Market4RES: Post 2020 framework in a liberalised electricity market with large share of Renewable Energy Sources

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.

The EU Target Model (TM) for EU market integration proposes a market design for the management of cross-border exchanges at each timeframe (i.e. forward, day-ahead, intraday and balancing) and a coordinated approach to capacity calculation:

  1. Forward transmission market: Through a single allocation platform at pan-European level, TSOs should allocate the forecast available interconnection capacity under explicit auctions.
  2. Day-ahead: It is foreseen the implementation of a mechanism (the so called Market Coupling) based on implicit auctions for the cross-zonal capacity allocation, meaning that such capacity is implicitly allocated along with the energy trades negotiated in the respective electricity markets.
  3. Intraday: The Target Model for Cross-Border capacity allocation is implicit continuous allocation (continuous trading).
  4. Cross-border balancing: The long-term perspective is to have Multilateral TSO-TSO mechanism with Common Merit Order for each of the different balancing products defined by the codes (FRRa, FRRm and RR).
  5. Capacity calculation: A European-wide common grid model (EU-CGM) should be established, consisting of the same level of information: coordinated Reliability Margin (RM), coordinated security analysis (capacity assessment and/or flow-based allocation), coordinated curative redispatch measures to guarantee firmness of capacities.

The Market4RES project aims to:

  • Contribute to an open and transparent debate on the potential evolution of the EU Target Model after 2020 with the RES/GHG/EE 2030 targets in mind
  • Identify and recommend steps for the implementation of policy, legislation and regulation across the renewable energy sectors.
  • Identify and recommend concrete steps so relevant market actors can accept and adopt the main results of the project.

The project focuses on electricity market design to support a more efficient integration of renewable electricity (RES-E) into the pan-European electricity system, in line with the 2020 objectives and their follow up towards the 2030 targets.

The Market4RES consortium anticipates that new market mechanisms are needed to complement the Target Model (TM) expected to be fully implemented by 2015. The TM has significant strengths: It will help making the most of existing infrastructures at a European scale. However, crucial concerns remain about the suitability of existing instruments to trigger the new investments required to reach a progressive de-carbonization of the electricity sector in a cost-effective way, while ensuring system adequacy and security of supply.

The Market4RES consortium will address these issues together with relevant stakeholders via two separate work streams:

  1. Assuming the current generation fleet as an input and current implementation status of the target model: The focus is on determining appropriate, yet novel, instruments (and their subsequent accompanying national energy policies) for increased renewable electricity generation in support of the 20/20/20 targets;
  1. Assuming the future generation fleet (beyond 2020) as a result of current market designs, and taking into account possible future changes in market design beyond the existing TM: The focus is on developing necessary additions or complementary instruments to the current design, which will induce investment incentives and phase out RES support schemes in the long term without compromising system adequacy or security of supply.

The first work stream (WS1) will provide specific recommendations on market conditions required for increased RES integration in the existing European electricity system up to 2020. WS1 makes use of the market simulation platform OPTIMATE.

This first work stream should therefore explain which measures in the existing TM would promote the cost-effective development of the electricity system in accordance with the progressive objectives of de-carbonizing the power sector, and achieve EU climate and energy policy targets.

The second work stream (WS2) goes beyond the existing scope of the European target model for electricity trading and looks at the market incentives for electricity generation investment beyond 2020. Massive renewables deployment in current market conditions bring challenges to Member States that differ in nature and magnitude. Over recent years, these challenges have prompted policy responses by some Member States under the form of an additional layer of market design: Capacity remuneration instruments. While some of these instruments meet the general framework put forward by the European Commission when liberalizing the power sector (market-based, technology neutral, etc.), others rely on more administrative approaches like special subsidies for specific generation types, with distortive impacts on the market. It has effects on the way investment decisions are taken by RES and non-RES investors. Moreover, direct support schemes should be phased out in the long term.

These approaches are compliant with European policy guidelines (level playing field, market-based, technology-neutral, etc.), while acknowledging the legitimate responsibility of Member States to implement mechanisms which guarantee security of supply.  

The project addresses the following questions:

  • Adequate options for electricity markets able to aggregate flexible consumption with variable RES electricity production in a cross-border and transnational context, since the increase in volatile production makes the management of the pan-European electricity system more challenging due to fluctuating power flows.

What are the new market rules which can accommodate flexible generationdemand-side management and grid management? Are these design rules able to prevent unwanted power flows? 

  • The expected benefits of new market conditions to accommodate for such flexibility without compromising system adequacy or security of supply:

What are the market incentives which are prone to further increase flexible generation investments?

  • The resulting options which will cost-optimize the overall electricity system while sending the appropriate price signals for investments in flexible generation
  • An implementation roadmap based on recommendations for effective regulations and remuneration regimes of the involved players. Market access is still difficult with the current market design. In the future electricity market, the structure of market players will change with a growing number of distributed power plant operators, whereas electricity consumption becomes “a new player”, with specialized traders without generation assets playing a significant role:

What market designs will allow the involvement of such players?

A consistent approach is ensured by a work flow made of five critical work packages (See Figure below):

  • WP2: What are the challenges from RES-E deployment in a market driven by the TM?
  • WP3: What are the complementary market options appropriate to address RES-E deployment challenges in EU27+?
  • WP4: Quantification of the benefits of a limited set of support options to reach the 2020 RES-E targets more efficiently, while meeting the TM specifications.
  • WP5: Determine the most appropriate options for the additional layer of the TM leading to market incentives, signals and regulatory frameworks in favour of new investments in both RES an non-RES generation, with special focus on RES deployment.
  • WP6: Recommendations and capacity building for optimal options before 2020 and beyond.

Major outputs & expected results:

  • Recommendations for adaptation of existing market conditions for RES-E with regards to the optimization of the European electricity system up to 2020, based on an overview of the opportunities, challenges and risks for RES deployment in an EU integrated market with full TM implementation
  • Proposals for market mechanisms helping the deployment of RES electricity in a cross-border and transnational context, involving further use of the electricity system flexibility: novel instruments (and their subsequent accompanying national energy policies) are compared for renewable electricity generation support schemes to meet the 20/20/20 targets
  • Options and proposals for further cost-optimization of the overall electricity system and the related regulations beyond 2020, with an emphasis on issues faced by each Member State: additions to the current market design affecting directly or indirectly the decisions made by market parties on their new generation investments (but also on whether or not they should retire existing assets)
  • Proposals for implementation plans of the recommended policy, legislation and regulation options across the renewable energy sector
  • Further provisions of non-technological recommendations to the post 2020 horizon,
  • The involvement of relevant market players in the value chain who are ready to adopt/implement the project results

Twelve partners form the Market4RES project consortium, under the overall coordination of SINTEF:

  • EWEA (BE)
  • TU WIEN – EEG (AT)
  • RTE (FR)
  • 3E (BE)
  • EPIA (BE)
  • FOSG (BE) / REN (PT)

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