1. The Internal Energy Market: Remaining challenges and the role of wind power Paul Wilczek Senior Regulatory Affairs Advisor – Grids and Internal Market The European Wind Energy Association 5 February 2013 EWEA 2013, Vienna

2. 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 worlds largest and powerful wind energy network www.ewea.org/membership

3. EWEA Lead Sponsors

4. 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

5. 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

6. 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

7. 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

8. 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?

9. 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?

10. 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

11. 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!

12. Thank you www.ewea.org EWEA 80 RUE DARLON B-1040 BRUSSELS T: +32 2 213 1811 F: +32 2 213 1890 E: ewea@ewea.org

13. Backup slides

14. How could the energy market of the future look like?

15. A closer look at the grid support services part