Presentation on theme: "Can markets and RES coexist?"— Presentation transcript:
1Can markets and RES coexist? Market4RES WorkshopPost 2020 framework-Can markets and RES coexist?Dr. Oliver Koch Deputy Head of UnitDG Energy Unit B.2 – Internal Market IIWholesale markets; electricity & gas28. April 2014This presentation replects solely the personal viewsof the author and does not bind the EU Commission
6Shrinking role for energy markets RES SupportGovernment (national)Wholesale priceMarket (EU)System costsGovernment (monopolies) (national)
7Shrinking role for energy markets Government (national)RES SupportRES SupportWholesale priceWholesale priceMarket (EU)Market (EU)Potential for cascade of „mee too“ subsidies, export / import restrictionsintenal market (art 28/34); PSO – State AIdSystemcostsSystemcostsGovernment / monopolies (national)
8=> “2030“ Process Issue: Coordination of RES and CO2 policies Created=> “2030“ ProcessCOM consultation – report to EU CouncilDecision 2014/2015 ?
9"State Interventions" Package: Key messages Future EU Market Design"State Interventions" Package: Key messagesMore cross-borderMore market-basedCompetition between technologies
10Market integration: support schemes Phase in market exposure:Competitive allocation mechanismsMechanism to reflect degree of maturity of technologyCompetition among RES – technology developmentMinimise impact on production decisionFeed-in tariffPremiumQuota
11Market Integration: RES and power market rules Phase in equal treatment:Balancing obligationsBearing of grid costsDispatching rulesDifferent degrees of harmonisation for all users
14Uncoordinated national interventions are a threat to the Internal Energy Market Source ENTSO-ESince 2011, the focus of the debate on energy markets has often shifted away from getting the basic market mechanism right and setting the correct preconditions for it to function. Whilst the work on this mechanism continued amongst experts, efforts at political level have had to be re-directed at preventing damage being done to the young market rather than reinforcing it. The November 2013 Public Intervention Package points at Member States' pivotal role in making the market a success rather than intentionally or unintentionally damaging it.Member States must reduce and limit their interventions to what is really necessary. They should realise that they are mutually dependent when it comes to maintaining jobs in energy intensive industries or in ensuring generation adequacy and security of supply. Uncoordinated actions can weaken or even destroy the Internal Energy Market.
16Issue: Will merit curve survive? Wholesale Market DesignIssuesIssue: Will merit curve survive?Somm say: no problem, 90% of market is forward trading, not via spot – really true?Some say we need adapt market design to RES-reality – determine the right price for RES “design markets”Shouldn’t rather RES and other subsidised technologies adapt to market?Also: are negative prices good or bad, etc…
18"Market Design" discussion Future EU Market DesignWholesale Target ModelTechnical balancing,ancillary serviceETS CO2 priceState interventions RES etc.Generation Adequacy+Flexibility?"Market Design" discussionEU ? Regional ? National?State- "designed" trading?Definition of what is "Market Design" is far from being clear. Broad approach (almost all issues discussed in energy policy are market design relevant); important.But: also necessary to focus then on specific issues, otheriwse risk that discussion remains vague and general.Market design an be:1. Wholesale market design ("energy only"?, trading timeframes, maybe ancillary services);2/3 In reality: RES / ETS discussion: Key importance! But not in focus – other process (2030); state interventions discussed separately.4. "Technical" market design: how will alrogrithm be calculated (balancing), ancillary services, etc.5. For many: Market design = "energy only" vs. capacity mechanisms. Adequacy – LT investment signals – flexibility (same different – address it separately?)6. (!) specific in EU: impact of national / regional solutions in an integrated electricity market with meshed grids and cross-border pricing? (int literature is of limited value in this respect7. Demand Side design: industry – household DSR; Smart grids, flexibility, DSO/TSO, etc.8. Link to gas (supply crises, CCGT phase out), transport, heating9. Legislative approach: self-regulation vs legislation (see market coupling implementation)10. Market Design for many: state designs market (cap needs, adequate prices for RES, nuclear, etc. …)Self regulation/legislationDemand Side participationLink to Gas, Transport, Heating
192014 Target Model: Outdated? Future EU Market Design2014 Target Model: MODERN!2014 Target Model: Outdated?Is target model somewhat outdated?It's not! It IS a new market design (not only market coupling and grid operation - more in it than most are aware of, from joint adequacy assessment,solutions for cross-border SoS/ re-dispatch, for loop flow problems, more demand repsonse etc.)
20Need for new Market Design? 1. Preserve market path – give ongoing harmonisation a chance !
