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Key pillars of electricity markets with
high shares of wind and PV
Dr. David Jacobs
Managing Director
IET – International ...
IET – International Energy Transition
2
Dr. David Jacobs
o Founder and director of IET
o 10+ years experience in renewable...
Solutions Center - Background and Vision
The Solutions Center:
 Helps governments design and adopt
policies and programs ...
We connect you to a global network of energy
experts for personalized attention and quick
response technical assistance on...
Ask-an-Expert: Our Experts in Action
• https://cleanenergysolutions.org/expert
5
Features of wind and PV
• High upfront investment (capital
costs)
• Almost zero marginal costs
• Fluctuating supply (depending on
the weather)
0%
...
• High upfront investment
(capital costs) – INVESTMENT
SECURITY is crucial!
• Almost zero marginal costs –
they come FIRST...
Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV...
Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV...
Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV...
Options for increasing flexibility in
electricity systems
Flexibility options for integrating high shares
of wind and PV
1. Flexibility through grid expansion/interconnections
2. F...
Flexibility through grid expansion
and interconnection
Grid extension plans in Germany
 Transport renewable electricity from the
North (onshore and offshore wind) to
the load c...
 Anticipate the future: 10-
year network development plan
from ENTSO-e
 Increasing
interconnections: 10% by
2020; 15% by...
African corridor
countries
17
Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20C...
Flexibility from dispatchable
(conventional) power plants
• Increased ramping requirements and new ramping products
• Upgrade existing power plant in order to allow for better ramp...
• Base load power plants will disappear
(fossil fuel power plants need to
become more flexible)
• Reduce must-run requirem...
• Inflexibility in many power markets stems from long-term
contracts for gas- or coal-fired power producers
• Economic Dis...
• Increased ramping requirements (e.g. hydro)
• Modified finance mechanism for dispatchable renewables (biomass):
• Combin...
Flexibility from variable renewables
• Weather forecasting systems have improved dramatically
• Remaining problem: cloud casting in the case of solar PV
• Gate...
• Grid Codes require wind and PV
to supply reactive power and
support voltage dips (voltage ride-
through capabilities)
• ...
• Previously: Priority dispatch due to fixed
FIT regime
• Ex-post defined premium FIT payments
• Benchmark: Average monthl...
• Negative prices
occur during
periods of high
renewables shares
• IN COMBINATION
with inflexible
conventional
power plant...
• Curtainling RE producers in times of grid
congestions
• Modified grid planning (in Germany),
assuming that not each kWh ...
Flexible electricity demand
Source: IASS Potsdam on the basis of Gobmaier and von Roon 2010
INCENTIVE MECHANISMS FOR FLEXIBLE LOADS ON DAY-AHEAD AND I...
Other sources of flexibility:
Power-to-X
• Power-to-transport (EV), power-to-gas, etc.
• Power-to-heat
31
Source: IASS Pot...
Flexibility through storage
technologies
Storage technologies can facilitate RE
integration in various ways
1. Load shifting
2. Frequency response
3. Reduce grid c...
Storage technologies
• Storage is currently highly dominated by pumped hydro capacity
• „New“ storage technologies are (st...
Conclusion and summary
Key takeaways and summary
36
• Increasing shares of wind and PV increase the need for flexible power systems
• There are n...
Further reading on market design
37
• Pescia, D., et al. (2015). Understanding the Energiewende. FAQ on the ongoing transi...
Further reading on market design
38
• Dragoon, K., G. Papaefthymiou. (2015). Power System Flexibility Strategic Roadmap. E...
Dr. David Jacobs
Founder and Managing Director
IET – International Energy Transition GmbH
Phone: +49 163 233 90 46
E-mail:...
Backup Slides
Distribution and transmission grid
reinforcement
Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20...
Shallow vs. deep connection charging
Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20on%20Synthes...
IRENA’s Africa Clean Energy Corridor
• Communiqué called for an Action Agenda with five main pillars
o Zoning and Resource...
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Future Electricity Markets: key pillars with high shares of wind and PV

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More and more countries world-wide are targeting high shares of wind and solar photovoltaics in their electricity mix. To integrate high shares of these variable renewable energy sources, the electricity system needs to become more flexible in order to balance supply and demand at all times. The webinar will discuss key design features of future electricity markets, including incentives for more flexible fossil-fuel based and renewable-based power generation, modifications to the design of electricity markets, incentives for more flexible demand, and storage options.

