Europe: the end of the honeymoon period for renewables

Long-term network analysis by the European Network of Transmission System Operators for Electricity (ENTSO-E) suggests that by the end of this decade, 80 per cent of the bottlenecks in European power grids are directly or indirectly related to integration of renewable energy sources. Transmission system operators (TSOs) across Europe – and to an increasing extent their counterparts at the distribution level (DSOs) – are struggling to cope with the overwhelming introduction of intermittent renewable energy, wind and solar power in particular. There are two main problems to consider with renewables. The first is the fact that their generation capacity is non-dispatchable in the sense that its production cannot be increased upon request by the TSO. The second is that their intermittent power generation necessitates the availability of more fast-responding dispatchable power units to maintain system frequency at 50 Hz.

(…)In addition, there are increasing calls for a pan-European obligation for renewable generators to become responsible for ‘balancing’ their own production. 

Imagine that – a renewable utility is required to pay the full cost of of their intermittent production! That would zero-out new renewable construction overnight. Altogether this is a refreshing article on EU energy policy that isn’t a puff piece by the wind/solar lobbies or suppliers. Timon Dubbeling wrote this for European Energy Review. He has been studying International Energy Markets at the Institut d’Etudes Politiques (IEP) – SciencesPo Paris. And he is currently doing an internship at the European Network of Transmission System Operators for Electricity (ENTSO-E).

My short summary is that the magical thinking behind EU energy policy is beginning to collide with reality, especially economic reality. The EU countries have erected a monstrosity of subsidies and regulations designed around the goal of making voters and politicians feel good and righteous about themselves.

Now that troubles are becoming obvious, the EU approach to cope with this mess is not to erase the subsidies and regulations that have caused the grid instability. It is to erect yet another tower of regulations. To rescue actual dispatchable generation from closure, a new patchwork is already being implemented – “Capacity Remuneration Mechanisms” (CRMs). Timon again: 

Italy became the latest country to support its thermal units in this way, joining countries like Spain, Portugal, Ireland, Greece and some Nordic countries who had already done so. France, Germany and the UK are also considering implementing capacity markets.

(…) In an attempt to prevent the closure of their conventional power plants, an increasing number of European countries have implemented or are considering implementing capacity remuneration mechanisms (CRMs).   

(…) For all of these reasons, the European Commission is very critical of national CRMs. In a leaked draft version of a Communication on the Internal Energy Market, scheduled to be published in mid-October, the Commission shows itself worried about their impact on market functioning. The Communication states that “the Commission expects Member States not to intervene and introduce capacity mechanisms before carrying out a full analysis of the existence and possible causes of a lack of investment in generation”. It continues by stating that “Member States should analyse the necessity and the impact of their planned intervention on neighbouring Member States and on the internal energy market”.

(…) Revision of the status quo

The obvious shortcomings of CRMs will add to the pressure to change the rules underlying electricity markets. In order to achieve the triple ambition of EU energy policy to create a low carbon economy on the basis of competitive markets that guarantee security of supply, renewable generators are likely to be burdened with more duties and lose some of their current privileges. If renewables are the main reason that conventional power plants are driven out of the market, then – recognizing that the potential of demand-side response, stronger interconnections and electricity storage is limited in the short term – they will have to step up their contribution to the long term security of power grids. 

As ‘balancing-responsible’ parties they would have to match their production with demand through the power exchange or by OTC trades. If they fail to do this, they would have to pay a balancing charge, like other market players. The level of this charge has to be high enough to push for more discipline among renewable generators – in any case higher than the revenues they receive through their support scheme. 

Making renewable generators responsible for balancing will push them to be more prudent in their forecasts, thus reducing the need for flexible reserves. A possible drawback is that wind and solar PV units might be curtailed more to avoid imbalances. In order to prevent structural losses of renewable output, such a measure should therefore go hand in hand with the development of liquid intraday markets, where gate closure time (GCT) – the last moment where producers are able to submit their bids – is as close to real time as possible. Bringing GCT closer to real time will lead to more accurate output predictions and a more efficient activation of renewable power assets.

A second major reason why we may expect the role of renewables to change is that currently they are the main driver of grid investment needs, as shown in figure 2. A more integrated vision of renewable production and the needs of the power grid will considerably reduce the need for expensive investments in transmission cables. In most European countries, legal provisions oblige the local TSO to provide any renewable generator access to the transmission grid. The costs of extending and reinforcing the grid are most often ‘socialized’ through Use of System Charges (UoSC). As a result, renewable energy project developers have no incentive to build plants near demand, and instead build at locations with the strongest wind or the most sun-hours per year. If there were less need for grid operators to connect remote wind and solar plants, or if some of the associated cost is shifted to the generator itself, it would allow for capital-constrained TSOs to address other weak spots in the transmission system. (…)

The article goes on at length to consider an alphabet soup of ad hoc patches intended to undo the unintended consquences of existing renewable subsidies. The hated word “nuclear” is not mentioned once. Nor is any consideration of returning electrical supply to free markets.

Meanwhile the earth weeps. While politicians avoid consideration of any policies that would actually work.

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