21Need for new Market Design? 2. Scope for finetuning?Flexibility – demand response - hedgingWill flexibility markets evolve?Will DRS kick off?Need to finetune target model (options markets, etc.)Adequacy: guidance needed?Adequacy assessmentC/B-opennessProtection levels / solidarity
22Need for new Market Design? 2. Scope for finetuning?System operation – IEM with fragmented TSOs?Fragmented system operation – capacity calculationCASC/CAO – CORESO - SSC - TSC = enough?EU ISO needed?Governance:Role of ENTSO-E – EU or national perspective?Role of ACER : EU or national perspective?3rd package "bottom up" approach – suffient?
23Making the Internal Energy Market Work 2011The Heads of State of Government recognized the importance of having an internal energy market in place and set a clear deadline for its completion by 20142012Report "Making the Internal Energy Market work" published by the European Commission assessing the state of the internal energy marketIn the last years, our common vision that energy markets can function and deliver what society needs has increasingly come under attack, sometimes in words but most often in deed. In 2011, Heads of State and Government agreed to set the deadline to complete the EU internal energy market by 2014.In November 2012, the European Commission reported exhaustively on the state of the internal energy market, taking stock at what has been achieved and identifying the main challenges for the future. The challenges were related firstly to need to implement and apply existing legislation, secondly to make our energy systems fit for low carbon future and thirdly to the consumer at the center stage.As the deadline set by the Heads of State and Government approaches, it is not only necessary to finalise the detailed technical rules required to integrate our energy markets across borders, but also to reiterate once more that market functioning in the energy sector is ultimately the only realistic tool to achieve our common policy objectives. Therefore, 18 month on the Commission will once again report on the progress reached in completing the internal energy market.June 2014European Commission will report on the progress reached in completing the internal energy market
24Thank you very much for your attention Dr. Oliver KochDeputy Head of UnitEuropean CommissionDG EnergyUnit B-2 (Internal Market II: Wholesale; gas & electricity)DM 24 – 6/117Brussels/Belgium
25Long-term: new legislation? Commission Toolbox:Advocacy(e.g. communication on state interventions)TFEUArt 28?Procurement?…3rd Package"PSO?Art 3 E-Reg…COMP LawGBEREEAGArt 102/106?Long-term: new legislation?"2030" discussion – revised targets ?
26Outlook …but: decisions need to be taken at one stage! Next years = decisive- Will “consensus approach” work?- More COM intervention / harmonisation needed?
27Issue: who decides about the “gap”? Wholesale Market DesignIssuesPerceived security of supply concernsIssue: who decides about the “gap”?Central adequacy decision/estimation? (most got it wrong, even in more stable times…)Decentral or fully market-based decision on what is needed possible? (e.g. BDEW approach?)
28(Key) issue in EU: How to avoid fragmented solutions? Wholesale Market DesignIssues(Key) issue in EU: How to avoid fragmented solutions?How to organise cross-borderco-operation on security of supply?Technical dimensionPolitical dimensionEverybo´dy seems to agree "we need more C/B cooperation in SoS"; however: Can we show that we can technically organise it? Do you trust in it?As in "RES" debate: why should we pay for neighbours?=> Aequacy: can we rely on neighbors?Also technically: CB may not be as easy as it may seem under current target modelFragmented solutions: not only "incomplete", but distortive – every national-only SoS system is de facto distoritive
29Technical dimension How to organise cross-border Wholesale Market DesignIssuesHow to organise cross-borderco-operation in security of supply matters ?Technical dimensionC/B adequacy planning - in practice?C/B capacity/capability/flexibility ‘markets’Common definitions (products)Common procedures (tender, auction, cap ticket,…)Physical long-term reservations/PTRs needed?Definitions: Which product to be certified: capacity? capability? Flexibility? Great variety if one looks into proposalsProcedures: central certifications (of what? Cap tickets, etc., different standards)PTRs needed? Some say yes, some say no…again: can market coupling/implicit auctions/intraday solve the trick? (even with different "supply standards")
30Political dimension How to organise cross-border Wholesale Market DesignIssuesHow to organise cross-borderco-operation in security of supply matters ?Political dimensionParallel supply crisis: what happens?Upfront agreement on load shedding rules?=> Can Member States rely on neighbours?No common load sheeding standard; would it be realistic to try?If different standards –how to share scarce resouces in time of crisis?
31Issue: Allocation of "flexibility risk" Wholesale Market DesignIssuesIssue: Allocation of "flexibility risk"Fair balancing responsibility for RES ? How?Additional "backup" responsibility needed?Will full balancing responsibility (see State interventions package) and intraday markets be sufficient? Will intraday and balancing be sufficient as "backup" for intermittent energy?If not: do consumers or intermittent generators pay for backup costs?Not to mention: Redispatching debate, grid connection debate (see State Interventions Package)?
32Issue: Fair demand side participation Wholesale Market DesignIssuesIssue: Fair demand side participationIs model neutral to supply and demand solutions?Does it maximise potential flexibility, storage, DSR, energy efficiency ?Fair balance between DSOs/TSOsHow can we ensure that established generation and demand side (big & small) can participate at equal footing)?