RE-POWERING MARKETS Market design and regulatin during the transitin t lw-carbn pwer systems Manuel Baritaud Bruegel Brussels, 24 February 2016
Pwer markets must evlve t facilitate a lw-carbn transitin Cmpetitive electricity markets are being challenged by the need t decarbnise A pwer market transfrmatin is already underway Demand is stagnating in OECD Eurpe Renewables met 62% f grwth in capacity in OECD Eurpe since 2000 New technlgies prgressing (smart grids, demand respnse, strage) Electricity security is becming mre critical The massive investments required call fr an imprved market framewrk
Key dimensins f market framewrk fr decarbnisatin Objective Plicy Type f regulatin Cmpetitive markets Lw-carbn investments Carbn pricing Additinal plicy: Supprt schemes Carbn regulatin Lw-C lng-term supprt Carbn price (trading scheme) Lng-term cntracts Auctins set supprt level Integratin in markets Operatinal efficiency / Reliability and adequacy Netwrk efficiency Shrt-term energy markets Additinal plicy: Capacity markets Regulatin Market rules Scarcity pricing Reliability standards Reginal planning Netwrk cst allcatin Energy prices with a high gegraphical reslutin Energy prices with a high tempral reslutin Dynamic pricing ffers Capacity requirements Capacity prices Demand respnse Demand respnse prduct definitin participatin Cngestin revenues Transmissin auctins Cnsumptin Retail Netwrk tariff structure Retail cmpetitive prices pricing Taxatin and levies Distributed resurces
Billin dllars (2014) Lw-carbn pwer and netwrks require the largest investment Pwer-sectr cumulative investment by type, 450 Scenari, OECD Eurpe, 2015-2040 1 800 1 600 1 400 1 200 1 000 800 600 400 200 0 Oil 2 Gas 116 Cal 85 348 Other 98 Bienergy 126 Hydr 143 Slar 357 Wind 852 Distributin 674 Transmissin 184 Fssil Fuels Nuclear Renewables T&D Massive investment needed during the transitin will take place in cmpetitive markets. Their design is key fr decarbnisatin while ensuring electricity security.
MW Cmpetitive electricity markets are being challenged by the need t decarbnise 60 000 Capacity additins in OECD Eurpe by technlgy, 1960-2014 Start f industry restructuring 50 000 40 000 30 000 20 000 10 000 0 1960 1970 1980 1990 2000 2010 2014 Massive investments needed during the transitin will take place in cmpetitive markets. Their design is key fr decarbnisatin while ensuring electricity security.
GW Current whlesale prices and lng-term risks call fr cntinuing supprt Renewable capacity built by supprt instruments, OECD Eurpe, 2005-14 180 160 140 120 100 80 60 40 20 0 FiTs TGCs Fixed Feed-in Premiums Variable FiPs Grants Tax schemes Nt supprted Nt expsed t energy price risk Expsed t energy price risk Nt supprted Lng-term arrangements are still needed t make up the difference in lw-carbn generatin csts and t keep financing csts lw fr capital-intensive investments.
Lad Lad level level (GW) (GW) Lad level (GW) Integrating high shares f wind and slar 80 70 New peratinal requirements with high shares f renewables (data fr Germany using scaled wind data) 80 60 80 70 50 70 Cntributin 60 40 t peak demand 60 50 30 50 40 20 40 30 10 30 200 Frecast errrs 20 1 10 20 30 40 50 60 70 80 90 100 110 120 130 140 10 Ptential Hurs 10 ver-generatin 0 0 1 10 20 30 40 50 60 70 80 90 100 110 120 130 140 1 10 20 30 40 50 60 70 80 90 100 110 120 130 140 Hurs Hurs Larger ramps 20% Lad Net lad with 20% f wind energy in the generatin mix 20% 20% Lad Lad Surce: Adapted frm IEA (2014) THE POWER OF TRANSFORMATION Participatin int markets prvides an imprtant feedback lp by revealing the value f different lw-carbn technlgies.
When and where t perate and invest? Markets prices with a high gegraphical and tempral reslutin can prvide incentives fr efficient and secure crdinatin f mre cmplex pwer resurces
Capacity mechanisms: are they needed? Simplified decisin tree: energy-nly market versus capacity mechanism Getting scarcity prices right during capacity shrtage is a pre-requisite but capacity mechanisms are increasingly used t create a safety net during the transitin.
Netwrk average price (AUD per kwh) Netwrk regulatin Future rganisatin f the pwer sectr Netwrk tariff develpment in Australia 0.25 0.20 0.15 0.10 0.05 0.00 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 SA Pwer Netwrks (SA) Ausgrid (NSW) Endeavur Energy (NSW) Essential Energy (NSW) CitiPwer (VIC) Jemena (VIC) Pwercr (VIC) SP-Ausnet (VIC) United Energy (VIC) Decarbnisatin invlves a mdernised regulatry framewrk t accmmdate the deplyment f renewables and distributin distributed energy resurces
USD/kWh Mdernizing retail tariffs Cst cmpnents and tariff structure f selected retail electricity prices (average fr Paris, Berlin and Amsterdam) 100% 90% VAT 21% Fixed 7% 80% 70% 60% 50% 40% Levies and taxes 19% Netwrk and metering 26% Variable 93% 30% 20% 10% Energy 35% 0% Csts cmpnents Tariff structure Prices have t better reflect the underlying level and structure f csts in rder t induce efficient investment in slar PV and batteries n the cnsumer side.
Cnclusin: Re-pwering markets Decarbnisatin f the pwer sectr is frcing a rethinking f electricity market design Incremental changes re-pwering - can facilitate the transitin: Shrt-term markets with detailed and transparent infrmatin n when and where t perate and invest Cnsistent framewrk fr lw carbn supprt, CO2 pricing and markets Electricity security requires reliability standards and pricing scarcity right, with capacity mechanisms prviding an additinal safety net A cmprehensive market framewrk balances rules set by regulatrs and cmpetitive markets Many recmmendatins are relevant utside Eurpe, including IEA partner cuntries
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