An energy system with large fluctuations in power supply must do everything to balance supply and demand.

Germany’s power system faces major challenges as a result of the energy transition. The country’s electricity mix has already changed a lot and renewable energy sources today already account for 25 percent of electricity production. Wind power and photovoltaic systems, in particular, are becoming pillars of the future electricity system. The system will have to cope with large amounts of volatile or fluctuating electricity being produced in ways beyond its control. As a result, flexibility will become a central tenet of the new electricity system.

At times, wind and solar plants alone will produce more electricity than is needed. At other times, these sources will be hard pushed to contribute anything to cover electricity demand. As a result, the demand for residual capacity – conventional power plants held in reserve – will be less uniform than before. Remaining conventional power plants will have to deal with more frequent and extreme load changes.

Peak times in demand for residual capacity (when low output of wind and solar power coincides with high demand for electricity) will require flexible electricity producers, storage units and electricity imports. But flexible electricity customers will also have an important role in reducing their consumption and helping to bring supply and demand into balance. Conversely, off-peak demand for residual load capacity (when high output of wind and solar power coincides with low demand for electricity) will need to make use of storage units and export electricity, as well as demanding flexible consumption at such times.

In essence, the trick will be to ensure a reliable power supply by matching generation and consumption as much as possible at all times. Competitive markets will make it possible to price electricity in such a way that consumers get an incentive to adapt their long- and short-term electricity needs. This would allow extreme situations with rapid and unexpected load changes to be managed safely. The challenge will be to enable undistorted price signals to encourage the optimal – i.e. least costly – use of all flexibility options on both the supply and the demand side.

As a result, the topic of flexibility encompasses generation technologies from fossil fuel power stations to cogeneration and biomass plants (e.g. reduction of minimum power, acceleration of start times, ramp capability), demand response, technologies that span different sectors, such as the integration of power-to-heat (turning excess electricity into heat), storage techniques and of course the power grids.

Free and fair competition should activate all options that can meet demand most efficiently. The challenge is to create a market and regulatory design that breaks down the barriers on the path to true ??flexibility, and provides a "level playing field" with equitable access to all flexibility options.



Core results

  1. 1

    Renewables will provide 50% of SEE power demand in 2030. The European energy transition is underway.

    By 2030, renewables will account for 55% of power generation in Europe, and 50% of power generation in SEE. Nearly 70% of renewable power in SEE will stem from wind and solar, given the excellent resource potential of these renewables in the region.

  2. 2

    Cross-border power system integration will minimise flexibility needs. Wind and solar pose challenges for power systems due to their variable generation. But weather patterns differ across countries.

    For example, wind generation can fluctuate from one hour to the next by up to 47% in Romania, whereas the comparable figure for Europe is just 6%. Moving from national to regional balancing substantially lowers national flexibility needs. Increased cross-border interconnections and regional cooperation are thus essential for integrating higher levels of wind and PV generation.

  3. 3

    Conventional power plants will need to operate in a flexible manner. For economic reasons, hard coal and lignite will provide less than 25% of SEE power demand by 2030.

    Accordingly, conventional power plants will need to flexibly mirror renewables generation: When renewables output is high, conventionals produce less, and when renewables output is low, fossil power plants increase production. Flexible operations will become an important aspect of power plant business models.

  4. 4

    Security of supply in SEE power systems with 50% RES is ensured by a mix of conventional power plants and cross-border cooperation.

    The available reserve capacity margin in SEE will remain above 35% in 2030. More interconnectors, market integration and regional cooperation will be key factors for maximising national security of supply and minimising power system costs. SEE can be an important player in European power markets by providing flexibility services to CEE in years of high hydro availability.

  1. 1
  2. 2

    The ongoing protests of the Yellow Vests are of the Macron government’s own making.

    Over the last 18 months, the French government has abolished the wealth tax, increased flat-rate social security contributions, reduced housing subsidies and increased the tobacco tax. Taken together with the energy tax increase and a lack of compensation, these measures have contributed to the widening of economic inequalities in French society.

  3. 3

    CO2 taxation is regressive in nature and necessitates the compensation of lower income groups to ensure political stability.

    Like any consumption tax, the CO2 surcharge on energy consumption has a greater effect on low-income households than high-income households in percentage terms. This was also the case in France. A per capita redistri-bution of revenue or other redistribution mechanisms are necessary to balance this.

  4. 4

    For CO2 taxation to be widely accepted, it must be implemented in a reve-nue-neutral manner.

    In France, most of the revenue from the CO2 surcharge on energy taxes was used for consolidating the budget. The contribution climat énergie was therefore not recognised by large parts of the population as a climate protection measure. In addition to so-cial compensation, it is therefore necessary to use the revenues for climate protection measures which are transparent and easily accessible.

From study : The French CO2 Pricing Policy:
  1. 1

    With the growth of renewable energy, France and Germany are facing common challenges regarding the restructuring of their conventional power plant fleet.

