Electricity Market Design under

Long-Term Decarbonisation

Paris, 8 October 2014

David Hunter, EPRI
Manuel Baritaud, IEA
OECD/IEA 2014

IEA Electricity Security Advisory Panel (ESAP)

Launched in 2014: 1st High Level Plenary meeting in June 2014
Set up a working group on electricity security and market

design
Unique platform for stakeholders (system operators, regulators,

traders, utilities)
Exchange experiences and best practices among IEA countries

Support IEA work programme on Electricity Security an market

design

OECD/IEA 2014

Workshop electricity market design

under long term decarbonisation
Carbon pricing (Cf. IETA-IEA-EPRI workshop)
Challenges in competitive markets
What can we learn from modelling?
What can we learn from experiences

OECD/IEA 2014

Workshop electricity market design

under long-term decarbonisation
Long-term decarbonisation objective: 2050
1

Energy-only
market

Existing
markets

High capex/
low marginal costs

Low load factor

OECD/IEA 2014

Low-carbon
support schemes

Capacity markets

Long term
market design

Unified
framework?

The world faces a challenge

Energys carbon intensity is stuck AND we need to

decouple economic growth from energy use
OECD/IEA 2013

Electricity can power sustainable growth

2011

But the source of electricity is of utmost importance

OECD/IEA 2013

Electricity can power sustainable growth

2011
2050
2DS

The 2DS pathway disconnects primary energy used in

generation from emissions
OECD/IEA 2013

The electricity sector faces an evolving

landscape and many challenges:
Depressed wholesale prices
Environmental & regulatory
policy
New technologies
Influx of natural gas (US)
Intermittent renewables
Distributed generation
Customer requirements
New entrants
Source: FirstEnergy, RWE
2014 Electric Power Research Institute, Inc. All rights reserved.

In detail:
Declining conventional generation revenue
Overgeneration
Little relationship between prices and value/costs

2014 Electric Power Research Institute, Inc. All rights reserved.

Utilities of today challenged by declining

conventional generation revenue. Example: RWE

RWE AG

13-10-2014
08/10/2014

PAGE 10

Overgeneration is the Most Significant Integration

Challenge
Chart shows increasing
overgeneration above 33%
Overgeneration is very
high on some days under
the 50% Large Solar case
Fossil generation is
reduced to minimum levels
needed for reliability
Renewable curtailment is a
critical strategy to maintain
reliability
Reduces overgeneration
Mitigates ramping events

Source: PG&E (with modifications)

33% RPS

40% RPS

50%
RPS

11

The value of variable renewables decreases

with increasing concentration
70%

Solar GW

Solar GW

Fraction of Installed Solar Capacity

Fraction of Installed Capacity

60%

Contribution of solar to EU residual

load curve

50%
50%

100
200

40%
40%

30%
30%

10%

400

300

700
800
900

400
500
600

1000700

10%

800

0%
0%

1000

1000

2000

3000

4000

5000

2000 3000 4000

Sorted Load5000
Hours
Sorted Load Hours

6000

6000

7000

7000

8000

8000

3000

4000

2014 Electric Power Research Institute, Inc. All rights reserved.

5000

6000
12

900
1000

Solars percent contribution to capacity decreases as more is added,

but pricing supports are constant
2000

200

600

underneath =
capacity factor ~ 13%

20%
20%

300
500

underneath =
capacity factor ~ 13%

100

7000

8000

New EU-REGEN model gives key policy

insights
Jointly developed by EPRI and Ifo Institute,
Munich

Scandinavia

Selected model characteristics:

Optimized investment/rental with highresolution dispatch
Renewable resources and load based on
hourly shapes
Continental scope with country-specific
detail and cross-border power flows
Based on US-REGEN model developed with
13 US member companies
Wide range of applications in energy and
environmental policy and technology issues

2014 Electric Power Research Institute, Inc. All rights reserved.

13

Great Britain
Benelux
GermanyEE-NW

EENE

France Alpine
EE-SW
Italy
Iberia

EE-SE

Non-contracted asset
in merchant
environment

Power system

Hybrid
Markets

Contracted asset in
non-merchant
environment

CONSEIL DADMINISTRATION 30/09 & 01/10 2014 - CONFIDENTIEL

EOM & Capacity

Auctions

EOM & Capacity

Payment

PPA

Adapted to sluggish
residual demand.
Capacity remuneration
and price spikes driving
investment in the eligible
assets

Adapted to countries :
-still developing their
power infrastructures,
- governmental
guaranties required
- subsidies for power,
when power is a driver
of health/economic
development
-Security of supply is a
key issue

Regulatory risk

Energy Only
Market (EOM)

Adapted to countries
with fast growing residual
demand. Price spikes
driving economical
investment

Risk that prices wont

enable operators to recover
their costs

Different designs of power systems

The key choice is to decide where we should be sitting on the

carbon pricing vs. direct low carbon support policy spectrum
Policy options

Carbon pricing
solutions

Absolute
Market

Dual
Support

COPYRIGHTPYRY

Support payment
solutions

Coordinated
European
Planning

Building
National
Solutions

FUTURE MARKET DESIGN

8 OCTOBER 2014

15

New renewable support scheme

Market

O&M
costs

Investment costs

Investment
compensation

Low O&M costs

(wind, PV)

Specific Compensation adjustment based

on the current performance of each facility

Specific
compensation
( / year)

Operating
limit

Minimum
equivalent
operating
hours

Equivalent
operating
hours (h)
full load

Auctions Results

Electrical Energy Research Center - CEPEL

Source: CCEE

Who?

Energy

Key takeaways:
The electric grid is part of the solution
Demand side response must be part of the equation

Market design must adapt to new technologies

Available financing depends on risk
Prices need to better align with value
No consensus on more or less market intervention

OECD/IEA 2014