1. © OECD/IEA 2014
The Power of Transformation
Wind, Sun and the
Economics of Flexible Power Systems
GSE, Rome, 8 July 2014

2. © OECD/IEA 2014
Main Results and Strategic Approach
Ms Maria van der Hoeven
Executive Director
International Energy Agency
© OECD/IEA 2014 2

3. © OECD/IEA 2014
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Japan
Brazil
India
France
Sweden
ERCOT
NW Europe
Italy
Great Britain
Germany
Iberia
Ireland
Denmark
Wind 2012 PV 2012 Additional Wind 2012-18 Additional PV 2012-18
VRE share of total annual electricity output
Note: ERCOT = Electricity Reliability Council of Texas, United States
Source: IEA estimates derived in part from IEA Medium-Term Renewable Energy Market Report 2013.
Large-scale integration accomplished today,
but more to come
Case
studies
© OECD/IEA 2014 3
• Instantaneous shares
reaching 60% and above
• Higher shares locally:
Wind in Tamil Nadu
(India) approx. 13%
Iberian pen.

4. © OECD/IEA 2014
1. Very high shares of variable renewables
are technically possible
2. No problems at low shares,
if …
3. Reaching high shares cost-effectively
calls for a system-wide transformation
Three main results
© OECD/IEA 2014 4

5. © OECD/IEA 2014
Three pillars of system transformation
Grid
infrastructure
Dispatchable
generation Storage
Demand side
integration
© OECD/IEA 2014 5
1. Deploy state-of-the art system friendly VRE
2. Improve market design and operations
3. Invest in four sources of flexibility

6. © OECD/IEA 2014
Focus on key findings
Dr. Paolo Frankl
Head, Renewable Energy Division
© OECD/IEA 2014 6

7. © OECD/IEA 2014
The Grid Integration of Variable
Renewables Project - GIVAR
 Third project phase
 7 case studies covering 15
countries, >50 in-depth interviews
 Technical flexibility assessment
with revised IEA FAST tool 2.0
 Detailed economic modelling
at hourly resolution
© OECD/IEA 2014 7

8. © OECD/IEA 2014
Interaction is key
Properties of variable
renewable energy (VRE)
Flexibility of other power
system components
© OECD/IEA 2014 8
 Variable
 Uncertain
 Non-synchronous
 Location constrained
 Modularity
 Low short-run cost
sec
yrs
1 km
100s
km
Grids Generation
Storage Demand Side

9. © OECD/IEA 2014
The GIVAR III case study regions
Power area
size (peak
demand)
Grid
strength
Inter-
connection
(actual &
potential)
No. of
power
markets
Geographic
spread of
VRE
Flexibility of
dispatchable
generation
Investment
opportunity
India
Italy
Iberia
(ES & PT)
Brazil
NW Europe
ERCOT
(Texas, US)
Japan
(East)
?
© OECD/IEA
2014 9

10. © OECD/IEA 2014
 Power systems already deal with a vast demand variability
 Can use existing flexibility for VRE integration
No problem at 5% - 10%, if …
© OECD/IEA 2014 10
Exceptionally high variability in Brazil, 28 June 2010
 No technical or economic challenges at low shares,
if basic rules are followed:
 Avoid uncontrolled, local ‘hot spots’ of deployment
 Adapt basic system operation strategies, such as forecasts
 Ensure that VRE power plants are state-of-the art and can stabilise the grid

11. © OECD/IEA 2014
 FAST2 assessment:
 Assumption: perfect grid (copper-plate), system operation maximises flexibility
 Result: all power systems can take 25% in annual generation
 There is no technical limit on how much variable generation a power system
can absorb
 But system transformation increased flexibility required for higher shares
Much higher shares technically feasible
© OECD/IEA 2014 11
0 10 20 30 40 50 60
Brazil
ERCOT
Iberia
Italy
Japan (East)
NW EUR
Uncurtailed share of VRE in power generation [%]
Curtailment
none
low
medium
high
VRE share
2012
Source: FAST2 assessment.