    With a renewable electricity target of 40% in France and 65% in Germany by 2030, the two countries will significantly increase their production of wind and solar energy. Their conventional power plant fleet will have to be resized accordingly to avoid stranded costs.

  2. 2

    In France, the targeted development of renewable energy alongside the reinvestment in the nuclear fleet greater than 50 GW would pose a significant risk of stranded costs in the electricity sector

    A nuclear fleet exceeding 40 GW in 2030 would increase the national electricity export surplus and additionally postpone the achievement of the objective of reducing the share of nuclear power to 50% beyond 2030. The profitability of a nuclear fleet greater than 50 GW would not be assured in 2030, even when assuming a 60% increase in French export capacity, a doubling of interconnectors capacity in Europe and a CO2 price of 30 euros per ton of CO2.

  3. 3

    In Germany, achieving climate targets requires a halving of coal-fired power generation and an increase in the national renewable electricity target to at least 60% of electricity consumption in 2030.

    In this case, Germany’s electricity trade balance with its neighbours is balanced. The new planned target of 65% renewable energy in electricity consumption by 2030 will ensure that Germany will not depend on undesired electricity imports while phasing-out coal.

  4. 4
  1. 1

    Existing thermal power plants can provide much more flexibility than often assumed, as experience in Germany and Denmark shows.

    Coal-fired power plants are in most cases less flexible compared to gas-fired generation units. But as Germany and Denmark demonstrate, aging hard coal fired power plants (and even some lignite-fired power plants) are already today providing large operational flexibility. They are adjusting their output on a 15-minute basis (intraday market) and even on a 5-minute basis (balancing market) to variation in renewable generation and demand.

  2. 2

    Numerous technical possibilities exist to increase the flexibility of existing coal power plants. Improving the technical flexibility usually does not impair the efficiency of a plant, but it puts more strain on components, reducing their lifetime.

    Targeted retrofit measures have been implemented in practice on existing power plants, leading to higher ramp rates, lower minimum loads and shorter start-up times. Operating a plant flexibly increases operation and maintenance costs — however, these increases are small compared to the fuel savings associated with higher shares of renewable generation in the system.

  3. 3

    Flexible coal is not clean, but making existing coal plants more flexible enables the integration of more wind and solar power in the system. However, when gas is competing with coal, carbon pricing remains necessary to achieve a net reduction in CO2.

    In some power systems, especially when gas is competing against coal, the flexible operation of coal power plants can lead to increased CO2 emissions. In those systems, an effective climate policy (e.g. carbon pricing) remains a key precondition for achieving a net reduction in CO2 emissions.

  4. 4

    In order to fully tap the flexibility potential of coal and gas power plants, it is crucial to adapt power markets.

    Proper price signals give incentives for the flexible operation of thermal power plants. Thus, the introduction of short-term electricity markets and the adjustment of balancing power arrangements are important measures for remunerating flexibility.

  1. 1

    Short-term markets in Central Western Europe are characterised by a rather inefficient patchwork of flexibility enabling and disabling design elements.

    Some key design elements of intraday and balancing markets as well as imbalance settlement rules distort wholesale power price signals, increasing the cost of providing flexibility. This highlights the need to adjust key market design elements and requires continuous political momentum to coordinate efforts regionally.

  2. 2

    Current market designs are biased against demand side response and renewables.

    Restrictive requirements for market participation, mainly relating to demand response and renewables, constrain the flexibility potential. In the balancing markets, small minimum bid sizes and short contracting periods would be required. A regulatory framework enabling independent aggregation should be implemented for fully tapping the flexibility potential.

  3. 3

    Balancing market rules show large differences across the region, leading to inefficient pricing in preceding day-ahead and intraday markets.

    A joint balancing market design in the PLEF region with short product duration, late gate closure and marginal pricing would enable efficient cross-border competition for flexibility services. Getting the pricing right in balancing mechanisms is important as it support sefficient pricing in preceding day-ahead and intraday markets – where most of the flexibility is traded.

  4. 4

    Cross-border intraday trading needs reform to improve efficiency and enhance liquidity.

    Intraday markets are critical for integrating wind and solar, as they allow for trades responding to updated generation forecasts. Today, explicit cross-border capacity allocation as well as misalignments in gate closure times across the region and differing product durations result in inefficient intraday energy and interconnector capacity allocation. Thus, harmonised rules and improved implicit cross-border allocation methods are needed, e.g. improved continuous trading or intraday auctions.

  1. 1

    The European power system will be based on wind power, solar PV and flexibility.

    The existing climate targets for 2030 imply a renewables share of some 50 percent in the electricity mix, with wind and PV contributing some 30 percent. The reason is simple: they are by far the cheapest zero-carbon power technologies. Thus, continuous investments in these technologies are required for a cost-efficient transition; so are continuous efforts to make the power system more flexible at the supply and demand side.

  2. 2

    Making the Energy-Only Market more flexible and repairing the EU Emissions Trading Scheme are prerequisites for a successful power market design.

    A more flexible energy-only market and a stable carbon price will however not be enough to manage the required transition to a power system with high shares of wind and solar PV. Additional instruments are needed.

