Procuring Flexibility to Support Germany’s Renewables: Policy Options

To continue balancing supply and demand for power is a growing challenge on Germany’s path to producing 80?% of its electricity from renewable sources by 2050. Large-scale investment into a range of technologies will be required to provide the flexibility necessary for balancing. This paper introduces a simple analytical framework to evaluate the German legislator’s numerous efforts to address this challenge. It then proceeds to make two proposals as to how flexibility can be sourced more cheaply. Priority should be given to measures that enable the existing power markets to generate stronger rewards for flexibility. We thus call for financial incentives for variable electricity tariffs to elicit more consumer response and for investment subsidies instead of feed-in tariffs for more demand-oriented renewable power generation. If additional explicit incentives for flexibility are necessary, they can be provided through a market for flexibility.     

Die Marktprämie im EEG 2012: Ein sinnvoller Beitrag zur Markt- und Systemintegration erneuerbarer Energien?

With the share of renewable energies within the electricty sector rising, improving their market integration (i.e. inclusion in the steering and remuneration processes of the electricity market) and system integration (i.e. enhanced responsibility for grid stability) is of increasing importance. To transform the energy system efficiently while ensuring security of supply, it is necessary to increase the alignment of renewable electricity production with short- and long-term market signals. The German Renewable Energy Sources Act 2012 introduced the market premium to provide market experience to renewable plant operators and incentives for demand-oriented electricity production. Shortly after its introduction, the instrument is already being criticised as ineffective and expensive. Building on early experiences, this article examines whether the market premium in its current design improves market and/or system integration, and if it seems suitable in principle to contribute to these aims (effectiveness). Also, potential efficiency gains and additional costs of “administering integration” are discussed (efficiency). While market integration in a strict sense (i.e. exposing renewables to price risks) is not the purpose of the market premium, it has successfully increased participation in direct marketing. However, windfall profits are high, and the benefits of gradually leading plant operators towards the market are questionable. Incentives for demand-oriented electricity production are established, but they prove insufficient particularly in the case of intermittent renewable energy sources. A continuation of the instrument in its current form therefore does not seem recommendable. To conclude, potential alternative solutions are presented.     

Integration erneuerbarer Energien in die deutsche Stromversorgung im Zeitraum 2015�C2020 mit Ausblick auf 2025

The dena grid study II examines the integration of renewable energies into Germany??s electricity supply up to the year 2020 and gives a qualified outlook up to 2025. The study develops geographically differentiated scenarios for installed wind power capacity, on the basis of which time series of the wind power feed-in into high and extra high voltage nodes and offshore wind farms are generated. Future requirements for the transmission grid and grid extension options are analysed. Opportunities to introduce more flexibility in the power system in terms of supply and demand are examined. The study gives a conceptual perspective of the need for grid extension in inner Germany in order to fully integrate renewable energies, whilst operating power stations at optimum cost and exchanging electricity with other countries in response to market demands within the scope of the specified transmission capacities.     

Anforderungen an den konventionellen Kraftwerkspark – wieviel und welche Kraftwerkskapazit?t wird ben?tigt?

The electricity supply system will, particularly in Germany, significantly be determined by the use of renewable energy sources. A?decreasing energetic utilization along with an increasing flexibility demand lead to chancing requirements for the conventional plant fleet. The question arises to what extent conventional generation capacity is needed in the future and if??compared to today??additional technical requirements have to be fulfilled due to the increased flexibility demand. Furthermore it has to be discussed how a required capacity level can be achieved and if??and under which conditions??today??s market design is sufficient or if additional capacity mechanism are necessary. These questions are discussed in this article. The questions as to the required capacity level and the means to achieve it depend on the perspective, which is chosen with respect to security of supply. Choosing a European perspective, i.e. a common responsibility for an appropriate level of security of supply in Europe, additional capacity mechanism are not necessary. Choosing a national perspective, i.e. requiring that national demand can??theoretically??be covered by capacity available in the particular country, does not only significantly increase the necessary amount of generation capacity but also??due to the fact that the electricity market already today is organized on a European rather than a national basis??requires additional capacity mechanisms to cover capacity demand. With respect to the flexibility demand a concerted as well as coordinated acting of the different independent market players is necessary to cover a more volatile residual load. However, there is no additional demand for technical flexibility.     

