and other RES in an integrated system at EU level• Challenge for capacity payments
  10. 10. Policy recommendations4. Ensuring cost-effectiveness of the future power system: a market- based approach for ancillary services• Grid codes in Europe should first consider market options for ancillary services instead of compulsory requirements• Establish grid support services markets to create additional non- discriminatory revenue streams for all generators
  11. 11. Electricity volume traded day-ahead in powerexchanges (PX) vs. forward bilateral contracts (OTC).[MW as percentage of national gross electricityproduction],2009 data Poland Great Britain Czech Republic Slovak Republic Austria France Belgium Romania The Netherlands Germany Lithuania Finland* Italy Sweden* Portugal Spain* Denmark* Northern Ireland* Greece 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00% OTC PX Sources: European Parliament , Cornwall, N (2006)
  12. 12. How wind power influences the power spot price atdifferent times of the day through the so-called“Merit order effect” Source: Risø DTU
  13. 13. Increasing wind forecast error (Root Mean SquareError) as time horizon increases. Results fromregional wind power production from Germany 7.00% 6.00% RMSE [% of installed power] 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Intraday Day ahead 2 days ahead Source: IEA Wind Task 25
  14. 14. Intraday Markets in the EU (2011) Source: EWEA
  15. 15. Volume of electricity traded in intradaymarkets, 2011 and 2010* data Sources: EPEXSPOT, CREG, NordPool, OMIE
  16. 16. Balancing services Sources: ETSO and EWEA
  17. 17. Relevant EU directives and regulations inelectricity Source: Adapted from REKK & KEMA (10), EC, DG Energy
  18. 18. Number of countries with regulated electricityprices (2009) EU-27 Household Industrial Sources: European Commission 2011
  19. 19. Degree of market concentration in the EU powersector Source: European Commission 2011
  20. 20. The EU Target Model (TM) for electricity trading ATC – Available Transmission Capacity NTC – Net Transfer Capacity GCT – Gate Closure Time Source: Florence Forum, Project Coordination Group (PGC), 2009
  21. 21. Roadmap for day-ahead market coupling as per TM
  22. 22. Market coupling effects on volatility of energyprices 40 6.00 5.21 35 5.00 30 4.05 Standard deviation (€) 4.00 25 20 3.00 1.99 15 2.00 10 0.74 1.00 5 0.00 BE DE FR NL Explicit Implicit Explicit-Implicit difference Source: CWE
  23. 23. Decrease of forecast error prediction foraggregated wind power production due to spatialsmoothing effects. Error reduction = ratio of RMSEregional and RMSE of a single site. Results basedon 40 German wind farms 1.0 0.8 Error reduction 0.6 0.4 0.2 0.0 0 500 1000 1500 2000 Source: Energy and Meteo Systems in IEA Wind Task 25
  24. 24. Market coupling mechanisms used in the EU.*Ongoing initiative
  25. 25. Market coupling mechanisms used in the EU.*Ongoing initiative
  26. 26. Market coupling mechanisms used in the EU.*Ongoing initiative
  27. 27. Level of accuracy of wind power predictions forlarger areas and shorter time scales Source: Rorhig, K. in IEA Wind Task 25
  28. 28. Opposite imbalance exchange of two countries Source: Andersen & Detlefsen, 2011
  29. 29. Market integration and wind power deploymentbenefits
  30. 30. Increase in capacity credit in Europe due to windexchange between countries in 2020 16% Relative Capacity Credit, percentage of installed 14% 12% 10% capacity 8% 6% 4% 2% 0% No wind energy exchange Smoothing effect ENTOS-E continental Europe Top ten wind countries All European countries Source: TradeWind project
  31. 31. Increase in capacity credit in Europe due to windexchange between countries in 2020 30 25 Capacity Credt [GW] 20 15 10 5 0 No wind energy exchange Smoothing effect ENTOS-E continental Europe Top ten wind countries All European countries Source: TradeWind project
  32. 32. About the European Wind Energy Association EWEA is the voice of the wind industry, actively promoting wind power in Europe and worldwide. It has over 700 members from almost 60 countries making EWEA the worlds largest and most powerful wind energy network. Rue dArlon 80 B-1040 Brussels Belgium www.ewea.org
  33. 33. To download the pdf version click hereTo download the Ipad (Ibooks) version click hereIf you want to see more statistics, reports, news andinformation about wind energy event please visit EWEA’swebsite www.ewea.org or contact us atcommunication@ewea.org

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