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RE-POWERING MARKETS
Market design and regulation
during the transition to low-carbon power systems
EC-IEA Roundtatble on electricity market design and regulation
Brussels, 18 February 2016
© OECD/IEA 2016
Power markets must evolve to facilitate
a low-carbon transition
Competitive electricity markets are being challenged by the
need to decarbonise
A power market transformation is already underway
Demand is stagnating in OECD Europe
Renewables met 62% of growth in capacity in OECD Europe since 2000
New technologies progressing (smart grids, demand response, storage)
Electricity security is becoming more critical
The massive investments required call for an improved
market framework:
Low-carbon investments
Integration of wind & solar power
Capacity markets
Network investments & regulation
© OECD/IEA 2016
Competitive electricity markets are being
challenged by the need to decarbonise
Capacity additions in OECD Europe by technology, 1960-2014
Start of industry
restructuring
60 000
MW
50 000
40 000
30 000
20 000
10 000
0
1960
1970
1980
1990
2000
2010
2014
Massive investments needed during the transition will take place in competitive
markets. Their design is key for decarbonisation while ensuring electricity security.
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Current wholesale prices and long-term
risks call for continuing support
Year-ahead forward market prices (Real price 2015), 2008-15
120
France
EUR/MWh
100
The Netherlands
80
Germany
60
40
20
0
02-01-2008
02-01-2009
02-01-2010
02-01-2011
02-01-2012
02-01-2013
02-01-2014
02-01-2015
Long-term arrangements are still needed to make up the difference in low-carbon
generation costs, and keep financing costs low for capital-intensive investments.
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Integrating high shares of wind and solar
New operational requirements with high shares of renewables
(data for Germany using scaled wind data)
80
70
Load level (GW)
Contribution to
peak demand
60
Load
50
2energy in the generation mix
Net load with 20% of wind
Larger
ramps
40
30
Forecast
errors
20
Potential
over-generation
10
0
1
10
20
30
40
50
60
70
80
Hours
90
100 110 120 130 140
Source: Adapted from IEA (2014) THE POWER OF TRANSFORMATION
Short-term markets can unlock flexibility for efficient and secure system operations,
and reap benefits of demand response, storage, flexible generation and networks.
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When and where to operate and invest?
Markets prices with a high geographical and temporal “resolution” can provide
incentives for efficient and secure coordination of more complex power resources.
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Capacity mechanisms: are they needed?
Neighbouring capacity mechanisms in North-West Europe
Getting scarcity prices right during capacity shortage is a pre-requisite, still capacity
mechanisms are increasingly used to create a safety net during the transition.
© OECD/IEA 2016
Low-carbon power and networks
require the largest investment
Power-sector cumulative investment by type,
450 Scenario, OECD Europe, 2015-2040
1 800
1 600
Other 98
Bioenergy 126
Hydro 143
Billion dollars (2014)
1 400
1 200
Solar 357
1 000
800
600
400
200
0
Wind 852
Oil 2
Gas 116
Coal 85
348
Fossil Fuels
Nuclear
Distribution 674
Transmission 184
Renewables
T&D
Source: WEO
Decarbonisation involves both capital-intensive investments and a modernised
regulatory framework for transmission and distribution networks.
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Modernizing retail tariffs
Cost components and tariff structure of selected retail electricity prices
(average for Paris, Berlin and Amsterdam)
100%
90%
Fixed 7%
VAT 21%
80%
USD/kWh
70%
60%
50%
40%
Levies and taxes
19%
Network and
metering
26%
Variable
93%
30%
20%
10%
0%
Energy
35%
Costs components
Tariff structure
Prices have to better reflect the underlying costs level and structure in order to
induce efficient investment in solar PV and batteries on the consumer side.
© OECD/IEA 2016
Conclusion: Re-powering markets
Decarbonisation of the power sector is forcing a
rethinking of electricity market design
Incremental changes – re-powering - can facilitate the
transition:
Short-term markets with detailed and transparent information on
when and where to operate and invest
Consistent framework for low carbon support, CO2 pricing and
markets
Electricity security requires reliability standards and pricing scarcity
right, with capacity mechanisms providing an additional safety net
A comprehensive market framework balances rules set
by regulators and competitive markets
Many recommendations are relevant outside Europe,
including IEA partner countries
© OECD/IEA 2016
Thank you
http://www.iea.org/topics/electricity/publications/re-poweringmarkets/
© OECD/IEA 2016