Peter Styles [email protected] Peter Styles Istanbul, 8 th March 2011 European Federation of Energy Traders Prospects for Integrating and Trading Renewable

Peter [email protected]

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

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Peter [email protected]


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


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?


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?


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


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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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?


Stylised description of generation costs for existing and new renewable power locations

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Quota with certificates ensures adjustment of support to reach renewable target

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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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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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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 !


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?

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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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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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Thank you for attention

Documents

Peter Styles [email protected] Peter Styles Istanbul, 8 th March 2011 European Federation of Energy Traders Prospects for Integrating and Trading Renewable