Electricity market trends and designs towards 2020 - 2035: a Smart Grid perspective: SGEM WT 7.2 Report D7.2.1

Research output: Book/ReportReport

Abstract

The report is the deliverable D7.2.1 of the Working Task 7.2 in the 2nd and 3rd funding period in the Smart grids and energy market (SGEM) research programme describing the possible European electricity market development to 2020 and 2035 and how active resources - whose significance are expected to rapidly increase by Smart Grids (SG)- fit in. More intermittent renewables, more real-time measurements, and more active demand side are expected in the future electricity markets. The role of after-spot markets strengthens as flexibility is called for in evolving European electricity markets, but today's intraday and balancing market designs in the EU are far from a fully efficient and harmonized market. In addition to the market integration, there is considerable room to improve market design and accuracy of market signals in Europe. The report looks at different market designs and especially at capacity mechanisms and how active end-users can be integrated into them. The relevant question is if there is any 'bestpractice' market design that can ensure generation adequacy in the long run at least cost while minimising regulatory interference with the market, especially taking into account the changes arising by Smart Grids? Capacity mechanisms - at least traditional implementations - can be seen as alternative or additional methods to tackle the imperfections in the electricity market and to ensure long-term generation adequacy. From the SGEM viewpoint, at least more real-time measurements and a more active demand side have potential to move electricity markets in the direction of ideal markets. From market integration of point of view, a European-wide solution is desirable over national mechanisms, even though there seems to be practical challenges in the implementation of such a scheme due to dispersed system operations etc. and differing local practices and conditions. Modern approaches in design, such as reliability contracts and forward capacity mechanisms, are often referred to as potential directions of further consideration in the EU, while strategic reserves are seen as a more easily implementable option. The modern innovation of capacity subscriptions becomes an interesting option with enhanced real-time metering, a characteristic widely discussed among SG concepts. Generally, the lack of experiences of innovative capacity mechanisms can be seen as limiting their use in practice. Another research focus point of this report is the assessment of the overall demand and supply developments towards 2020 and 2035, with closer attention on the Nordic situation, as the market price of electricity is the key trigger to many smart grid and active end-user advancements. The shale gas revolution in the USA has led to large momentum shift which has pushed the price of coal down and led to its increased use in Europe, and a decrease in gas usage. Now, gas plant owners in Continental Europe are demanding subsidies, especially as their profitability is additionally being eaten by the renewables and the low price of CO2 emissions. Fuel prices are, however, expected to rise towards 2030. Renewable electricity production is increasing rapidly, and will do so also in the future. Conventional fossil condensing power will have a hard time in the future in the Nordic, as new renewable (and some nuclear) capacity pushes it farther and farther up on the merit-order list. Even CHP might experience more serious blows to its profitability. Nordic market prices show RESEARCH REPORT VTT-R-01368-14 2 (66) a tendency to come down in the next ten years and are expected to rise again when we approach the 2030's. Although renewables have a big role in the formation of the future prices, the question of the future of Swedish nuclear will perhaps have a bigger role. Extensive feed-in tariffs and other subsidies can at worst destroy the basic operational premisses of the energy-only markets. Luckily, the Nordic market has still been quite well functioning and although there are danger signs, there is a possibility it will continue so.
Original languageEnglish
PublisherVTT Technical Research Centre of Finland
Number of pages66
Publication statusPublished - 2014
MoE publication typeD4 Published development or research report or study

Publication series

SeriesVTT Research Report
VolumeVTT-R-01368-14

Fingerprint

Time measurement
Profitability
Electricity
Gas plants
Momentum
Innovation
Coal
Power markets
Defects
Gases
Costs
Shale gas