  3. 3

    A pragmatic market design approach consists of five elements: Energy-only market, emissions trading, smart retirement measures, stable revenues for renewables, and measures to safeguard system adequacy.

    Together, they form the Power Market Pentagon; all of them are required for a functioning market design. Their interplay ensures that despite legacy investments in high-carbon an inflexible technologies, fundamental uncertainties about market dynamics, and CO2 prices well below the social cost of carbon, the transition to a reliable, decarbonised power system occurs cost-efficiently.

  4. 4

    The Power Market Pentagon is a holistic approach to the power system transformation. When designing the different elements, policy makers need to consider repercussions with the other dimensions of the power system.

    For example, introducing capacity remunerations without actively retiring high-carbon, inflexible power plants will restrain meeting CO2 reduction targets. Or, reforming the ETS could trigger a fuel switch from coal to gas, but cannot replace the need for revenue stabilisation for renewables.

From study : The Power Market Pentagon
  1. 1

    Denmark is one of the first movers in implementing a green energy transition across all sectors, and aims to become independent from fossil fuels by 2050.

    The Danish power system has been undergoing a transformation, moving from a highly centralised to a more decentralised structure in electricity generation. There has been a significant increase not only in wind power but also in distributed generation from combined heat and power plants since the 1980s. Broad-based political agreements on energy policy have provided security for investors while enabling a smooth and continuous transition to a sustainable power sector.

  2. 2

    The Danish energy transition follows an integrated approach that encompasses the electricity, heat and transport sectors.

    The interdependencies among these different sectors are reflected in Danish energy policy goals, in scenario analyses as well as in concrete initiatives for implementing the transition to a renewables based energy system.

  3. 3

    As an early mover, Denmark has already gained substantial experience in the application of tendering schemes for offshore wind energy.

    The Danish tendering scheme is characterised by Contracts for Difference with guaranteed support payments, a guaranteed grid connection and a one-stop-shop authority for  preliminary site assessments when new offshore wind energy projects are developed.

  1. 1

    Denmark is the world’s leader in the deployment of wind power, with 39 percent of electricity consumption supplied by wind.

    The challenge of integrating a high share of wind power led Danish institutions and market participants to develop several flexibility options early on, including use of interconnectors to other countries, increasing the flexibility of thermal power plants, making district heating more flexible, encouraging system friendly wind power, implementing demand side flexibility as well as introducing alternative options for procuring ancillary services.

  2. 2

    Market based power exchange with neighbouring countries is the most important tool for dealing with high shares of wind power in Denmark.

    With 6.4 GW of net transfer capacity to Norway, Sweden and Germany (Danish peak demand: 6 GW), Denmark is able to sell electricity during times of high wind production, and to import electricity in times of low wind production. The use of the 2.4 GW net transfer capacity to Germany is sometimes limited for export depending on the wind conditions in Northern Germany.

  3. 3

    A great deal of attention has been devoted in recent years to the flexibilisation of conventional power plants.

    Danish coal power plants have been optimised to allow very steep ramp-up gradients, shorter
    start-up times and low but stable minimum generation levels. Flexibility in providing ancillary services has further reduced must-run capacity

  4. 4

    Denmark has a large number of combined heat and power (CHP) plants in its power system.

    Regulation has been reshaped to reduce heat bound electricity generation in situations with high wind energy feed-in. In the future district heating systems are envisioned to become electricity consumers rather than producers in times of high wind power production. In spite of changes already adopted to the energy tax system, further regulatory measures are still needed to tap the full potential of using power for heat.

  1. 1

    Wind and solar PV drive power system development.

    As part of Europe’s renewable energy expansion plans, the PLEF countries will strive to draw 32 to 34 percent of their electricity from wind and solar by 2030. The weather dependency of these technologies impacts power systems, making increased system flexibility crucial.

  2. 2

    Regional European power system integration mitigates flexibility needs from increasing shares of wind and solar.

    Different weather patterns across Europe will decorrelate single power generation peaks, yielding geographical smoothing effects. Wind and solar output is generally much less volatile at an aggregated level and extremely high and low values disappear. For example, in France the maximum hourly ramp resulting from wind fluctuation in 2030 is 21 percent of installed wind capacity, while the Europe-wide maximum is only at 10 percent of installed capacity.

  3. 3

    Cross-border exchange minimises surplus renewables generation.

    When no trading options exist, hours with high domestic wind and solar generation require that generation from renewables be stored or curtailed in part. With market integration, decorrelated production peaks across countries enable exports to regions where the load is not covered. By contrast, a hypothetical national autarchy case has storage or curtailment requirements that are ten times as high.

  4. 4

    Conventional power plants need to be flexible partners of wind and solar output.

    A more flexible power system is required for the transition to a low-carbon system. Challenging situations are manifold, comprising the ability to react over shorter and longer periods. To handle these challenges, the structure of the conventional power plant park and the way power plants operate will need to change. Renewables, conventional generation, grids, the demand side and storage technologies must all become more responsive to provide flexibility.


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