12. © OECD/IEA 2014
Current levels of VRE Curtailment
© OECD/IEA 2014 12
 Spain: reasons: 20% network constraints, 80% system-wide reasons
 ERCOT: curtailment peaked at 17% in 2009, market reform in 2010 and continued grid
expansion main factors for ten-fold reduction
 Germany: total curtailed energy: 385 GWh 2012, 421 GWh in 2011, 127 GWh in 2010
Curtailments remain low, almost 100% of available VRE is used
0%
5%
10%
15%
20%
Wind Wind PV Wind Wind Wind PV
Ireland (2012) Italy (2013) Spain (2012) ERCOT (2013) Germany (2012)
Annualshareingeneration
Used Wind Curtailed Wind Used PV Curtailed PV

13. © 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 13
0
10
20
30
40
50
60
70
80
1 10 20 30 40 50 60 70 80 90 100 110 120 130 140
Hours
Netload(GW)
0.0% 2.5% 5.0% 10.0% 20.0%
Larger
ramps
at high
shares
 Higher
uncertainty
 Larger and
more
pronounced
changes
Illustration of Residual power demand at different VRE shares

14. © 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 14
0
10
20
30
40
50
60
70
80
90
1 2 000 4 000 6 000 8 000
Netload(GW)
Hours
0.0% 2.5% 5.0% 10.0% 20.0%
Maximum
remains high:
Scarcity
Lower
minimum:
Abundance
Changed utilisation
pattern
Base-
load
Mid-
merit
Peak
Mid-
merit
Peak
Mid-
merit
Base-
load
-
-

15. © OECD/IEA 2014
0
20
40
60
80
100
120
140
Legacy
low grid costs
Legacy
high grid costs
Transformed generation &
8% DSI, low grid costs
0% VRE
Totalsystemcosts(USD/MWh)
 Fixed costs of un-adapted power plant fleet largest cost driver
 Uncoordinated grid retrofits can be expensive
 Startup costs have low impact
Adding VRE without adapting the
system is bound to increase costs
© OECD/IEA 2014 15
Test System / IMRES Model
45% VRE penetration
Grid cost
DSI
Fixed VRE
Emissions
Fuel
Startup
Fixed
non-VRE
+40%

16. © OECD/IEA 2014
2.
Make better use of
what you have
Operations
1.
Let wind
and solar
play their
part
3.
Take a system wide-strategic
approach
to investments!
System
friendly
VRE
Technology
spread
Geographic
spread
Design
of power
plants
Three pillars of system transformation
© OECD/IEA 2014 16
Investments

17. © OECD/IEA 2014
1) System friendly VRE deployment
 Wind and solar PV
can contribute to grid
integration
 But only if they are
allowed and asked to
do so!
Take a system
perspective when
deploying VRE
Market premiums
step in right direction
Source: adapted from Agora, 2013
Example: System friendly design of
wind turbines reduces variability
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18. © OECD/IEA 2014
2) Better system & market operation
 VRE forecasting
 Better market operations:
 Fast trading
Best practice:
US (Texas) – 5 minutes
 Price depending on location
Best practice: US –
Locational Marginal Prices
 Better flexibility markets
Example: Fully remunerated reserve
provision
 Align system and market operation
Example: US Independent System Operators
 Make better use of what you have
already!
Example: ERCOT market design
© OECD/IEA 2014 18

