This session is part of the Clean Energy Regulators Initiative Webinar Programme. Theme 4 - Integration and Issues for Renewables Module 3: Key pillars of electricity markets with high shares of wind and PV More and more countries world-wide are targeting high shares of wind and solar photovoltaics in their electricity mix. To integrate high shares of these variable renewable energy sources, the electricity system needs to become more flexible in order to balance supply and demand at all times. The webinar will discuss key design features of future electricity markets, including incentives for more flexible fossil-fuel based and renewable-based power generation, modifications to the design of electricity markets, incentives for more flexible demand, and storage options.

1. Key pillars of electricity markets with
high shares of wind and PV
Dr. David Jacobs
Managing Director
IET – International Energy Transition GmbH
Clean Energy Regulators Initiative Webinar Programme
Leonardo Energy
14 December 2015

2. IET – International Energy Transition
2
Dr. David Jacobs
o Founder and director of IET
o 10+ years experience in renewable energy policies
o 50+ publications on energy and climate
o PhD in renewable energy policies
o University lecturer on energy and climate issues at FU Berlin
o Focus on sustainable energy policy and
market design
o Consulting and presentations in 30+ countries
around the world
o Clients: IRENA, UNEP, BMWi, IEA-RETD, World
Bank, OSCE, Ka-Care, etc.

3. Solutions Center - Background and Vision
The Solutions Center:
 Helps governments design and adopt
policies and programs that support the
deployment of clean energy technologies
 Has more than 35 partners, including IRENA,
IEA, IPEEC, Sustainable Energy for All,
Bloomberg New Energy Finance and
Leonardo Energy
 Is co-chaired by the U.S. Department of
Energy and the Australian Department of
Industry.
3
The Clean Energy Ministerial (CEM) launched
the Clean Energy Solutions Center in April
2011.
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6. Features of wind and PV

7. • High upfront investment (capital
costs)
• Almost zero marginal costs
• Fluctuating supply (depending on
the weather)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CCGT Coal Nuclear Wind PV
OPEX
CAPEX
Share of fixed versus variable costs of
selected power generation technologies
Important features of wind and PV

8. • High upfront investment
(capital costs) – INVESTMENT
SECURITY is crucial!
• Almost zero marginal costs –
they come FIRST in the MERIT
ORDER!
• Fluctuating supply (depending
on the weather) – backup
needs to be primarily provided
by other flexibility options
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CCGT Coal Nuclear Wind PV
OPEX
CAPEX
Share of fixed versus variable costs of
selected power generation technologies
Important features of wind and PV

9. Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV
Source: Agora Energiewende 2012

10. Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV
Source: Agora Energiewende 2012

11. Electricity demand and renewable power generation in 2022
Many electricity markets will be
determined by wind and solar PV
Source: Agora Energiewende 2012

12. Options for increasing flexibility in
electricity systems

13. Flexibility options for integrating high shares
of wind and PV
1. Flexibility through grid expansion/interconnections
2. Flexibility from conventional power plants
3. Flexibility from dispatchable RE technologies
4. Flexibility from vRE (wind and PV)
5. Flexible demand
6. Flexibility through storage
13

14. Flexibility through grid expansion
and interconnection

15. Grid extension plans in Germany
 Transport renewable electricity from the
North (onshore and offshore wind) to
the load centers in the South
 Avoid grid congestions and loop flows
 Distribution grid upgrade:
• Most renewable energy projects in
Germany are connected to the
distribution grid
• High shares of renewables (PV) in
Bavarian distribution grids
• Bi-directional transformer stations
NEP 2013, Stand: Juli 2013
www.netzentwicklungsplan.de

16.  Anticipate the future: 10-
year network development plan
from ENTSO-e
 Increasing
interconnections: 10% by
2020; 15% by 2030
 Reducing bottlenecks: The
latest report pinpoints about
100 spots
 Linking markets: Full market
coupling with European
neigbours (e.g. one merit order
for Germany and Austria).
The expansion of the EU transmission grid
Source: ENTSO-e 2014

17. African corridor
countries
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Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf
IRENA’s Africa Clean Energy Corridor

18. Flexibility from dispatchable
(conventional) power plants

19. • Increased ramping requirements and new ramping products
• Upgrade existing power plant in order to allow for better ramping
capabilities (coal?, nuclear?)
Conventional power plant need to become
more flexible
Source: Milligan et al 2012 (NREL)

20. • Base load power plants will disappear
(fossil fuel power plants need to
become more flexible)
• Reduce must-run requirements of
conventional power plants
• Reduced full-load hours for coal and
gas-fired power plants
• changing economics and additional
revenue requirements via capacity
markets?
• Re-negotiate offtake agreements?
Conventional power plant need to become
more flexible
Source: Agora 2013

