The creation of a single European electricity market has been moving in a positive direction. The EU Electricity Liberalization Directive agreed by all Member States forms the framework of EU energy policy. The overarching goal is for consumers to benefit from an internal market governed by coordinated rules for the implementation of renewables and development of the electricity network.
A market-oriented European energy system also aims to make the most of different types of power generation and to optimize the costs associated with managing, maintaining and evolving the grid infrastructure.
Naturally, there is still a long way to go in terms of establishing a single market, particularly in terms of the connection and integration of national electricity markets, the physical interconnections between Member States, and the promotion and facilitation of cross-border market-balancing. The same is true for the coordination of investment in generation, transmission and storage capacity. A further challenge in taking these goals forward are EU targets in other areas such as climate change and energy security.
Is Europe caught in a Catch 22?
Ensuring energy independence at the same time as building greater interconnectivity between Europes energy markets may seem like a catch 22 when seen at a national level. But this is not the case when considered from an EU perspective. To sustain the increasing penetration of renewables, Member States must consider their national energy independence criteria in the context of a single European energy market.
The alternative to building greater interconnectivity and a single energy market would be that in each EU Member State a full peak load operative thermal capacity is maintained, or a full peak-load seasonal storage capacity deployed. Both of these options would come at a huge cost, whereas the rapid deployment of long-distance electricity transmission and interconnectivity also known as the EU super-grid is an efficient and cost-effective way of accommodating the rapid expansion of renewables across Europe.
To ensure grid stability in the future power market, renewables need to contribute to security of supply just as fossil fuel operators need to contribute to climate protection. This could be achieved by renewables supporting the efficiency of the overall system by being traded together with stable forms of generation and specifically in combination with efficient fossil fuel generation. The market would also need to factor in the cost of increased intermittency.
The experience in Germany however, has demonstrated that the incentives for renewables can be overgenerous and distort investment. The rules governing the internal market will have to be considered carefully, especially in a context of flat or even decreasing electricity demand.
An important test bed (and its important problems)
The energy market in Germany has proved a true test bed given the numerous changes it has witnessed recently in terms of policy implementation. In the past two years, the country has taken the decision to exit nuclear generation, whilst moving to an ambitious penetration target of 70 GW of renewable comprising wind and solar PV capacity.
The consequences of these policies have seen structural imbalances in the transmission network from North to South, the mothballing of combined cycle gas turbine (CCGT) assets (some of which were new), a drop of 30% in base-load electricity price, and consumer electricity bills that are more than 50% higher than the average EU domestic kWh price.
The main lesson learned from the experience in Germany is that the energy sector requires a long term strategy given that it is asset- and capital-intensive. As such, it requires a stable policy framework. It will be interesting to observe how Germany will restore stability and confidence in its electricity market fundamentals while maintaining industrial competitiveness, keeping consumers onside, and achieving its target of a 40% reduction in CO2 emissions by 2020 relative to 1990 combined with 35% renewable penetration as share of electricity.
Even playing field
Governments can help by providing long-term and stable regulation that creates an even playing field for all decarbonized power generation solutions. It must be based on the true cost of dependable electricity supply. They should also provide for visibility on renewable penetration goals, the efficiency improvement and carbon reduction objectives. Furthermore, politicians must look to redress the EU ETS market, which is currently failing to provide a meaningful CO2 price.
The Europe power market today is being held back by a number of recurring questions around regulation, scalability and replicability. Investment in the new grid will require new business models, which will emerge from the demonstrators and pilot projects around Demand Response, storage, and distribution control currently underway. Alstom for example, is already actively participating in such projects.
Certainly, the challenges that have to be addressed namely competitive electricity, reduced environmental footprint and energy security require urgent action. We dont yet have all the tools in place to incentivise and deliver all the changes in investment needed, at the necessary pace.
Source: Smart Grid News
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