19. © OECD/IEA 2014
3) Investment in additional flexibility
Grid
infrastructure
Dispatchable
generation Storage
Demand side
integration
Four sources of flexibility …
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20. © OECD/IEA 2014
Benefit/cost of flexibility options
North West Europe – Demand Side Integration (DSI)
 Overall system savings of 2.0 bln $/year
 DSI costs of 0.9 bln $/year
Note: graph represents the differences between DSI scenario (DSI 8% of overall demand) and baseline scenario
Benefit/cost ratio: 2.2
© OECD/IEA 2014 20
DSI assumed to be 8% of annual
power demand:
• 70% made of heat and other
schedulable demand (110 TWh)
• 30% EV demand (44 TWh)
CO2 price USD 30 per tonne
Coal price USD 2.7/MMbtu
Gas price USD 8/MMbtu
-29 -140-437
-1 539
899
128
-2 500
-2 000
-1 500
-1 000
- 500
0
500
1 000
1 500
System benefit DSI costsMillionUSDperyear
DSI
CapexCCGT
Fixed Opex
Startup costs
Variablecost
incl. fuel
CO2 costs
 Basic approach:
1. Establish baseline scenario using
‘business as usual’ at 30% VRE
2. Insert DSI and calculate savings
compared to baseline (system
benefit)
3. Compare system benefit
to DSI cost

21. © OECD/IEA 2014
Benefit/cost of flexibility options
North West Europe
 DSI has large benefits at comparably low costs
 Interconnection allows a more efficient use of distributed flexibility options
and generates synergies with storage and DSI
 Cost effectiveness of hydro plant retrofit depend on project specific
measures and associated investment needs
Notes:
1) CAPEX assumed for selected flexibility options: interconnection 1,300$/MW/km onshore and 2,600$/MW/km offshore, pumped hydro storage 1,170$/kW, reservoir
hydro 750 $/kW -1,300$/kW (repowering of existing reservoir hydro increasing available capacity). Cost of DSI is assumed equal to 4.7 $/MWh of overall power
demand (adjustment of NEWSIS results)
2) Fuel prices and CAPEX ($/kW) for VRE and flexibility options are assumed constant across all scenarios
Source: IEA/PÖYRY
2,3 2,2
1,2 1,1 1,1
0.6 - 1.5
DSI + IC DSI IC Storage + IC Storage Hydro capacity
boost
Benefit/cost ratio
1
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22. © OECD/IEA 2014
0
20
40
60
80
100
120
140
Legacy
low grid costs
Legacy
high grid costs
Transformed generation &
8% DSI, low grid costs
0% VRE
Totalsystemcosts(USD/MWh)
 Large shares of VRE can be integrated cost-effectively
 Significant optimization on both fixed and variable costs
Cost-effective integration means
transformation of power system
© OECD/IEA 2014 22
Test System / IMRES Model
45% VRE penetration
Grid cost
DSI
Fixed VRE
Emissions
Fuel
Startup
Fixed
non-VRE
+40%
+10-15%

23. © OECD/IEA 2014
 All countries where VRE is going mainstream should:
 Optimise system and market operations
 Deploy VRE in a system-friendly way to maximise their value
to the overall system
 Countries beginning to deploy VRE power plants (shares
of up to 5% to 10% of annual generation) should:
 Avoid uncontrolled local concentrations of VRE power plants
(“hot spots”)
 Ensure that VRE power plants can contribute to stabilising the
grid when needed
 Use state of the art VRE forecast techniques
Recommendations 1/2
© OECD/IEA 2014 23

24. © OECD/IEA 2014
* Compound annual average growth rate 2012-20 , slow <2%, dynamic ≥2%; region average used where country data unavailable
This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Transformation depends on context
Recommendations 2/2
© OECD/IEA 2014 24
Stable Power
Systems
• Little general
investment need
short term
Dynamic
Power Systems
• Large general
investment need
short term
Slow demand growth*
Dynamic demand growth*
Maximise the contribution
from existing flexible assets
Decommission or mothball
inflexible polluting surplus
capacity to foster system
transformation
Implement holistic, long-term
transformation from onset
Use proper long-term planning
instruments to capture VRE’s
contribution at system level

25. © OECD/IEA 2014
 Round Table
© OECD/IEA 2014 25