Jean-Michel Glachant at TWENTIES Workshop, September 16, 2013, Florence

1. Towards a new regulatory
framework for wind integration:
Main challenges
Jean-Michel Glachant
TWENTIES Workshop
September 16, 2013, Florence

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3+1 Challenges for wind integration
1. How to ensure the integration of intermittent renewables
that are out of the market?
2. How to ensure an adequate development of flexible back-up
resources?
3. How to ensure an adequate development of the grid?
… but also a transverse challenge: RES integration
with/versus integrated European market?!
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(1) Integration of intermittent RES into the markets
RES being out of the market
• Today’s generation mix is split into two opposite sets of generators:
• Increasing gap between wholesale prices and consumer bills:
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Conventional generators
… bearing significantly
increased uncertainty, and a
foreseeable depressed future
Intermittent RES generators
… bearing no significant risk
for capacity, volume or price
… can a large share of the generation mix
remain isolated from market prices (FIT +
priority dispatch)?

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(1) Integration of intermittent RES into the markets
How to bring RES back into the markets?
 Making intermittent RES an active participant in power systems and
electricity markets:
• … should RES revenues depend on market prices?
• … should RES be exposed to imbalances?
• … should RES bear the total cost related to their connection to the
system?
 Two main options:
• “Melting-pot” integration: Same rules for intermittent and
dispatchable RES
• “Salad-bowl” integration: Rules adapted to the technical specificities
of each technology
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• A whole set of alternative means of flexibility:
NB: What is needed is not capacity, but the ability to deliver energy when
needed!
 Market design needs to allow for business models exploiting alternative
means of flexibility
 The services which these alternative means of flexibility could provide to
the system or individual stakeholders need to be adequately recognized
and rewarded
(2) Development of back-up resources
A whole set of alternative means of flexibility
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Flexible operation
of generation
Energy storage Demand-side
management
Grid & interconnection
(as a vehicle for other
flexibility resources)

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• A multidimensional problem:
• Exchanges are based on a set of institutionally-defined zones (time & space) and borders
• Trade-off: Simplifications & socialisation vs. cost-reflectivity
• As generation gets more variable, finer temporal and spatial granularity get more important:
• Any zone definition (>LMP) will not be adequate 100% of the time, as RES generation fluctuates
• The value of flexibility will only be fully reflected if time products are fine enough
• Not only in electricity markets, also gas markets!
• Price boundaries (cap & floor) will also drive the behaviour of participants at times of
scarcity/abundance if high/low enough.
One product
One priceTime
Location
Balancing
time-unit
Zone definition
x
x
x
Time
Location
x
x
x
Three products
Up to three prices
(2) Development of back-up resources
Need for adequate price-signals

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(2) Development of back-up resources
Need for extra remuneration?
 Typical missing money problem:
Can peak generators get their return from scarcity prices at times of high demand
and low base-load/RES generation? Is there a need for capacity remuneration?
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Source: Matthes et al. (2012)
• Declining profits:
Existing power plants sell at
lower prices for a smaller
number of running hours
– Part of it being temporary:
Overcapacity due to lower
demand / RES development
– Part of it being structural:
Systems with high share of
intermittent RES with zero
marginal cost

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(3) Development of the grid
Challenging volume of investments needed
• … in order to connect new generators and to enforce the existing grid
 A set of four regulatory challenges:
• Coordination among generators and grid operators
• Economic efficiency: Current regulation has been conceived to reduce
costs for the same service. We now want to limit costs for a different
service.
• Financial feasibility: Can grid operators/new players cope with the
wave of investments – without impacting significantly the level of
network tariffs?
• Cost/benefit allocation: How to allocate costs/benefits among
generation and load, as well as among Member States?
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To conclude
The successful integration of intermittent RES requires
• Adaptations of electricity market design for intermittent RES /
conventional generation / backup capacities
• An efficient use and allocation of transport capacity, as well as efficient
grid expansion
RES integration with/versus integrated European market?!
• Patchwork of national regulatory frameworks adapted to local resources…
• … or harmonisation?
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Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
Follow me on Twitter: @JMGlachant
Read the Journal I am chief-editor of: EEEP
“Economics of Energy and Environmental Policy”
My web site: http://www.florence-school.eu