Does a high percentage of variable renewable energy sources like solar PV and wind turbines require a different electricity market system, do we need a paradigm shift? Suggestions for a future proof market system
Accommodating a high percentage of variable renewable energy sources (VRES) like solar PV and wind turbines is a challenge for our power system. VRES are by nature not dispatchable and realising a stable and reliable, future-proof electricity supply based on mainly non-dispatchable sources might require a revision of the way we currently organize our electricity supply.
Often discussed changes include:
- an increased need for flexibility and storage
- a revision of the role of current fossil generation
- and possibly a revised electricity market approach.
The discussion about the necessity of changes in the electricity market is not new. Recently, the European Commission approved six electricity capacity mechanisms in member states to “ensure security of supply whilst preserving competition in the Single mMarket, suggesting that the current electricity market
at least needs amendments to ensure an adequate electricity supply. But will this suffice or do we need different electricity market mechanisms?
The nature of this paper is exploratory. It aims to inform this question by explaining the basic principles behind the current electricity market and applying these
principles to a system with a high percentage of VRES. We do this by means of modelling the effects in two case studies and visualising the results in among others price development curves.
These case studies represent a simplified and extreme situation to amplify the effects of a high percentage of VRES, but illustrate the basic market principles. We do not strive for precision in this paper but want to illustrate market dynamics and effects, get an impression of the order of magnitude of these effects and discuss the implications for the electricity market system.
In this first chapter, we will start with a short introduction to VRES that has gone from being government supported technologies to today's low cost option
driving the energy transition, and driving changes in the electricity system and market. We will present historic price curves for key energy transition technologies and trends in electricity generation in Europe. The last section of the first chapter is used to underline the scope of this paper: short term system stability and long term system adequacy in relation to the electricity market system accommodating a high percentage of VRES.
Chapter 2 deals with the implications of VRES on power system stability. Chapter 3 presents a high-level description of the current market mechanism to determine electricity prices and of the concept of peaking, mid-merit and base-load electricity generation. Chapter 4 describes the modelling approach and the scenarios used and chapter 5 presents the modelling results for high VRES penetration. Finally, chapter 6 will discuss the results presented in the previous chapters and the implications for the electricity market system.