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The power market reform in Denmark and the EU

How the electricity market needs to evolve

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By Morten Pindstrup, International Senior Engineer, Energinet.DK

The challenges of the current market design

The electricity markets in the northern part of Europe are facing the fact that subsidised renewable energy is pushing conventional fossil generation out of the market and creating a collapse of the energy only market. This leads to acceleration of the decommissioning of thermal power plant, including nuclear plants as seen in Sweden where Vattenfal and EoN are on the verge of closing 4 nuclear reactors due to the electricity prices being very low. In the price zone Denmark West the average wind coverage of demand was 51% in 2014 while for more than 1250 hours the wind covered more than the demand without any curtailment, Table 1. This can only happen because Denmark West is very well integrated with the surrounding market areas.

Wind generation relation to demand on an hourly basis for 2014 in Denmark West

Wind generation relation to demand on an hourly basis for 2014 in Denmark West

Integrating and utilising renewable energy

Renewable resources are often regionally distributed as it is not everywhere is often is windy, the sun often shines brightly or rivers for hydro power are found. As renewable energy sources often are fluctuating in energy output it is important to incorporate them in large balancing areas. An electricity market will help greatly to improve the dispatch of the controllable generation capacity from an economically point of view, thus being able to relieve curtailment problems as the market will show the actual value of the electricity at a given time. There are 3 main lessons for China to remember when integrating renewable energy:

  1. Ensuring flexibility from the thermal power plants
  2. Create market signal to give incentive to market participants to change behaviour
  3. Integrate in large transmission systems where interconnectors are given value by price difference between market areas

Security of supply and regional cooperation

The collapse of the prices on the electricity market due to the introduction of subsidised renewable generation in the electricity market leads to questions about the future security of supply being raised. The questions we now are asking our self is whether the electricity market can deliver 4 things at the same time:

  1. Ensure efficiency and low consumer prices
  2. Security of Supply
  3. Integrate renewables into the energy system
  4. Prevent uncoordinated capacity markets

Can we on the basis of wanting the market to solve these 4 issues have a fact based discussion on what the acceptable risk of disruption of service is? Can we share the responsibility of SoS regionally knowing it is at present a national responsibility?

12 countries with Germany in the middle have in 2015 signed a joint declaration for regional cooperation on SoS in the framework of the internal energy market. With the aim of letting the markets being the main driver for ensuring the future SoS.

How to ensure survival of reliable generation

How is the “missing money” in the energy system going to be replaced? That is the question that many European countries find themself asking in the light of thermal generation not making enough money in order for them to replace old generation capacity. All are looking towards some sort of capacity mechanism, but there are very different approaches to this from full blown capacity markets like in the UK to relatively small strategic reserves in DK that will only be used as a last resource when all other options have been utilized. The right solution will probably be none of this, but be something where the consumers have to take an active decision on their willingness to pay for SoS.

Additionally there probably is a case for creating a new revenue stream for the thermal generators who supply system support like inertia, reactive power and short circuit power. Creating a market for such capabilities will ensure that some of the capabilities delivered for free today will be paid for in the future.

 

Mr. Morten Pindstrup gave a presentation on the Danish and European power market reform at the CNREC workshop on “RE Development Situation and Outlook—Focus on 2020, Prospect of 2030″ Download it here: The power market reform in Denmark and EU