Perspektiven zur aktuellen Kapazitätsmarktdiskussion in Deutschland

Over the last years, proposals for the implementation of capacity mechanisms in Germany have been published. However, some basic questions have not been answered yet: regarding the need for capacities, the functioning of the energy-only-market and the objective and type of a possible capacity mechanism. The actual need for capacities is an important input factor for capacity mechanisms and crucial to determine whether these are required. Currently, uncertainties prevail due to differing assumptions regarding the capacity credits of renewables and other capacities. Existing studies show highly diverse estimates for capacity needs after 2020. It is also unclear whether the energy-only-market can provide sufficient investment incentives. The current low prices cannot be interpreted as a sign for market failure. They represent overcapacities due to European integration and increasing renewable shares. The mid-term effects of increasing renewable shares on electricity prices still need to be analyzed in detail. At last, the objective of a capacity mechanism is not clear in the German context. This makes the selection of an adequate capacity mechanism and an effective market design more complicated. Furthermore, effects on the energy market need to be considered. Parameterization errors can be expensive. Also, capacity mechanisms do not necessarily guarantee higher investment security. As a consequence, the authors advise against the prompt introduction of a capacity mechanism, especially as the new EnWG guarantees the operation of system-relevant power plants until 2017. Instead, an incremental improvement of the energy-only market and in-depth analysis of the described questions seam necessary.     

Structural separation versus vertical integration: Lessons for telecommunications from electricity reforms

Structural separation between network and retail functions is increasingly being mandated in the telecommunications sector to countervail the market power of incumbent operators. Experience of separation in the electricity sector offers insights for policy-makers considering telecommunications reforms. Despite apparent competitive benefits, the costs of contracting increase markedly when short-term focused electricity retail operations are separated from longer-term generation infrastructure investments (which require large up-front fixed and sunk cost components). The combination of mismatches in investment horizons, entry barriers, and risk preference and information asymmetries between generators and retailers leads to thin contract markets, increased hold-up risk, perverse wholesale risk management incentives, and bankruptcies. Direct parallels in the telecommunications sector indicate exposure to similar complications, intensifying many of the contractual risks arising from regulated access arrangements. Thus, as in electricity, competition between vertically integrated telecommunications providers would likely induce more efficient and sustainable investment and competition than would separation.     

Handel mit Grünstromzertifikaten bei Existenz von Emissionszielen: Gewinner und Verlierer in der EU

Within the development goal for the use of renewable energies in the EU, after the publishing of the directive proposal from the European Commission on January 23, an intensive discussion is taking place as to if and how the trade of green electricity certificates should occur. A motion from the opposition in the Bundestag explicitly asks to favour the proposal. Recently the opinion of the EU parliament was submitted that proposes numerous changes. The present article leaves the discussion of details about the possible organization of such a system and analyses the impacts of a green electricity certificate trade with emission targets on state level. It is shown that with the currently discussed conditions the Member States have few incentives to buy green electricity certificates as the overall costs to fulfil the emission and green electricity targets could rise. The national fulfilment of green electricity targets could therefore be cheaper in an overall view. However, it is unclear if such plans are compatible with the rules of the EU internal market. Therefore there could be “forced losers” among EU member states.     

Negative Strompreise und der Vorrang Erneuerbarer Energien

With the appearance of negative prices a discussion about flaws in the design of the German electricity market arose. We show that negative prices are not only due to the integration of electricity from renewable energy sources. Negative prices can actually increase welfare. Yet, a loss of welfare does arise because of the priority feed-in of these sources. They are inclined to deliver energy even when the cost of production exceeds the market price, i.e. the electricity’s value. We suggest to remove the priority feed-in combined with a modification of the feed-in tariffs. Thereby, renewable electricity producers will suffer no drawbacks but social welfare increases.     

