The European association of TSOs, ENTSO-E, presents options for the design of the region’s electricity markets in order to meet climate targets by 2030.
Decarbonization in the form of increasing variable renewable generation, digitization and greater decentralization are transforming the electricity system. The question is how the electricity market should evolve to be adapted to its objectives in 2030 and beyond.
ENTSO-E has taken the lead in this discussion with its One System Vision launched in 2017 and in the organization’s latest contribution, it outlines potential design options.
Previously, ENTSO-E had concluded that a radical change in the conception of the market was neither necessary nor desirable. The overall objective should be to foster an efficient internal market, taking into account national specificities, and any short-term management solution should meet the challenges of 2030.
The general principles identified are better consideration of network constraints in the functioning of the market, the growing importance of markets close to real time and closer coordination between TSOs and DSOs.
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New discussion paper states that some of the challenges facing TSOs are already very evident. Among these are the growing gap between market performance and the physical reality of networks, challenges in determining optimal and widely acceptable auction area configurations, increasing loop flows, significant needs for redispatching and counter-trade and the limited information available on the flexibility of the power system.
The rapid shift in production from traditional fossil fuels to renewables also poses challenges for the ability of electricity markets to ensure resource adequacy, especially given the increasing likelihood of extreme weather events caused. by climate change.
It is essential that the market design ensures that sufficient resources, whether conventional generation, renewable energy generation, demand response or storage, are present in the system at all times, and especially when weather dependent production is scarce, says ENTSO-E.
At the wholesale market level, market rules, products and processes must be adapted to reflect the changing nature of participants, both on the demand and supply side, says ENTSO-E.
These include emerging access to resources such as renewable energy, demand response and storage in wholesale market products and processes, and the goal for consumers to become active prosumers.
The importance of intraday and balancing markets will increase as day-ahead markets will be less able to capture near real-time results and sudden changes in market conditions. A possible improvement in market design would be to move to shorter resolution products managed in conjunction with larger resolution products and an increase in the number of intraday auctions coupled with increased volumes traded shortly before real time.
The main market design options planned to ensure resource adequacy are improved energy markets, capacity markets and strategic reserves. As market conditions differ from country to country, it is unlikely that one option will be recommended over another for the whole of Europe.
In addition, the continued development of new technologies could lead to a change in the best performing and most appropriate market design option to be adopted within a single market.
ENTSO-E says it believes electricity markets should be designed in the future to provide clearer and more effective location signals, to help address the growing challenges of grid congestion. Such location signals could be transmitted not only via wholesale price energy markets, but also via investment price signals such as capacity markets, strategic reserves or renewable energy support mechanisms. .
This could involve, for example, location-specific tendering, or differentiated pricing or capacity requirements based on location.
Further analysis is needed to describe the different options and their pros and cons, but the approach deserves careful consideration as it has already been implemented in some countries, according to ENTSO-E.
The discussion paper has been released for consultation.