21. • Inflexibility in many power markets stems from long-term
contracts for gas- or coal-fired power producers
• Economic Dispatch: Power plants are dispatched according to
their short-term marginal costs (fuel costs and CO2 costs)
• Wind and solar are only dispatched at times of negative
prices on the spot market
Moving from long-term PPAs to economic
dispatch

22. • Increased ramping requirements (e.g. hydro)
• Modified finance mechanism for dispatchable renewables (biomass):
• Combination of payment for capacity (MW installed) and electricity
(MWh fed into the grid)
• Reasoning: reduce operating hours of biogas plants and use them as
back-up for wind and solar PV
Flexibility from dispatchable renewables
Source: DBFZ 2012 (OptFlex Biogas)

23. Flexibility from variable renewables

24. • Weather forecasting systems have improved dramatically
• Remaining problem: cloud casting in the case of solar PV
• Gate-closure times in wholesale marked were move closer to the time of
operation (15 minute before operation on intraday market).
Improved weather forecasting and
renewables friendly market design
Source: IEA 2011

25. • Grid Codes require wind and PV
to supply reactive power and
support voltage dips (voltage ride-
through capabilities)
• Allowing RE producers to
participate in ancillary services
markets (design might need to be
modified: minimum bid size, time
periods, etc.)
Wind and PV can help to stablize the grid
Source: Aryanezhad, M., et al. (2013).

26. • Previously: Priority dispatch due to fixed
FIT regime
• Ex-post defined premium FIT payments
• Benchmark: Average monthly wholesale
electricity price for wind and solar
• Top-up to the predefined strike price for
each renewable energy technology
Confronting renewable energy producers
with price risk: from FIT to premium FIT
(Adapted from Planning our electric future: a white paper for secure, affordable and low-carbon electricity (Department
Energy and Climate Change, 2011)).
Fixed price FITs
Source: Couture 2010

27. • Negative prices
occur during
periods of high
renewables shares
• IN COMBINATION
with inflexible
conventional
power plants
(“must run”)
From priority to economic dispatch:
negative spot market prices

28. • Curtainling RE producers in times of grid
congestions
• Modified grid planning (in Germany),
assuming that not each kWh produced
needs to be transported
• Remote-controlled power plants
• Curtailing maximum output of RE
producers (70% of PV nameplate
capacity in Germany)
• (Full) compensation of RE producers?
Adopting new curtailment rules
Source:http://www.photovoltaikforum.com
Source: Milligan et al 2015

29. Flexible electricity demand

30. Source: IASS Potsdam on the basis of Gobmaier and von Roon 2010
INCENTIVE MECHANISMS FOR FLEXIBLE LOADS ON DAY-AHEAD AND INTRADAY MARKETS
Demand response – Examples of flexible
load
Type Incentives via
Load shifting Regular price spreads (e.g. >
EUR 50/MWh)
Load shedding Occasional, very high prices (e.g. >
EUR 1,000/MWh)
Load increase Regular low prices (e.g. <
EUR 10/MWh)
• Lower hanging fruits: Flexibility of industrial consumers

31. Other sources of flexibility:
Power-to-X
• Power-to-transport (EV), power-to-gas, etc.
• Power-to-heat
31
Source: IASS Potsdam, TPEC
Type Storage Application example
Load shifting Yes During low-price times an oversized heat
pump charges a thermal storage system,
which provides the required heat during
high-price periods
Load shedding No In high-price periods the heat pump is
temporarily halted. As a result, the room
temperature falls and comfort is
compromised.
Load increase No Normally, a gas boiler is used to provide
heat, but at times when prices are low, an
electrical heating rod takes over.

32. Flexibility through storage
technologies

33. Storage technologies can facilitate RE
integration in various ways
1. Load shifting
2. Frequency response
3. Reduce grid congestions
4. Reduce RE curtailment
5. Ramping
33
Source: IEA-RETD RE-STORAGE 2015

34. Storage technologies
• Storage is currently highly dominated by pumped hydro capacity
• „New“ storage technologies are (still) expansive flexibility options
• The need for new storage depends on the (none-)availability of other flexibility
options – backup capacity has to be provided on a system level (not individual plant
level!
34
Sources: IEA Technology Roadmap 2014
IEA-RETD RE-STORAGE 2015

