Transitioning to a low-carbon economy The impact of Climate Change Policy on Energy Security Matthew Wittenstein Electricity Analyst, International Energy Agency 8 February 2017

Overview COP21 set an ambitious agenda for meeting the challenge of climate change Much more, though, needs to be done Europe has gone farther than most regions, but challenges remain Existing markets weren’t designed with high shares of VRE in mind Increasingly interconnected power systems raise questions of coordination and responsibility There are significant opportunities for Latvia and the Baltic States more broadly

CO2 emissions in a post COP 21 world A 2 °C pathway requires more technological innovation, investment & policy ambition CO2 emissions in a post COP 21 world 40 Trend post-COP 21 36 Energy efficiency Fuel & technology switching in end-uses Renewables Nuclear CCS Other 32 17.9 Gt Gt 28 24 2 °C Scenario 20 16 2010 2015 2020 2025 2030 2035 2040 Significant additional investments in efficiency, renewables, nuclear power and other low carbon technologies are required to reach a 2 °C pathway Source: World Energy Outlook Special Briefing for COP21

In many markets, renewables are an economically rational choice Historical and forecast LCOEs for typical onshore wind installations Wind costs in indicative markets fell by 1/3 between 2008 and 2015. By 2040, average wind costs are expected to fall by an additional 10-25%. Solar costs could fall between 35-80% Source: Medium Term Renewable Market Report 2016

Renewable technologies will come to dominate the power sector EU generation mix to 2040, New Policies and 450 ppm scenarios The share of carbon emitting technologies in the EU power system is set to decline, but additional policy support is needed to meet a 450 ppm target

Modeled wind deployment in the Baltic States, 2020-2050 Under some scenarios, the Baltics could see significant wind development Modeled wind deployment in the Baltic States, 2020-2050 Wind power could be a significant domestic resource if properly supported and integrated into the Baltic power system. Source: Nordic Energy Technology Perspectives 2016

Increasing penetrations of wind and solar change power system operations New operational requirements with high shares of renewables (data for Germany using scaled wind data) Contribution to peak demand Load Net load with 20% of wind energy in the generation mix Larger ramps Forecast errors Potential over-generation Fully unlocking system flexibility requires broader, more rapid, and more automated coordination across an increasingly complex set of resources. Source: Adapted from IEA (2014) THE POWER OF TRANSFORMATION

What is the optimal generation mix? Market value factor of wind and solar PV as a function of their market share in Germany Investments are not only a matter of costs: the value of different technologies for the power system have to be factored-in. Source: Hirth (2015)

Regional integration allows for greater integration of VRE Multiple models for cross-border integration – but all require close collaboration and data sharing across a wide set of stakeholders. Source: Seamless Power Markets (2014)

Nord Pool: harmonized market reflecting national differences Nord Pool price zones and power flows (example) E.g. Common market, national TSOs. Transmission planning, zone definitions, etc responsibility of TSOs, but impact common market.

The Baltic States and Europe as a whole benefit from increased interconnection Interconnections are a key source of system flexibility, allowing for higher penetrations of increased deployment. They also provide system security benefits. However, increasing interconnections and higher levels of VRE will require closer collaboration and market harmonization across borders. Source: Nordic Energy Technology Perspectives 2016

Five principles for integrating variable renewables Utilize and/or invest in flexible power plants Require VRE to minimize – and, ideally, contribute to – system flexibility needs Allow the full participation of demand-side measures Utilise electricity storage Strengthen transmission (including interconnectors) and distribution grids – and make them smarter How? Improve market design to provide proper price signals to all market participants Leverage IT solutions throughout the power system

Thank you matthew.wittenstein@iea.org