Keywords

  • electricity market
  • market design
  • capacity mechanism
  • smart grid

Cite this

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abstract = "The report is the deliverable D7.2.1 of the Working Task 7.2 in the 2nd and 3rd funding period in the Smart grids and energy market (SGEM) research programme describing the possible European electricity market development to 2020 and 2035 and how active resources - whose significance are expected to rapidly increase by Smart Grids (SG)- fit in. More intermittent renewables, more real-time measurements, and more active demand side are expected in the future electricity markets. The role of after-spot markets strengthens as flexibility is called for in evolving European electricity markets, but today's intraday and balancing market designs in the EU are far from a fully efficient and harmonized market. In addition to the market integration, there is considerable room to improve market design and accuracy of market signals in Europe. The report looks at different market designs and especially at capacity mechanisms and how active end-users can be integrated into them. The relevant question is if there is any 'bestpractice' market design that can ensure generation adequacy in the long run at least cost while minimising regulatory interference with the market, especially taking into account the changes arising by Smart Grids? Capacity mechanisms - at least traditional implementations - can be seen as alternative or additional methods to tackle the imperfections in the electricity market and to ensure long-term generation adequacy. From the SGEM viewpoint, at least more real-time measurements and a more active demand side have potential to move electricity markets in the direction of ideal markets. From market integration of point of view, a European-wide solution is desirable over national mechanisms, even though there seems to be practical challenges in the implementation of such a scheme due to dispersed system operations etc. and differing local practices and conditions. Modern approaches in design, such as reliability contracts and forward capacity mechanisms, are often referred to as potential directions of further consideration in the EU, while strategic reserves are seen as a more easily implementable option. The modern innovation of capacity subscriptions becomes an interesting option with enhanced real-time metering, a characteristic widely discussed among SG concepts. Generally, the lack of experiences of innovative capacity mechanisms can be seen as limiting their use in practice. Another research focus point of this report is the assessment of the overall demand and supply developments towards 2020 and 2035, with closer attention on the Nordic situation, as the market price of electricity is the key trigger to many smart grid and active end-user advancements. The shale gas revolution in the USA has led to large momentum shift which has pushed the price of coal down and led to its increased use in Europe, and a decrease in gas usage. Now, gas plant owners in Continental Europe are demanding subsidies, especially as their profitability is additionally being eaten by the renewables and the low price of CO2 emissions. Fuel prices are, however, expected to rise towards 2030. Renewable electricity production is increasing rapidly, and will do so also in the future. Conventional fossil condensing power will have a hard time in the future in the Nordic, as new renewable (and some nuclear) capacity pushes it farther and farther up on the merit-order list. Even CHP might experience more serious blows to its profitability. Nordic market prices show RESEARCH REPORT VTT-R-01368-14 2 (66) a tendency to come down in the next ten years and are expected to rise again when we approach the 2030's. Although renewables have a big role in the formation of the future prices, the question of the future of Swedish nuclear will perhaps have a bigger role. Extensive feed-in tariffs and other subsidies can at worst destroy the basic operational premisses of the energy-only markets. Luckily, the Nordic market has still been quite well functioning and although there are danger signs, there is a possibility it will continue so.",
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Electricity market trends and designs towards 2020 - 2035: a Smart Grid perspective : SGEM WT 7.2 Report D7.2.1. / Koreneff, Göran; Similä, Lassi; Forsström, Juha.

VTT Technical Research Centre of Finland, 2014. 66 p. (VTT Research Report, Vol. VTT-R-01368-14).

Research output: Book/ReportReport

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AB - The report is the deliverable D7.2.1 of the Working Task 7.2 in the 2nd and 3rd funding period in the Smart grids and energy market (SGEM) research programme describing the possible European electricity market development to 2020 and 2035 and how active resources - whose significance are expected to rapidly increase by Smart Grids (SG)- fit in. More intermittent renewables, more real-time measurements, and more active demand side are expected in the future electricity markets. The role of after-spot markets strengthens as flexibility is called for in evolving European electricity markets, but today's intraday and balancing market designs in the EU are far from a fully efficient and harmonized market. In addition to the market integration, there is considerable room to improve market design and accuracy of market signals in Europe. The report looks at different market designs and especially at capacity mechanisms and how active end-users can be integrated into them. The relevant question is if there is any 'bestpractice' market design that can ensure generation adequacy in the long run at least cost while minimising regulatory interference with the market, especially taking into account the changes arising by Smart Grids? Capacity mechanisms - at least traditional implementations - can be seen as alternative or additional methods to tackle the imperfections in the electricity market and to ensure long-term generation adequacy. From the SGEM viewpoint, at least more real-time measurements and a more active demand side have potential to move electricity markets in the direction of ideal markets. From market integration of point of view, a European-wide solution is desirable over national mechanisms, even though there seems to be practical challenges in the implementation of such a scheme due to dispersed system operations etc. and differing local practices and conditions. Modern approaches in design, such as reliability contracts and forward capacity mechanisms, are often referred to as potential directions of further consideration in the EU, while strategic reserves are seen as a more easily implementable option. The modern innovation of capacity subscriptions becomes an interesting option with enhanced real-time metering, a characteristic widely discussed among SG concepts. Generally, the lack of experiences of innovative capacity mechanisms can be seen as limiting their use in practice. Another research focus point of this report is the assessment of the overall demand and supply developments towards 2020 and 2035, with closer attention on the Nordic situation, as the market price of electricity is the key trigger to many smart grid and active end-user advancements. The shale gas revolution in the USA has led to large momentum shift which has pushed the price of coal down and led to its increased use in Europe, and a decrease in gas usage. Now, gas plant owners in Continental Europe are demanding subsidies, especially as their profitability is additionally being eaten by the renewables and the low price of CO2 emissions. Fuel prices are, however, expected to rise towards 2030. Renewable electricity production is increasing rapidly, and will do so also in the future. Conventional fossil condensing power will have a hard time in the future in the Nordic, as new renewable (and some nuclear) capacity pushes it farther and farther up on the merit-order list. Even CHP might experience more serious blows to its profitability. Nordic market prices show RESEARCH REPORT VTT-R-01368-14 2 (66) a tendency to come down in the next ten years and are expected to rise again when we approach the 2030's. Although renewables have a big role in the formation of the future prices, the question of the future of Swedish nuclear will perhaps have a bigger role. Extensive feed-in tariffs and other subsidies can at worst destroy the basic operational premisses of the energy-only markets. Luckily, the Nordic market has still been quite well functioning and although there are danger signs, there is a possibility it will continue so.

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KW - market design

KW - capacity mechanism

KW - smart grid

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Koreneff G, Similä L, Forsström J. Electricity market trends and designs towards 2020 - 2035: a Smart Grid perspective: SGEM WT 7.2 Report D7.2.1. VTT Technical Research Centre of Finland, 2014. 66 p. (VTT Research Report, Vol. VTT-R-01368-14).