35. Conclusion and summary

36. Key takeaways and summary
36
• Increasing shares of wind and PV increase the need for flexible power systems
• There are numerous flexibility options, including grid expansion, flexible
(dispatchable) power plants, flexibility from wind and PV, demand response and
storage.
• Each region/countries needs to analyze and compare the costs of various
flexibility options
• Several European countries already integrate high shares of wind and PV into
their systems (e.g. 39% in Denmark; 21% in Spain).
• Not discussed in this presentation: Security of supply/resource adequacy in
markets with high share of wind and PV

37. Further reading on market design
37
• Pescia, D., et al. (2015). Understanding the Energiewende. FAQ on the ongoing transition of the German power
system. Berlin, Agora Energiewende
• IEA-RETD. (2015). Integration of Variable Renewables Volume I: Main Report. http://iea-retd.org/wp-
content/uploads/2015/01/Report-Volume-I-Main-Report.pdf
• IEA-RETD. (2015). Integration of Variable Renewables Volume II: Case Studies. http://iea-retd.org/wp-
content/uploads/2015/01/Report-Volume-II-Case-studies.pdf
• Aryanezhad, M., et al. (2013). Voltage dip mitigation in wind farms by UPQC based on Cuckoo Search Neuro
Fuzzy Controller. Fuzzy Systems (IFSC), 2013 13th Iranian Conference on.
• Agora (2012). Erneuerbare Energien und Stromnachfrage im Jahr 2022. Berlin, Agora Energiewende.
• Dragoon, K. and G. Papaefthymiou (2015). Power System Flexibility Strategic Roadmap - Preparing power
systems to supply reliable power from variable energy resources Berlin Ecofys
• Milligan, M., et al. (2015). "Alternatives no more " IEEE power & energy magazine November/December 2015:
78-87.

38. Further reading on market design
38
• Dragoon, K., G. Papaefthymiou. (2015). Power System Flexibility Strategic Roadmap. Ecofys Report
POWDE15750. http://www.leonardo-energy.org/sites/leonardo-energy/files/documents-and-
links/strategic_flexibility_roadmap-final-20150915.pdf
• IRENA. (2015). The Age of Renewable Power: Designing national roadmaps for a successful transformation.
http://www.irena.org/menu/index.aspx?mnu=Subcat&PriMenuID=36&CatID=141&SubcatID=642
• Miller, M., E. Martinot, et al. (2015). Status Report on Power System Transformation: A 21st Century Power
Partnership Report. NREL Technical Report NREL/TP-6A20-63366.
http://www.nrel.gov/docs/fy15osti/63366.pdf
• IEA. (2014). The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems.
International Energy Agency. http://www.iea.org/bookshop/465-The_Power_of_Transformation.
• Cochran, J., Miller, M., et al. (2014). Flexibility in 21st Century Power Systems. 21st Century Power Partnership.
NREL Report TP-6A20-61721. http://www.nrel.gov/docs/fy14osti/61721.pdf.Rivier Abbad, J. (2010). "Electricity
market participation of wind farms: the success story of the Spanish pragmatism." Energy Policy 38(7): 3174-
3179.

39. Dr. David Jacobs
Founder and Managing Director
IET – International Energy Transition GmbH
Phone: +49 163 233 90 46
E-mail: jacobs@iet-consulting.com
Twitter: @InterEnerTrans
Thanks for your attention!

40. Backup Slides

41. Distribution and transmission grid
reinforcement
Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20on%20Synthesis%20of%20Results%20on%20RES-
E%20Grid%20Integration%20%28D11%20GreenNet-EU27%29.pdf

42. Shallow vs. deep connection charging
Source: Auer et al. 2007, http://greennet.i-generation.at/files/Report%20on%20Synthesis%20of%20Results%20on%20RES-
E%20Grid%20Integration%20%28D11%20GreenNet-EU27%29.pdf
• Who pays for the connection
to the nearest connection
point?
• Who pays for distribution
and transmission network
upgrades?
• Who pays for substation, etc.

43. IRENA’s Africa Clean Energy Corridor
• Communiqué called for an Action Agenda with five main pillars
o Zoning and Resource Assessment – to site renewable power plants in areas with
high resource potential and suitable transmission routes
o National and Regional Planning – to fully consider cost-effective renewable
power options
o Enabling Frameworks for Investment – to open markets and reduce financing
costs
o Capacity Building – to plan, operate, maintain and govern power grids and
markets with higher shares of renewable electricity generation
o Public Information and Awareness – to raise awareness on how the
corridor can provide secure, sustainable and
o affordable energy
43
Source: http://www.irena.org/DocumentDownloads/Publications/ACEC_Africa%20Clean%20Energy%20Corridor_2015.pdf