1. BACKGROUND AND PROGRESS REQUIRED BEYOND THE STATE OF THE ART
The unbundling and liberalization of electricity markets in Europe have highlighted one specific characteristic of electricity markets: working rules and the resulting efficiency are very much affected by the technical performance of a given network – at the transmission and distribution levels. The business model of the industry has evolved progressively. TSOs, DSOs, regulators, power producers, suppliers, traders, industrial consumers and RES project developers are playing key roles in delivering an efficient electricity market. Thus, market facilitation involves a multidisciplinary approach to research activities, whereby network operators, manufacturers and economists must cooperate closely in addressing the many barriers that have been currently ascertained.
The Internal Electricity Market (IEM) is an instrument designed to meet the EU energy policy goals. The European Electricity Regulatory Forum (Florence Forum) decided in November 2008 to develop an EU-wide target model (TM) and a roadmap for the electricity EU market integration across regions. A group of experts from the European Commission, regulators, and relevant stakeholders were requested to develop a practical and achievable Electricity Target Model for the harmonisation of Capacity allocation and Congestion management (CACM) at EU level. The TM aims at greater harmonization across Europe that should lead to an integrated SEM.
The focus areas of implementation have so far dealt with a flow-based (FB) transmission capacity allocation method in highly meshed networks, a European platform for the allocation and nomination of long-term transmission rights, a single European market coupling mechanism for day-ahead capacity allocation, the design of cross-border continuous trading for intraday capacity allocation and the development of cross-border balancing.
The TM has thus far demonstrated significant benefits as summarized in the figure below : it will help making the most of existing infrastructures at a European scale.
Yet, implementation constraints coupled with interactions between other policy objectives have lately emerged increasing the challenges to fully extract benefits from the TM, especially those related to long-term security of supply. On the one hand, EU market integration faces the challenges of a still on-going liberalization process in many Member States; on the other hand, the challenges related to the new investments required to achieving the de-carbonization targets of the electricity sector in a cost-effective way raise questions about the suitability of the existing market instruments for generation to ensure well-functioning markets.
Several areas of concern have emerged on how to create such markets which deliver the 20/20/20 targets and support the 2050 de-carbonization roadmap, ensuring in particular renewable energy integration and CO2 emissions decrease at a reasonable cost and fair conditions for all market players.
In particular, the progressive phasing out of renewable energy support schemes is on the shelf. Such support schemes, which were indispensable to support wind and solar integration over the last years, are going to become less appropriate while the cost of these technologies progressively decreases. In addition, because of the inherent intermittency of these generation sources, generation investment incentives for flexible generation with regards to long-term security of supply have to be designed. They could be complemented by appropriate instruments to take profit from the opportunities provided by load flexibility through demand response, as well as aggregation and storage.
This also brings regulatory challenges. Adequate investment incentives are needed both for investors and for grid operators to best exploit the benefits offered by these technologies. Improved and integrated balancing mechanisms are mandatory as well as new ancillary services.
Adequate correlation and harmonization between market rules and operational rules must be designed - from day-ahead to real-time - to truly benefit from efficient markets. For instance, market closure conditions (e.g. intraday closure time) could be discussed since they have some impacts on electricity prices and provision of reserves; the features of balancing mechanisms have a direct impact on the potential of load flexibility and aggregated DER through virtual power plants; system services shall be ruled as to compensate the increasing uncertainties in forecasting demand, wind and solar generation.
One of the prerequisites for understanding the new market dynamics at a pan-European level is to model their interactions, taking into account the technical constraints identified in the transmission systems, and to find a way to overcome them. Market simulation tools are therefore needed. In particular, growing uncertainties both in demand and RES generation call for developing novel forecasting tools .
Because of the uncertainties of generation patterns and cross-border flows in a liberalized market with massive renewable energy integration, novel capacity calculation methods are also needed. Regardless of the capacity calculation method and allocation approach used, TSOs and regulators should use risk assessment methods to control the economic costs derived from counter-trading measures.
Finally, in liberalized markets involving many different players, the modelling of market players’ behaviour is necessary to design adequate rules allowing for optimizing the overall system efficiency.
2. OUTCOMES PROVIDED BY THE PROJECTS THAT ADDRESS THE CHALLENGES OF THE CLUSTER
A. The TWENTIES project
TWENTIES focused on large scale integration of several critical technologies required to improve renewable electricity integration into the pan-European network. Large scale deployment and grid connection of offshore wind power studies provided with valuable inputs when investigating issues regarding how offshore wind parks would be handled in day-ahead market coupling.
B. The OPTIMATE project
OPTIMATE aimed at developing a market simulation tool with the goal to cope with massive renewable energy integration into the EU network. The OPTIMATE simulation platform captures the effect of variants in market designs related to EU market integration (capacity allocation and congestion management), operational rules and market instruments for generation and load. It also captures the retro-action of these variants on market players' behaviour.
C. The REserviceS project
REserviceS (Economic grid support from variable renewables) is the first study to investigate wind and solar based grid support services at EU level. It will provide technical and economic guidelines and recommendations for the design of a European market for ancillary services, as well as for future network codes within the Third Liberalisation Package.
D. The Market4RES project
The aim of the IEE-EU project Market4RES is to investigate the potential evolution of the EU electricity Target Model in order to secure the European power system decarbonisation with large amounts of renewables.
 Thomas Tillwicks, ‘The European Target Model – Does it fit for the future?”, 5th Annual Energy Trading Week, April 15th 2013