Creating the Internal Energy MarketThe Role of Wind EnergyPaul WilczekSenior Regulatory Affairs Advisor – Grids and Internal MarketThe European Wind Energy Association

EWEA 201218 April 2012

Can the envisaged EU power market design up to 2014 integrate large amounts of wind power?

Regulatory background: EU target model aims for EU market coupling and the creation of cross-border electricity markets at all timescales by 2014.

Energy-only market• Generators’ revenues

solely by selling power

• Volatility of prices• System adequacy

determined by scarcity prices– Demand response– Investments in

generation

Wind energy characteristics• Variable• Limited predictability• Geographically

dispersed• Reduced capacity

credit at large penetration

• Existence of imperfect power markets– Design– Regulatory implementation

• Unfinished liberalisation -> Existing market distortions– Market concentration– Regulated prices– Market uptake and integration historically

“voluntary”

Ongoing liberalisation and market integration efforts are promising, but…

• Market rules in place not considering RES-E uptake

Overall market liquidity vs. biltateral trading remains low

Day Ahead Market integration – encouraging results so far in central western Europe• Convergence of prices

• Reduced price volatility• Better use of interconnection capacity

FR=DE

FR=BE

BE=NL

NL=DE

FR=NL

BE=DE

FR=BE=NL

FR=BE=DE

FR=NL=DE

BE=NL=DE

FR=BE=NL=DE

0%

20%

40%

60%

80%

100%

120%

68%

98%

78%85%

78%69%

78%68% 68% 68% 68%

Average Nov-10 to Apr 2011

Day Ahead Market integration – Impacts for wind power

• Aggregation of wind power forecasts from different control zones

• Competition in different markets with a common merit order

– MOE wind energy

Source: EWEA

Source: IEA Wind, Task 25

Intraday Market integration – much slower pace• Still far from enabling RES integration

– Functioning Intraday Markets are the exception, not the rule across Europe

– National intraday markets uptake is necessary first

• Target model appraoch: continuous trading with implicit auctions– Design features “left out” from Target model such

as e.g. gate closure timing and interactions with balancing markets

– Design features need to consider • Liquidity measures • Harmonisation between countries and regions• Interactions with balancing markets

Balancing Market integration – a white page so far

• Technical differences of services and concepts across Europe is a challenge for market integration.– Current discussion focuses so far only on

manually activated reserves • Possible roadmap:

– Harmonisation of gate closures and technical characteristics

– Regional pilot projects with x-b balancing trading– Case by case balancing market development

under TSO consent• ACER FG on balancing and corresponding

ENTSO-E network code only in the making

Why are we talking about capacity markets ?

• Motivation: Ensure investment/development of sufficient capacity

• Variable RES tend to have low contribution to planning reserves

• Variable RES tend to induce lower capacity factors from conventional units.

• Business case for slow-ramping, inflexible power generation assets (typically mid-merit) seems to slip

High share of variable RES tend to increase the need for flexible capacity

Why are we talking about capacity markets ?

Issues:• In theory, CM implementation is easy, in

practise it is very complex • At your peril: further market distortion –

examples of markets gone bad abound• Disincentivise investments in infrastructure and

demand –side management

Issues to be clarified:• Is there a capacity problem in the EU at all?• How much firm capacity do you get from

variable RES in a Pan-european perspective? • How do you eliminate free riders and other

externalities?

Concluding: Market-related issues to be adressed

To be solved on energy-only markets ideally with “no regrets”:

• How can energy-only markets be made suitable for supporting the long term RES policy goals?

• Increased price variability and lower average spot market prices might dampen investors appetite Market transparency and cross-border integration

must be ensured

Provide for more market liquidity and a bigger market place in general

New market forms (e.g. ancillary services) might provide additional revenue stream for generators without creating additional market distortions -> Target Model 2.0 ?

Short term <2014

Long term>2014

Thank you

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