Published in: Technology

Future Electricity Markets: key pillars with high shares of wind and PV

  1. 1. Key pillars of electricity markets with high shares of wind and PV Dr. David Jacobs Managing Director IET – International Energy Transition GmbH Clean Energy Regulators Initiative Webinar Programme Leonardo Energy 14 December 2015
  2. 2. IET – International Energy Transition 2 Dr. David Jacobs o Founder and director of IET o 10+ years experience in renewable energy policies o 50+ publications on energy and climate o PhD in renewable energy policies o University lecturer on energy and climate issues at FU Berlin o Focus on sustainable energy policy and market design o Consulting and presentations in 30+ countries around the world o Clients: IRENA, UNEP, BMWi, IEA-RETD, World Bank, OSCE, Ka-Care, etc.
  3. 3. Solutions Center - Background and Vision The Solutions Center:  Helps governments design and adopt policies and programs that support the deployment of clean energy technologies  Has more than 35 partners, including IRENA, IEA, IPEEC, Sustainable Energy for All, Bloomberg New Energy Finance and Leonardo Energy  Is co-chaired by the U.S. Department of Energy and the Australian Department of Industry. 3 The Clean Energy Ministerial (CEM) launched the Clean Energy Solutions Center in April 2011. India Indonesia Italy Japan Mexico South Africa United Arab Emirates United States Australia Denmark FranceCanada
  4. 4. We connect you to a global network of energy experts for personalized attention and quick response technical assistance on strategies, regulations, standards, financial incentives, and deployment programs for a broad range of clean energy sectors and technologies including:  Energy Access  Energy Efficiency  Renewable Energy  Smart Grid  Transportation  Utilities Delivered no-cost assistance for more than 160 requests from over 75 countries. To request assistance, register on http://cleanenergysolutions.org/expert Ask-an-Expert: Our Experts in Action
  5. 5. Ask-an-Expert: Our Experts in Action • https://cleanenergysolutions.org/expert 5
  6. 6. Features of wind and PV
  7. 7. • High upfront investment (capital costs) • Almost zero marginal costs • Fluctuating supply (depending on the weather) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CCGT Coal Nuclear Wind PV OPEX CAPEX Share of fixed versus variable costs of selected power generation technologies Important features of wind and PV
  8. 8. • High upfront investment (capital costs) – INVESTMENT SECURITY is crucial! • Almost zero marginal costs – they come FIRST in the MERIT ORDER! • Fluctuating supply (depending on the weather) – backup needs to be primarily provided by other flexibility options 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CCGT Coal Nuclear Wind PV OPEX CAPEX Share of fixed versus variable costs of selected power generation technologies Important features of wind and PV
  9. 9. Electricity demand and renewable power generation in 2022 Many electricity markets will be determined by wind and solar PV Source: Agora Energiewende 2012
  10. 10. Electricity demand and renewable power generation in 2022 Many electricity markets will be determined by wind and solar PV Source: Agora Energiewende 2012
  11. 11. Electricity demand and renewable power generation in 2022 Many electricity markets will be determined by wind and solar PV Source: Agora Energiewende 2012
  12. 12. Options for increasing flexibility in electricity systems
  13. 13. Flexibility options for integrating high shares of wind and PV 1. Flexibility through grid expansion/interconnections 2. Flexibility from conventional power plants 3. Flexibility from dispatchable RE technologies 4. Flexibility from vRE (wind and PV) 5. Flexible demand 6. Flexibility through storage 13
  14. 14. Flexibility through grid expansion and interconnection
  15. 15. Grid extension plans in Germany  Transport renewable electricity from the North (onshore and offshore wind) to the load centers in the South  Avoid grid congestions and loop flows  Distribution grid upgrade: • Most renewable energy projects in Germany are connected to the distribution grid • High shares of renewables (PV) in Bavarian distribution grids • Bi-directional transformer stations NEP 2013, Stand: Juli 2013 www.netzentwicklungsplan.de
  16. 16.  Anticipate the future: 10- year network development plan from ENTSO-e  Increasing interconnections: 10% by 2020; 15% by 2030  Reducing bottlenecks: The latest report pinpoints about 100 spots  Linking markets: Full market coupling with European neigbours (e.g. one merit order for Germany and Austria). The expansion of the EU transmission grid Source: ENTSO-e 2014
