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

IET – International Energy Transition

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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.

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Features of wind and PV

• 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

• 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

Electricity demand and renewable power generation in 2022

Many electricity markets will be determined by wind and solar PV

Source: Agora Energiewende 2012

Electricity demand and renewable power generation in 2022

Many electricity markets will be determined by wind and solar PV

Source: Agora Energiewende 2012

Electricity demand and renewable power generation in 2022

Many electricity markets will be determined by wind and solar PV

Source: Agora Energiewende 2012

Options for increasing flexibility in

electricity systems

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

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Flexibility through grid expansion

and interconnection

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

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

African corridor

countries

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Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf

IRENA’s Africa Clean Energy Corridor

Flexibility from dispatchable

(conventional) power plants

• 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)

• 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

• 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

• 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)

Flexibility from variable renewables

• 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

• 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).

• 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 of Energy and Climate Change, 2011)).

Fixed price FITs

Source: Couture 2010

• 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

• 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

Flexible electricity demand

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

Other sources of flexibility: Power-to-X

• Power-to-transport (EV), power-to-gas, etc.

• Power-to-heat

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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.

Flexibility through storage

technologies

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

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Source: IEA-RETD RE-STORAGE 2015

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

Conclusion and summary

Key takeaways and summary

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• 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

Further reading on market design

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• 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.

Further reading on market design

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• 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.

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!

Backup Slides

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

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.

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

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Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf