Leaked EU power market design document

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The EU is currently discussing how power markets in member states could be redesigned to promote free trade. A leaked draft shows where the discussion is.

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Renewables International

images (1)The EU is currently discussing how power markets in member states could be redesigned to promote free trade. A leaked draft shows where the discussion is.

The document is available online. Below, I attempt to highlight some of the issues. Note that, in the space given here, I cannot properly represent the full document – I am picking out some points that I find troublesome. To be fair, the other parts of the document seem sensible.

The draft states that a new market design “should ensure that electricity is dispatched based on market signals.” We need to start stating more explicitly how exactly we aim to get non-dispatchable wind and solar to react to market signals. You cannot switch on wind turbines and solar panels; they react to the weather, not to the market. Granted, wind turbines with on-board storage have been available for a few years now, and actually adding storage to a wind farm or solar array is possible all the time anyway. The question is whether it is the responsibility of wind and solar power generators to adjust. The argument can be made that, by taking these non-dispatchable energy sources out of payment schemes for dispatchable generators, we increase the price signals for everything that can react (other flexible power generators, storage, load shifting, demand management, power storage, etc.).

Another passage shows what Brussels is thinking more specifically:

“Investment decisions in renewables need to take into account the natural endowments of the geographical location, great availability, public acceptance, consumption location, and administrative as well as investment conditions, including taxation.… A functioning market with appropriately defined prices with the signal where and when electricity should be generated from renewable sources”

Again, all of this seems sensible. The devil, however, is in the detail. “Natural endowments” means you would build solar in Spain and wind along the coastline, for instance. “Public acceptance” means you would not – because the public does not accept having their landscapes cluttered with infrastructure if locals do not benefit directly. In other words, the Spanish are not going to allow their country to be filled up with solar panels (and the French are not going to allow their country to be filled up with power lines) so that the rest of Europe can save 0.5 cents per kilowatt-hour. These goals thus conflict, a fact the document does not acknowledge.

The tempting part of that proposal is having price signals show “where and when electricity should be generated from renewable sources.” It would indeed be good for the grid itself to somehow signal to investors where power is needed – not only in real time (so that power generators can react), but also on average for future investments. However, Europe is actually moving in the opposite direction by expanding interconnections. Already, Germany and Austria are within a single price zone, and the price differences between France and Germany have become increasingly negligible. The plan is to beef up interconnections further, which will increasingly bring wholesale power prices to a similar level in different member states. It seems that these two demands also conflict.

The document itself calls for more international power trading: “an EU-wide system for cross-border intraday trading needs to be set up – as has successfully been done already for day-ahead trading.” Such a system already works quite well in Scandinavia (Nordpool), but those countries are well interconnected. If power is needed in Denmark, the Danes can go shopping in Norway, Sweden, and Finland to find the cheapest source of power. Whether this will work in western continental Europe or not depends largely on France, which is a bottleneck between the Iberian Peninsula and Europe’s Blue Banana (the industrial corridor reaching from southern England to Benelux and down to northern Italy). And even if France becomes a thoroughfare, Spain and Portugal will remain fairly isolated. Greater interconnections mainly make sense towards a “pool” between Scandinavia, Benelux, and Phenix (Germany/Austria).

Finally, the EU still does not quite grasp what Energiewende proponents mean by competition and energy democracy. The draft says:

“New enabling technologies such as smart grids, smart metering, smart-home, self-generation and storage equipment are empowering citizens to take ownership of the energy transition”

The list sounds quite comprehensive until you remember that citizens also build wind farms (some of them gigantic) and community biogas units connected to a district heat networks. Those two items do not seem to fit perfectly under “self-generation,” which sounds to me like a solar roof. Elsewhere, the document speaks of citizens as consumers rather than prosumers:

“The technologies now exist to enable consumers to become full participants in the energy transition.”

Frankly, I would strike the word “consumer” from any text on energy from now on. The age of captive customers is over. No one has to remain a mere consumer any longer.

When it comes to competition, the draft writes:

“new energy service providers and not just incumbents need effective access to long-term markets that signal what investment makes economic sense and where it should be located”

Again, the focus here seems to be on forcing newcomers to react to market signals – not on enabling market entrance of new players.

Overall, the thrust seems to be to throw out conventional feed-in tariffs, a focus that the draft cleverly downplays.

Source: Renewables International. Reproduced with permission.

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  1. Jacob 4 years ago

    Hope they conclude that a new reactor should not be built in England. Especially with British subsidies.

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