From Roadmap to Reality Tackling the challenges of the ... · prosperous, low carbon Europe Power Perspectives 2030: on the road to a decarbonised power sector Phase 1 Phase 2 Phase

From Roadmap to Reality – Tackling the challenges of the energy

transition

September 2013

ECF convened ‘Roadmap 2050’ project

Roadmap 2050: a practical guide to a prosperous, low carbon Europe

Power Perspectives 2030: on the road to a decarbonised power sector

Phase

1

Phase

2

Phase

3

Robust technical and economic basis

From Roadmaps to Reality

EC low-carbon 2050 Roadmap

Is the current policy framework adequate?

EC energy 2050 Roadmap

What is the current policy framework?

September 2013 E3G 3

Where are we heading? Will policy framework effectively

deliver policy objective?

Progressive implementation of IEM – outcomes determined by ‘de-centralised’ decisions of market actors

Self secure

Technology targets

Centralised balancing

MS interventions to give more certainty of outcome

Managing policy delivery risks


An effective policy framework will reliably deliver all policy objectives: cost, security and environment

Forcing policy markers to choose represents policy failure (e.g. cost vs environment)

This involves managing risks rather than taking bets – and there are a series of significant risks that could lead to

policy failure

Analysis of policy risks


Risk Area Integrated IEM Central interventions

Technology specific risks ✓ ✓

Network infrastructure ✓ ✓

Supply chain constraints ✓ ✓

Balancing capability ✓ ✓

Policy risk ✓ ✖ ✖ ✓

Planning & permitting ✓ ✖

Cost convergence ✓ ✓ ✖

High carbon lock-in ✓ ✓ ✖

Achieving diversity as cheaply as possible is key

Analyses - cost savings of resource sharing across Europe


European Commission Booz & Co, Imperial College London (Sep 2013), “Benefits of an integrated European Energy Market”: • Integrating the energy markets delivers the largest benefits, up to €40bn

per year by 2030. • Benefits of the integration due to market coupling will be of the order of

€2.5bn to €4bn per year, or about €5 to €8 per capita per year.

ECF Power Perspectives 2030 (2011) Savings for cross-border coordination up to €416bn in the 2020-2030 timeframe.

Others • Mott McDonald, “Impact Assessment on European Electricity Balancing

Market”: • Annual savings of integrating balancing markets up € 3bln per year • Nordic countries integrated markets demonstrate estimated annual

savings of approximately € 221 million. • European Commisson, “Impact Assessment accompanying the legislative

package on the internal market for electricity and gas”, macro-economic benefit of 0,57% GDP after 5 years

• Copenhagen Economics (2007): effects of market opening in electricity will reduce prices for electricity by 13 %

• Many more…

PP2030 – cost opportunity from optimal resource sharing


Total of €416bn in the 2020-2030 timeframe: • 1/3 (€125bn)

capex savings from optimising location of generation assets

• 2/3 (€291bn) opex savings from sharing (conventional) back-up resources and optimising system operation

The Policy Landscape


EU

MS

Administered decisions

Market actors decisions

Active demand side and low carbon

integration

Desire to guarantee outcomes

Cost benefits

of resource sharing

Self- secure

paradigm

Current realities


EU

MS

Administered decisions

Market actors decisions

Current direction of travel is towards

national administered markets

This will increase the risk of policy delivery

failure

The policy challenge


The challenge for EU policy is, therefore, to capture

the benefits of increased market integration whilst

allowing the prudent and, where possible,

coordinated use of central interventions, since both of

these approaches are critical to ensuring that we

have a robust policy framework going forward.

The IEM vision


• Does this challenge imply that we need a new vision for the IEM based around increased centralised administration of outcomes?

• Huge political and policy capital invested in current model

• Revisiting this issue would require strong evidence that the current target model cannot be made to work

• And this evidence does not exist at the moment

• However, it is evident that much needs to be done before Governments can be confident that it will robustly deliver policy objectives without the need for significant intervention

The policy strategy


• Low-carbon technology support

• Capacity/resource adequacy mechanisms

Manage interventions

• Physical interconnection

• Low carbon integration/high carbon disinvestment

• Demand activation

• System Operation

Drive Enablers

ETS, RES support and EPS (1)


• It will take time for investors to build the confidence that policy makers will establish, and stick to, a sufficiently tight emissions cap

• Moreover, technology diversity will be critical in managing cost risks throughout the transition to a decarbonised power system

• Targeted support mechanisms for low carbon technologies (mainly RES) will, therefore, be an essential component of the market for the foreseeable future

• Support mechanisms require targets (cost and/or volume)

• There are huge cost advantages of these targets and support mechanisms are co-ordinated at an EU level and it seems sensible for them to be part of the EU framework out to 2030

• However, to remain compatible with the long term market vision, these mechanisms must be time-limited and ensure that low carbon energy is traded on the power markets

ETS, RES support and EPS (2)


• There are various proposals for structural reform of ETS aimed at stabilising carbon price.

• However, the appropriate objective is that policy makers establish and stick to a sufficiently tight emissions cap – there is no problem with uncertain and volatile carbon prices

• An EPS can provide a clear, long term signal to aid investment and disinvestment planning and there is much experience of designing plant-based regulations to sit within electricity markets without creating additional risks to security of supply.

• There should be no problems with an EPS ‘cannibalising’ the ETS provided that the cap is sufficiently ambitious to take account of the significant carbon abatement opportunities in the power sector

Proposed policy measures (1)


Manage interventions

Low carbon support

EU 2030 RES target

Trade in the market

Separate CCS targets

Capacity mechanisms

Demand reduction and

interconnection in adequacy calculation

Time limited

Equivalent access for demand

response and interconnected

assets

Proposed policy measures (2)


Drive enablers

Physical interconnection

Targets for core

European network

New incentive and

cost-recovery

regulations

Low carbon integration

Ambitious carbon

reduction cap

Pan-EU EPS

Demand response

Enable aggregation

Cash-out prices reflect

market scarcity

System Operation

Fully implement

market coupling

Incentivise SOs not to

take balancing

actions that could be taken by market

participants

Incentivise cost

minimisation within

physical constraints rather than

national borders

Documents

From Roadmap to Reality Tackling the challenges of the ... · prosperous, low carbon Europe Power Perspectives 2030: on the road to a decarbonised power sector Phase 1 Phase 2 Phase