  17. 17. African corridor countries 17 Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf IRENA’s Africa Clean Energy Corridor
  18. 18. Flexibility from dispatchable (conventional) power plants
  19. 19. • Increased ramping requirements and new ramping products • Upgrade existing power plant in order to allow for better ramping capabilities (coal?, nuclear?) Conventional power plant need to become more flexible Source: Milligan et al 2012 (NREL)
  20. 20. • Base load power plants will disappear (fossil fuel power plants need to become more flexible) • Reduce must-run requirements of conventional power plants • Reduced full-load hours for coal and gas-fired power plants • changing economics and additional revenue requirements via capacity markets? • Re-negotiate offtake agreements? Conventional power plant need to become more flexible Source: Agora 2013
  21. 21. • Inflexibility in many power markets stems from long-term contracts for gas- or coal-fired power producers • Economic Dispatch: Power plants are dispatched according to their short-term marginal costs (fuel costs and CO2 costs) • Wind and solar are only dispatched at times of negative prices on the spot market Moving from long-term PPAs to economic dispatch
  22. 22. • Increased ramping requirements (e.g. hydro) • Modified finance mechanism for dispatchable renewables (biomass): • Combination of payment for capacity (MW installed) and electricity (MWh fed into the grid) • Reasoning: reduce operating hours of biogas plants and use them as back-up for wind and solar PV Flexibility from dispatchable renewables Source: DBFZ 2012 (OptFlex Biogas)
  23. 23. Flexibility from variable renewables
  24. 24. • Weather forecasting systems have improved dramatically • Remaining problem: cloud casting in the case of solar PV • Gate-closure times in wholesale marked were move closer to the time of operation (15 minute before operation on intraday market). Improved weather forecasting and renewables friendly market design Source: IEA 2011
  25. 25. • Grid Codes require wind and PV to supply reactive power and support voltage dips (voltage ride- through capabilities) • Allowing RE producers to participate in ancillary services markets (design might need to be modified: minimum bid size, time periods, etc.) Wind and PV can help to stablize the grid Source: Aryanezhad, M., et al. (2013).
  26. 26. • Previously: Priority dispatch due to fixed FIT regime • Ex-post defined premium FIT payments • Benchmark: Average monthly wholesale electricity price for wind and solar • Top-up to the predefined strike price for each renewable energy technology Confronting renewable energy producers with price risk: from FIT to premium FIT (Adapted from Planning our electric future: a white paper for secure, affordable and low-carbon electricity (Department Energy and Climate Change, 2011)). Fixed price FITs Source: Couture 2010
  27. 27. • Negative prices occur during periods of high renewables shares • IN COMBINATION with inflexible conventional power plants (“must run”) From priority to economic dispatch: negative spot market prices
  28. 28. • Curtainling RE producers in times of grid congestions • Modified grid planning (in Germany), assuming that not each kWh produced needs to be transported • Remote-controlled power plants • Curtailing maximum output of RE producers (70% of PV nameplate capacity in Germany) • (Full) compensation of RE producers? Adopting new curtailment rules Source:http://www.photovoltaikforum.com Source: Milligan et al 2015
  29. 29. Flexible electricity demand
  30. 30. Source: IASS Potsdam on the basis of Gobmaier and von Roon 2010 INCENTIVE MECHANISMS FOR FLEXIBLE LOADS ON DAY-AHEAD AND INTRADAY MARKETS Demand response – Examples of flexible load Type Incentives via Load shifting Regular price spreads (e.g. > EUR 50/MWh) Load shedding Occasional, very high prices (e.g. > EUR 1,000/MWh) Load increase Regular low prices (e.g. < EUR 10/MWh) • Lower hanging fruits: Flexibility of industrial consumers
  31. 31. Other sources of flexibility: Power-to-X • Power-to-transport (EV), power-to-gas, etc. • Power-to-heat 31 Source: IASS Potsdam, TPEC Type Storage Application example Load shifting Yes During low-price times an oversized heat pump charges a thermal storage system, which provides the required heat during high-price periods Load shedding No In high-price periods the heat pump is temporarily halted. As a result, the room temperature falls and comfort is compromised. Load increase No Normally, a gas boiler is used to provide heat, but at times when prices are low, an electrical heating rod takes over.
