peter styles p.styles@efet.org peter styles istanbul, 8 th march 2011 european federation of energy...
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Peter StylesP.Styles@efet.org
Peter StylesIstanbul, 8th March 2011
European Federation of Energy Traders
Prospects for Integrating and Trading Renewable Energy
Resources: Lessons from the European
Electricity Market
Workshop on Integration and Cross Border Trade of Renewable Energy Resources in Regional Transmission Networks8 March, 2011Istanbul
1
Peter StylesP.Styles@efet.org
Peter StylesIstanbul, 8th March 2011
European Federation of Energy Traders
Prospects for Integrating and Trading Renewable Energy
Resources: Lessons from the European
Electricity Market
Workshop on Integration and Cross Border Trade of Renewable Energy Resources in Regional Transmission Networks8 March, 2011Istanbul
2
Europe without borders
(by night)
Peter StylesIstanbul, 8th March 2011 3
European electricity production portfolios
NuclearCoalGasOilMix
HydraulicWind
Peter StylesIstanbul, 8th March 2011 4
For electricity:
Supply = demand (constantly!)
Limited storage (except for pump storage in CH and N) Trading optimizes supply according to the location and
time of demand and creates a wholesale tier Cross border wholesale transactions help efficient price
finding over a wider European area Seasonal and diurnal variations in availability of some
production sources reflected in efficient peak pricing
Why is the wholesale market important?
Peter StylesIstanbul, 8th March 2011 5
Thus trading can optimize the market by creating:
Efficiencies across regions and countries
Efficiencies between fuels used in generation (gas, coal, hydro, nuclear, wind, etc.)
Efficiencies by virtue of play of inter-related products
(e.g. weather derivatives; emission allowances;
transmission rights)
Efficiencies through financial markets and derivatives
Efficiencies stimulated by price signals of new products
Why is the wholesale market important?
Peter StylesIstanbul, 8th March 2011 6
Current situation in several EU countries:
Subsidised fixed price paid, independent from the market price of electricity (called “feed-in tariff”)
Preferential access to the grid (now mandatory in EU)
No balancing obligations for renewable generators
Resulting loop flows create artificial grid congestion
Major distortions ensue in the electricity market
Much renewable power output is outside the market
Peter StylesIstanbul, 8th March 2011
Negative prices up to € 3,000 per MWh in central Europe when the wind blows in off-peak hours; occasional price spikes when it does not
Cross-border transmission capacity on congested borders is not allocated in forward timeframes, owing to unpredictability of wind and solar generators’ output
Up to 60% of the electricity market in countries with high renewable generation penetration is effectively foreclosed to exporters inside the EU
Strange effects of the current situation
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Peter StylesIstanbul, 8th March 2011 8
Renewable generation and supply should become part of the electricity market, subject to normal dispatch and balancing mechanisms
Financial support should be granted on a market basis, either through premium payments or (preferably) the establishment of quota and certificate schemes
The renewable attributes of wind and solar power production must become tradable on a cross-border basis
What solutions can ensure better integration?
Peter StylesIstanbul, 8th March 2011
Stylised description of generation costs for existing and new renewable power locations
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Peter StylesIstanbul, 8th March 2011
Quota with certificates ensures adjustment of support to reach renewable target
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Peter StylesIstanbul, 8th March 2011
The European dimension of using certificates to trade renewable attributes of electricity (1)
Geographical flexibility as to the location of new renewable
generation facilities, mediated through market mechanisms would be
an efficient way to lower overall costs of achieving EU renewable
targets
But EU Directive 2009/28/EC excludes the use of market
mechanisms across borders except after the agreement of “joint
projects”
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Peter StylesIstanbul, 8th March 2011
The European dimension of using certificates to trade renewable attributes of electricity (2)
Making certificates issued in countries with quota schemes
eligible for credits in other EU Member States would be a
good step towards a pan-European quota arrangement.
A further evolution could entail the creation of an EU top-up
certificate, redeemable also in countries retaining feed-in
tariffs.
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Peter StylesIstanbul, 8th March 2011 13
100% renewable energy (even just electricity) in the EU in 2050 is not realistic
Gas will not disappear that quickly
Nuclear will stay for a while
Challenge of matching peak demand for electricity with peaking supply if hydrocarbons are excluded
Reality check !
Peter StylesIstanbul, 8th March 2011
What would be the characteristics of the ideal support scheme to expand wind and solar power output
while
enabling integration into grid systems and
safeguarding a well-functioning wholesale electricity
market throughout Europe?
37
Peter StylesIstanbul, 8th March 2011
Financial support consistent with market needs
Market-based mechanisms reduce
costs
Full integration of RES into the electricity market to promote liquidity and transparency
Flexibility to build RES generation where most efficient geographically
Guarantee at EU level that renewable attributes of RES generation are eligible for credits across borders
Transition for older technologies (wind, PV) away from subsidy and towards reliance on the EU ETS
Such mechanisms also facilitate free trade
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Peter StylesIstanbul, 8th March 2011
Quick large-scale RES generation deployment in Europe
will still depend largely on subsidies up to 2020
Subsidies do not have to be purely national and can be
granted through market mechanisms
If market mechanisms and geographic flexibillity are
precluded, costs rise, competition diminishes, and
network congestion management is distorted
Reliance on the price of carbon emission allowances
under the EU ETS may be a better solution post-2020
Conclusions
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Peter StylesIstanbul, 8th March 2011 17
Thank you for attention
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