Presentation by David Ritter, MES 2021; Bangladesh / Online, March 4th 2021

1. MODEL-BASED EVALUATION OF DECENTRALISED ELECTRICITY
MARKETS AT DIFFERENT PHASES OF THE GERMAN ENERGY
TRANSITION
David Ritter | MES 2021 | Bangladesh/Online March 4th 2021

2. Decentralised el. markets│Ritter│MES 2021│March 4th 2021
Agenda
1 Motivation and research question
2 Methodology
3 Results
4 Conclusion and discussion

3. Motivation and research question
● Energy transition in Germany leads to a new structure of the electricity production
‒ Small-scale technologies (like PV and batteries), new distributed and localised closer to the
consumers
● Are decentralised markets a consequential and beneficial concept to support the
transformation of the electricity system towards a generation structure based on
decentralised and renewable energy in Germany?
‒ How does the size of decentralised markets influence the effects?
‒ What is the impact if only power plants of a certain size or technology are allowed to take part in the
decentralised markets?
● Main indicators:
‒ CO2 emissions, variable costs, regional self-supply, price differences between regions and
transmission grid extension
Decentralised el. markets│Ritter│MES 2021│March 4th 2021

4. Methodology (1)
● Decentralised markets defined as markets for a defined spatial region
● Market participants: power plants, storage and other flexibility options such as demand side
management.
● Electricity market and grid expansion model PowerFlex Grid EU
● Decentralised markets modelled with a two-step subsidiarity approach
‒ First step: matching regional demand by regional generation using flexibility options
‒ Second step: remaining demand and available generation capacities are matched via the European
internal market
● To achieve ideal result from a market perspective, no grid constraints are considered in the
market modelling.
● Based on the market modelling results, congestion and need for expansion of the German
transmission grid are calculated
Decentralised el. markets│Ritter│MES 2021│March 4th 2021

5. Methodology (2)
Decentralised el. markets│Ritter│MES 2021│March 4th 2021
● 2 energy transition phases:
‒ Level A (≈70% RES-E share)
‒ Level B (≈97% RES-E share)
● 2 sizes of decentralised markets:
‒ 20 regions (Reg.)
‒ 457 areas (Area)
● 3 configuration of authorised participants
‒ All producers (All)
‒ Only small producers (< 20 MW)
‒ Only renewable producers (RES-E)
● Reference case (Ref):
‒ load coverage in a central market, according to
current regulation

6. Results
CO2 emissions and variable electricity generation costs
Level A (≈70% RES-E share)
● Higher emissions and variable costs compared to a central market (Ref); except RES-E
● Biggest effects if all power plants participate
Level B (≈97% RES-E share) only minor differences
Decentralised el. markets│Ritter│MES 2021│March 4th 2021
0
5
10
15
20
25
30
35
40
45
Level A Level B
Variable
costs
[€/MWh]
Ref
All Reg.
All Area
< 20 MW Reg.
< 20 MW Area
RES-E Reg.
RES-E Area
0
20
40
60
80
100
120
140
160
Level A Level B
CO2
emissions
[Mt.]

7. Decentralised el. markets│Ritter│MES 2021│March 4th 2021
● Method:
‒ Share of load covered by regional generation
determined for each regional market area on an
hourly basis
● Level A | All | Reg.: significant increase by
13% points
● No increase if only RES-E participates in
regional markets
‒ RES generation is at the beginning of the merit
order and cannot be further optimised
compared to a central market optimisation
● Level B: high level of self-supply (approx.
98%) in all variants
‒ High RES-E expansion leads to broad regional
distribution of generation plants
Results
Regional self-supply
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Level A Level B
Medium self-supply rates
Ref - All - Reg. All - Area < 20 MW - Reg.
< 20 MW - Area RES-E - Reg. RES-E - Area

8. Decentralised el. markets│Ritter│MES 2021│March 4th 2021
● Main differences for fossil gas
● All | Reg: also hard coal
● Significant change of net export
Results – Zoom into Level A
Electricity generation, RES-E curtailment and storage losses
● RES curtailment and storage losses are at a low
level in the scenario
● Are increased by decentralised markets
‒ Decentralised markets shift RES-E in the merit
order to a later position
‒ Storages are used more often to increase
regional self-supply
-100
-50
0
50
100
150
200
250
TWh
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
RES-E Curtailment Storage Losses
TWh
Ref
All Reg.
All Area
< 20 MW Reg.
< 20 MW Area
RES-E Reg.
RES-E Area

9. ● Considerable price
differences between the
regions
● As a result of RES-E
distribution and electricity
demand
● Low electricity prices in
regions with high RES
potentials or low electricity
demand
● Very high prices in urban
areas and areas with
electricity-intensive
industries
Decentralised el. markets│Ritter│MES 2021│March 4th 2021
Results – Zoom into Level A
Price spread
Price spread wholesale prices
Scenario Level A
All – Area

10. 0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
5.000
Transmission
grid
expansion
[km]
Ref
All Reg.
All Area
< 20 MW Reg.
< 20 MW Area
RES-E Reg.
RES-E Area
Results – Zoom into Level A
Grid congestion before expansion and transmission grid expansion
● Grid congestion can be reduced by about max. 15 %
● Permitting only small power plants reduces the effect
significantly
● If only RES-E allowed grid congestion is roughly at
reference level
Decentralised el. markets│Ritter│MES 2021│March 4th 2021
0
20
40
60
80
100
120
140
160
180
200
Cumulated
grid
congestion
[TWh]
● Grid expansion needs roughly at the same level in all
cases
● A reduction in annual grid overload does not
necessarily lead to a reduction in peak load and the
grid expansion required as a result.

11. Conclusion and discussion
Conclusion
● In the configuration studied, negative effects (higher CO2 emissions, variable costs and price spreads) of
small scale markets compared to status quo predominate
● They can be mitigated if fossil power plants are excluded from those markets; then only very small effects
(pos. and neg.) can be observed
● Decentralised markets can temporarily increase the degree of regional self-supply
● No significant reductions of transmission grid needs observed
Discussion
● The differences of wholesale prices between regions might be reduced if additional RES-E capacities are
deployed in high price regions, but only if potentials are available
● The analysis focusses on a system perspective and does not include effects for market players.
● Dynamic effects such as a possible effect of decentralised markets on the overall deployment of RES-E
technologies or storage systems is therefore not part of the analysis.
● The results are valid for the German electricity system with a relatively strong electricity grid and high
interconnection to neighbouring countries
Decentralised el. markets│Ritter│MES 2021│March 4th 2021

12. Decentralised el. markets│Ritter│MES 2021│March 4th 2021
Thank you for your attention!
David Ritter
Senior Researcher
Oeko-Institut e.V.
Energy & Climate Division
Office Freiburg
Phone: +49 761 45295-280
E-Mail: d.ritter@oeko.de