RES4MED – ATC 2016 “INTEGRATION OF

RENEWABLE ENERGY SOLUTIONS IN

THE ELECTRICITY MARKETS”

ELECTRICAL MARKET DESIGNER FOR

Presenter’sINTEGRATION
OPTIMAL name
Date
MILAN, NOVEMBER 21ST
PAOLO MARINO
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WHERE DOES THIS COME FROM?
Europe has a long experience in RES development

Early ‘90s Late90s Early 00s Late 00s

First power  EU Directive of 1996  2020 objectives are  Significant growth of

markets are on Common Rules
built (UK, for Electricity Markets
Norway …)  Kyoto Protocol
 Pioneering incentive
systems and RES
built
set installed capacity in
 Large scale WE countries
incentive schemes  Incentive schemes
are launched in are also implemented
Western European in Eastern European
countries Countries

Capacity addition in OECD Europe by technology(1), 1960-2014

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HAS EVERYTHING GONE SMOOTHLY?
Europe has learned a number of lessons in his way to renewables. Other
countries are starting to experience this now

Issues in Europe
 Badly designed incentive
EU - New investment in renewable
Things go quicker than energy (2004-2014)
expected
140

mechanisms 120 115

Technological development is 102

 Unexpected rapid surprising

Total investment [B$]

100
86
80 73 75

increase of installations in Effects over market prices and 60

62
57

“cannibalization” of the market 39

48

a limited amount of time 40

 The significant level of
penetration reached in
some countries
29
20
Overspending in many 20
countries and the importance of 0
long term sustainability 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Increased grid (dispatching and
reinforcement) costs

How to manage the progressive

MIDDLE EAST expiry of PPAs

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THE DEBATE IN EUROPE

1 2

Designing a Renewable
Define your renewable policy is much more than
policy having a wider designing an incentive
system. In order to cope
perspective and taking
with all the potential
into account the more issues, all relevant
general energy policy aspects of the market
objectives design have to be
addressed

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THE WIDER POLICY FRAMEWORK
The wider policy framework is key in delivering a proper RES policy
integrated in a sustainable market design

Objectives Questions Example issues

Fuel savings The coexistence with

 Which are the main objectives
wider incentive
of the policy?
regimes? (e.g. CO2)
 How RES development will
Environmental
further impact electricity
objectives
market price signals and
overall market design?
 Should the general policy In which types of
Economic
sustainability
instrument be able to cover a market are
wide range of sectors (and not renewables going to
only the power sector)? be included?
Security

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THE ROLE OF ELECTRICITY MARKETS
Different electricity markets have a role and their role needs to be
carefully assessed

It is important to prepare a proper route to market for renewable plants to

manage price and volume risk

Spot Forward Long term

• Spot markets are

key in signalling the
• Timing value of energy and Long term contractual
• Products of other “services” Instruments to hedge arrangements that
• Consistency with increased volume and correctly fit with short
• Technical spot markets price risk term markets is key to
outcomes is key to financing plants
requirements
ensure long term
sustainability

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THE EU DILEMMA - SHORT TERM MARKETS AND RES
Short term markets are being cannibalized, but are long term markets only
enough?
Example: average daily EE price shape in Italy and Example: Hours with zero or negative
180 comparison with LCOE of CCGT and PV prices in Germany
160 250
?

Sum of hours with <=0 price

140
120 200
100
€/MWh

80 150
60
40 2030 EE 100
price?
20
0 50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Daily profile (hours)
0
2008 2015 LCOE CCGT LCOE PV 3kW 2007 2015 2030
Merit order effect of new RES is making difficult for spot markets More extreme price scenarios can be
to reflect long term production costs expected

How to sustain investment

remuneration?

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THE HOLISTIC VIEW OF RES
Several aspects of the value chain have to be reconsidered to set up a
proper RES policy

RES generation Wholesale market The role of TSOs

specifics integration and DSOs

Revenue Wholesale Grid access and

streams market regulation

RES
dispatching

70
60 Share of RES in final energy consumption
50
[%] in EU countries (2013)
40
… even though some issues 30
start becoming material in 20
countries that have reached a 10
significant level of RES 0

Czech Republic

Luxembourg
Portugal

Spain
Norway
Sweden

Finland

Estonia

Slovakia

Belgium
Romania
Lithuania

Netherlands
Latvia

Italy

Greece

Germany
Poland
Austria
EU (28 countries)

Denmark

Bulgaria

France
Slovenia

Croatia

Cyprus

Malta
Hungary

Ireland
United Kingdom
penetration

Source: Eurostat

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HOW TO DESIGN A RES POLICY IN A DEVELOPING MARKET
The challenge

At minimum

WHAT
cost Create solutions that are
Attract investors economically sustainable in
the long term
Guarantee system
security
WHERE

Ensure a balanced
Liberalized unbundles
growth of demand and
installed capacity Vertically integrated markets?
markets Or large public infrastructures
with diffused generation?

Today Tomorrow?

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THE INGREDIENTS OF A RES POLICY
There is no a single instrument for every season and mistakes are costly

Early 2000s 2010 Today

Remuneration mechanisms

Theoretically efficient,
The lost occasion of but
certificates trading difficult to maintain

Mobilizes low size investments

The era of but
feed in tariffs No cost minimization and control
Ex post large grid costs
Emerging
markets
Cost minimization in large plants
PPA auctions But
Long term sustainability? Small
plants?
participation

RES do not participate to the

Market

market
RES are forced into the energy
market RES start contributing to grid
services

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THE FUTURE CHALLENGES
Future remuneration schemes will be different from today, but need to be
prepared now
A
THE LANDSCAPE
Start up with
New technologies
auctions No more subsidies for
(storage) and solutions
Are infrastructures the
B RES, but revenue really scarce
(hybrid systems)
streams resource?
Start thinking of the stepping on the scene
next generation
revenue streams
Creation of shorter terms “markets” to “give the right value” to system costs
created and services offered

Find the right

THERE IS YET Consider not only
balance between
NO Should small size
long term
energy, but the
SOLUTION, installations come overall “system
commitments and
back in the participation” in
BUT A participation to
picture? defining revenue
NUMBER OF short term
streams
DISCUSSION markets
TOPICS
Adopt a regional perspective to decrease costs and risks

Should public guarantees be again more focused on the infrastructure letting

private agreements work for energy in the future?

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Paolo Marino
Pöyry Management Consulting
Tel.: +39 335 6521609
Email: paolo.marino@poyry.com

Via Restelli 3/1

I-20124 Milano
+39 02 365969 00

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