On New Thinking and Designs of Electricity Markets

Reinhard Haas,Hans Auer

doi:10.1007/978-3-658-25987-7_18

Abstract

In recent years increasing shares of variable renewable energy sources (RES) have changed the structure of electricity markets in several countries. The core objective of this paper is to provide insights into the conditions necessary to bring about a more democratic and sustainable electricity system by integrating even larger quantities of variable RES. Our major finding is that a market-based approach would ensure that competitive forces rather than governmental interferences – such as capacity mechanisms – shape the future of the electricity markets. This transition towards a competitive and sustainable future electricity system will be based on an approach of “new thinking” which requires a paradigm shift in the whole electricity system. This includes switching to a more flexible and smarter concept allowing a greater scope for demand participation, storage options and other flexibility measures.

Highlights

For a long time the electricity system has been determined by the generators
Growth rates fell from 10% per year in the 1960s to about 5% in the 1980s and 90s and to almost zero in recent years
Electricity generation from renewable energy sources (RES) will grow, as documented in the National Renewable Energy Action Plans (NREAPs), it is not clear to which absolute level. Another major motivation for this paper is to show what is needed in order to integrate these higher quantities into the electricity system

Summary

Introduction

For a long time the electricity system has been determined by the generators. Until the mid-1990s, and in many countries even longer, large generation companies, which were often highly vertically integrated, dominated the electricity system. In a market with large shares of renewable energy sources the role of conventional capacities will change see e.g. Nielsen et al (2011) This leads to the following categories of presumed “problems”: (i) Prices decrease to Zero or become even negative at a number of days; (ii) a lack in contribution margin to fixed costs for conventional flexible power plants. The fact that the renewable must run capacities are offered at Zero costs over a large time per year have led to the argumentation that fossile plants like CCGT or coal power stations become economically less attractive because of the lower fullload hours per year This argument has led to the call for “capacity” payments in addition to the current “energy-only” markets. We should strive to retain system resource adequacy by ensuring correct price signals and without capacity payment

Every capacity payment reduces the shares of the variable renewables

Findings

Conclusions