The Internal Energy Market: Remaining challenges and the role of wind power

Paul WilczekSenior Regulatory Affairs Advisor – Grids and Internal MarketThe European Wind Energy Association

5 February 2013EWEA 2013, Vienna

More than 700 members from almost 60 countries

• Manufacturers with a leading share of the global wind power market

• Component suppliers• Research institutes• National wind and renewable associations• Developers• Electricity providers• Finance and insurance companies• Consultants• Contractors

This combined strength makes EWEA the world’s

largest and powerful wind energy networkwww.ewea.org/membership

EWEA Lead Sponsors

Background

The European Council agreed on completing IEM by 2014 – realistic or illusionary?

Identified shortcomings in recent EC Communication:

– Tendencies of nationally inspired policies, MS slow in adjusting national legislation

– Consumers dissatisfaction, even in more liberalised markets low switching rates

– In many member states incumbents control >80% of generation

– Structural market distortions prevail, e.g. regulated prices and support schmes to conventional generation

– Markets too intransparent for newcomers, e.g. demand-side providers

– Too little investment in energy efficiency

Main challenges ahead

The enforcement challenge: The IEM architecture is laid out in the Third Energy package. EC emphasis to implement and enforce it as a matter of priority.

Actions in the short term:- Infringement procedures- Active enforcement of IEM rules by energy

regulators and competition authorities- Ensuring non-discriminatory and well-balanced

Network Codes- Activating regional initiatives that will help set up

additional power exchanges - Careful approach with capacity remuneration

mechanisms

Envisaged way forward on power market integration

The EU Target Model does not effectively enable optimal wind energy integration

– No emphasis on wind integration to the extent of NREAPs

– Lack of emphasis on intraday and balancing markets liquidity, harmonisation and interactions. These are wind energy integration cornerstones!

To be done:– Implementing the EU-wide Target Model with large

share of wind power– Target Model as a minimum (i.e. not as target)– Provide integrated intraday and balancing markets– Make the best use of available transmission

capacity

Why are we talking about capacity markets ?

• Motivation: Ensure investment/development of sufficient capacity

• Variable RES tend to have low contribution to planning reserves

• Variable RES tend to induce lower capacity factors from conventional units.

• Business case for slow-ramping, inflexible power generation assets (typically mid-merit) seems to slip

High share of variable RES tend to increase the need for flexible capacity

Why are we talking about capacity mechanisms - EU public consultation on generation adequacy and capacity mechanisms

Capacity markets

Capacity auctions

Capacity payments

Strategic reserves

Reliability options

The most basic capacity mechanism is a strategic reserve.

To be clarified first:

• Is there a capacity problem in the EU at all?• How much firm capacity do you get from variable RES in a Pan-european perspective? • How do you eliminate free riders and other externalities?

• Increased price variability and lower average spot market prices might dampen investors appetite

• No market value for increased plant flexibility under current market conditions

• Little incentive for storage and demand-side response investments under current market conditions

• Uncertainty disproportionally renders RES investments less attractive

Conclusions I

Overarching question remains: How can energy-only markets be made suitable for supporting the long term

RES policy goals?

Conclusions II

Market transparency and cross-border integration must be ensured

Provide for more market liquidity and a bigger market place in general

New market forms (e.g. ancillary services) might provide additional revenue stream for generators without creating additional market distortions -> Target Model 2.0 ?

Short term <2014

Long term>2014

Ireland DS3 Programme: Some move in the right direction• DS3: Delivering a Secure

Sustainable Electricity System

• Target: 40% electrical energy from renewables

• System Services Consultation in summer 2012

• Considered / proposed new service

– Inertial Response

– Fast Frequency Response

– Fast Active Power Recovery

– Ramping Margin

– Reactive Power capability

• Work in progress…. but progress!

Thank you

www.ewea.org

EWEA80 RUE D’ARLONB-1040 BRUSSELS

T: +32 2 213 1811F: +32 2 213 1890E: ewea@ewea.org

Backup slides

How could the energy market of the future look like?

A closer look at the grid support services part