  32. 32. Flexibility through storage technologies
  33. 33. Storage technologies can facilitate RE integration in various ways 1. Load shifting 2. Frequency response 3. Reduce grid congestions 4. Reduce RE curtailment 5. Ramping 33 Source: IEA-RETD RE-STORAGE 2015
  34. 34. Storage technologies • Storage is currently highly dominated by pumped hydro capacity • „New“ storage technologies are (still) expansive flexibility options • The need for new storage depends on the (none-)availability of other flexibility options – backup capacity has to be provided on a system level (not individual plant level! 34 Sources: IEA Technology Roadmap 2014 IEA-RETD RE-STORAGE 2015
  35. 35. Conclusion and summary
  36. 36. Key takeaways and summary 36 • Increasing shares of wind and PV increase the need for flexible power systems • There are numerous flexibility options, including grid expansion, flexible (dispatchable) power plants, flexibility from wind and PV, demand response and storage. • Each region/countries needs to analyze and compare the costs of various flexibility options • Several European countries already integrate high shares of wind and PV into their systems (e.g. 39% in Denmark; 21% in Spain). • Not discussed in this presentation: Security of supply/resource adequacy in markets with high share of wind and PV
  37. 37. Further reading on market design 37 • Pescia, D., et al. (2015). Understanding the Energiewende. FAQ on the ongoing transition of the German power system. Berlin, Agora Energiewende • IEA-RETD. (2015). Integration of Variable Renewables Volume I: Main Report. http://iea-retd.org/wp- content/uploads/2015/01/Report-Volume-I-Main-Report.pdf • IEA-RETD. (2015). Integration of Variable Renewables Volume II: Case Studies. http://iea-retd.org/wp- content/uploads/2015/01/Report-Volume-II-Case-studies.pdf • Aryanezhad, M., et al. (2013). Voltage dip mitigation in wind farms by UPQC based on Cuckoo Search Neuro Fuzzy Controller. Fuzzy Systems (IFSC), 2013 13th Iranian Conference on. • Agora (2012). Erneuerbare Energien und Stromnachfrage im Jahr 2022. Berlin, Agora Energiewende. • Dragoon, K. and G. Papaefthymiou (2015). Power System Flexibility Strategic Roadmap - Preparing power systems to supply reliable power from variable energy resources Berlin Ecofys • Milligan, M., et al. (2015). "Alternatives no more " IEEE power & energy magazine November/December 2015: 78-87.
  38. 38. Further reading on market design 38 • Dragoon, K., G. Papaefthymiou. (2015). Power System Flexibility Strategic Roadmap. Ecofys Report POWDE15750. http://www.leonardo-energy.org/sites/leonardo-energy/files/documents-and- links/strategic_flexibility_roadmap-final-20150915.pdf • IRENA. (2015). The Age of Renewable Power: Designing national roadmaps for a successful transformation. http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=36&CatID=141&SubcatID=642 • Miller, M., E. Martinot, et al. (2015). Status Report on Power System Transformation: A 21st Century Power Partnership Report. NREL Technical Report NREL/TP-6A20-63366. http://www.nrel.gov/docs/fy15osti/63366.pdf • IEA. (2014). The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems. International Energy Agency. http://www.iea.org/bookshop/465-The_Power_of_Transformation. • Cochran, J., Miller, M., et al. (2014). Flexibility in 21st Century Power Systems. 21st Century Power Partnership. NREL Report TP-6A20-61721. http://www.nrel.gov/docs/fy14osti/61721.pdf.Rivier Abbad, J. (2010). "Electricity market participation of wind farms: the success story of the Spanish pragmatism." Energy Policy 38(7): 3174- 3179.
  39. 39. Dr. David Jacobs Founder and Managing Director IET – International Energy Transition GmbH Phone: +49 163 233 90 46 E-mail: jacobs@iet-consulting.com Twitter: @InterEnerTrans Thanks for your attention!
  40. 40. Backup Slides
  41. 41. Distribution and transmission grid reinforcement Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20on%20Synthesis%20of%20Results%20on%20RES- E%20Grid%20Integration%20%28D11%20GreenNet-EU27%29.pdf
  42. 42. Shallow vs. deep connection charging Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20on%20Synthesis%20of%20Results%20on%20RES- E%20Grid%20Integration%20%28D11%20GreenNet-EU27%29.pdf • Who pays for the connection to the nearest connection point? • Who pays for distribution and transmission network upgrades? • Who pays for substation, etc.
  43. 43. IRENA’s Africa Clean Energy Corridor • Communiqué called for an Action Agenda with five main pillars o Zoning and Resource Assessment – to site renewable power plants in areas with high resource potential and suitable transmission routes o National and Regional Planning – to fully consider cost-effective renewable power options o Enabling Frameworks for Investment – to open markets and reduce financing costs o Capacity Building – to plan, operate, maintain and govern power grids and markets with higher shares of renewable electricity generation o Public Information and Awareness – to raise awareness on how the corridor can provide secure, sustainable and o affordable energy 43 Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf

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