Promotion of Electricity from Renewable Energy in Europe Post 2020—The Economic Benefits of Cooperation

The availability of renewable energies differs significantly across European regions. Consequently, European cooperation in the deployment of renewable energy potentially yields substantial efficiency gains. However, for achieving the 2020 renewable energy targets, most countries purely rely on domestic production. In this paper, we analyze the benefits of cooperation compared to continuing with national renewable energy support after 2020. We use an optimization model of the European electricity system and find that compared to a 2030 CO₂-only target (?40 % compared to 1990), electricity system costs increase by 5 to 7 % when a European-wide renewable energy target for electricity generation (of 55 %) is additionally implemented. However, these additional costs are 41 to 45 % lower than the additional costs which would arise if the renewable energy target was reached through national support schemes (without cooperation). Furthermore, the cost reduction achieved by cooperation is quite robust with regard to assumptions about interconnector extensions and investment cost developments of renewable energy technologies. In practice, however, administrative issues and questions concerning the fair sharing of costs and benefits between the Member States represent major obstacles that need to be tackled in order to reach renewable energy targets at the lowest costs possible.     

中国可再生能源发展战略

首先论述了积极发展可再生能源已成为国内外的共识，发达国家发展可再生能源主要是为了减少温室气体排放，中国发展可再生能源主要是为了可持续发展。其次介绍了中国可再生能源发展的现状及问题，主要困难是可再生能源发电成本过高和市场容量狭小，形成恶性循环：接着介绍了国际社会发展可再生能源的经验，特别重要的是通过法律法规强制可再生能源占有一定的市场。最后提出了到2020年中国可再生能源发电装机容量达到120GW的建议，以及实现这个目标的发展战略和政策措施。     

Cost Recovery in Congested Electricity Networks

Large scale investments in European electricity networks are foreseen in the next decade. Pricing the network at marginal cost will not be sufficient to pay for those investments as the network is a natural monopoly. This paper derives numerically the socially optimal transmission prices for cost recovery, taking into account that electricity networks are often congested, while allowing for market power in generation. The model is illustrated with a Stackelberg game for the Belgian electricity market.     

Who should own a renewable technology? Ownership theory and an application

We investigate the market implications of ownership of a new low-cost production technology. We relate our theoretical findings to measure the impact of renewable energy penetration into electricity markets and examine how the ownership of renewable capacity changes market outcomes (prices, outputs, emissions). As current public policies influence renewable energy ownership, this research provides useful insights for policy makers. We show how and why ownership of renewable capacity matters when there is market power in energy market. We apply our findings to the wholesale electricity market in Ontario, Canada, to analyze the impact of different ownership structures for wind capacity expansions. Using both simulation analysis and empirical analysis of market data, we show that the price-reducing effects of wind expansion are smaller when a larger strategic firm owns new wind capacity. Lastly, we show that the effect of wind ownership on emissions depends on both the amount of generation displaced by wind output and the emissions rate of displaced generation.     

Eine Bewertung der Regelenergievermarktung im Power-to-Gas-Konzept

The integration of the increasing share of fluctuating renewable energy sources into the energy system requires more options in flexibility. A promising attempt is the power-to-gas concept (PtG) which allows the production of hydrogen and synthetic natural gas (SNG) from electricity and the storage in caverns or existing gas storage facilities. However, an economic operation in Germany is not expected before 2030, when the amount of surplus energy, mainly generated in wind parks, will be sufficient. Currently, a hardly analyzed aspect is the potential commercialization of the flexible electrolysis as controllable load on the electricity balancing market. This offers opportunities to generate additional revenues and to obtain cheap electricity in the form of balancing energy. The present article has been designed to analyze this aspect and to examine the impact of a potential commercialization of balancing energy on the gas production costs within the PtG concept. At first, the current legal framework, the funding instruments of SNG and the differences between the notion ‘Speichergas’ and ‘Biogas’ will be outlined. An overview of the current balancing market will be given and the development of prices on the secondary balancing market will be evaluated as well as expected market trends will be presented. The following calculation of gas production costs, which result from applying an optimal proposal strategy on the secondary balancing market, is model-based and uses historical data. Three scenarios are defined and examined, and the impact of variable electricity prices is analyzed. The electricity balancing market is profitable and offers many opportunities for PtG plants. The results show a decrease of SNG production costs by up to 74 % to 46,9 €/MWh. As for the hydrogen, the production costs amount to approximately 25,8 €/MWh which equals a cost reduction of up to 81 % compared to conventional PtG plants without commercialization of balancing energy.     

