13. June 2014

Integrating all options to ensure future electricity supply - "Energiewende" part 3

Reinhard Haas, Academic Director of the MSc program “Renewable Energy in Central & Eastern Europe” takes a position to this pressing topic.

In the last newsletter I have presented the issue of price formation in electricity markets. The conclusion was that in the future spot markets for electricity either have to accept temporarily higher market prices or capacity payments have to be implemented. This analysis was mainly presented from the generation point-of-view.
I am clearly in favour of the market solution with temporarily higher prices, because this allows further learning at the consumers side and they can at least partly adapt to these new price pattern. In the following I argue that most important for integrating higher shares of intermittent renewables in the future is to establish an electricity system with high flexibility. In this context a market-based approach – contrary to a central planning one – is the core element of such a system.
A market-based approach will further-on consider all options on the supply-side and the demand-side.  There are much more dimensions than just generation for bringing about an equilibrium in electricity supply. The most important ones are, see Fig. 1:

  • Demand - side management (technical): Measures conducted by utilities like cycling, control of demand, e.g. of cooling systems)
  • Demand response due to price signals: Response of mainly large coustomers to price changes
  • Transmission grid extention: If the grid is extended there is in principle always more capacity available in the system and the volatility of RES as well as demand evens out.
  • Smart grids: They allow variations in frequency (upwards and downwards regulation) and switch of voltage levels and contribute in this context to a load balancing
  • Storges: short-term and long-term storages - batteries, hydro storages, or chemical storages like hydrogen or methane - can help to balance significant volatilities of RES generation.

<media 34667 _blank - "BILD, Figure 1. Dimensions of electricity markets, Figure_1._Dimensions_of_electricity_markets.png, 78 KB">Figure 1. Dimensions of electricity markets</media>

The core problem is that so far the demand-side has been fully neglected with respect to contributing to an equilibrium of demand and supply in an electricity market. No culture of integration of demand has so far been developed. The major reason for this is that in times of regulated monopolies every demand could be met due to significant excess capacities. And still in the liberalized markets a huge excess capacities remained. This aspect – to develop the impact of demand-side and customers WTP – is essentially for a real electricity market and it is actually regardless of the aspect of an integration of larger shares of RES.

(to be continued in the next newsletter with more focus on how to meet residual load in bottleneck situations)


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