电力市场环境下发电环节的节能减排

介绍了国内外在发电环节采用的两种节能减排技术,即洁净煤技术和可再生能源发电技术。从政策支持、价格鼓励、税费减免、科研和产业化的促进等多个方面论述了电力市场化改革环境下,发电环节节能减排的政策、法规及发展思路。建议对化石燃料发电征收较高的能源税、CO2税、SO2税以及征收CO2排放费用,增大可再生能源发电配额比例,鼓励私人投资,建立绿色电力发展基金,加快技术和设备的国产化进程等。     

Effizientes Engpassmanagement zur Schaffung eines europäischen Strombinnenmarktes — die Rolle von finanziellen Übertragungsrechten

This paper assesses possible market designs for cross border electricity trading. The methodical approach is to split up and evaluate cross border trading into a long term and a short term perspective in a first step and afterwards reunite the two perspectives to find an optimal market design. Two possible congestion management systems are considered for each timeframe. After establishing test criteria, efficient long and short term congestion management systems are identified. As a next step the optimal solution out of the four integrated market designs is identified. These findings are followed by an analysis of the prerequisites for the implementation of the optimal market design. The paper arrives at the conclusion that the optimal market design for cross border electricity trade depends on the development of the electricity market and needs to be adapted in accordance with the actual maturity of the electricity market.     

实施多种营销策略 扩大电力市场占有率

供电企业营销的4项重点工作是增加销售电量、合理合法执行电价、及时回收电费和加强供电服务,其中增加销售电量扩大市场占有率最为关键。分析了当前制约销售电量增加的主要因素,提出了扩大市场占有率的多种营销策略和途径。     

Price caps with capacity precommitment

We examine the effectiveness of price caps to regulate imperfectly competitive markets in which the demand is uncertain. To that effect, we study a monopoly that makes irreversible capacity investments ex-ante, and then chooses its output up to capacity upon observing the realization of demand. We show that the optimal price cap must trade off the incentives for capacity investment and capacity withholding, and is above the unit cost of capacity. Moreover, while a price cap provides incentives for capacity investment and mitigates market power, it cannot eliminate inefficiencies. Capacity payments provide a useful complementary instrument.     

Markt- und Systemintegration von erneuerbaren Energien im Rahmen der Systemtransformation – Ein Beitrag zur definitorischen Abgrenzung

The reconstruction of the electricity system is one of the main challenges of the German energy transition (Energiewende). The expansion of renewable electricity generation should enable the phase out of nuclear and fossil power generators in the long run. The Renewable Energy Sources Act (Erneuerbare Energien Gesetz) aims at increasing renewable generation up to a share of at least 80?% in gross electricity consumption by the year 2050. There are many possible ways to reach this target. Today, the characteristics of the future energy systems become apparent through the legal framework and long term energy scenarios.Economic, social and regulatory hurdles will need to be overcome to enable the transition of the electricity system. In this context, specific measures are evaluated with respect to their contribution on the system transformation, system integration and market integration. Up until now a consistent framework for evaluating political actions and scientific that should effectively support the energy political objectives is not present. The concepts of power system transformation, power system integration and market integration are differentiated and defined to close this gap. Based on this framework, a practical example is evaluated. The exact definitions will help to objectify the political and scientific debate. Furthermore, it contributes to develop regulatory and market mechanisms.     

Will the Market Get it Right? The Placing of New Power Plants in Germany

This paper applies ELMOD, an economic-engineering model of the European electricity market to the issue of optimal investment placing of generation capacity in Germany under different market integration scenarios. The model is formulated as cost minimization approach. We conduct a scenario analysis comparing different rules for power plant placing in a national, a market-coupling and an integrated EU market approach. We find that there are great benefits for consumers and producers if taking into account network conditions and cross border congestion in generation location planning. Moreover a change from national planning to an integrated market planner perspective shows even more improvements in prices and network utilization.     

Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX

This paper studies the design of power exchanges in liberalized electricty markets. We analyze several pricing rules for day ahead trading and show that a uniform price mechanism has quite desirable properties as compared to its alternatives. We then discuss how the particular cost structure of electricity generation can be accounted for by appropriate bid formats. We moreover analyze the effects of bid caps and price floors in electricity auctions on market performance, as well as several other aspects of electricity market design. In particular, we discuss linkage of independently operating markets for electricity, reserve energy and transmission capacities, coupling of national power exchanges, and the effects of transparency on the outcome of electricity markets.