Electricity Market Design 2030-2050 : Shaping Future Electricity Markets for a Climate-Neutral Europe

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Ahunbay, Mete Seref ; Ashour Novirdoust, Amir ; Bhuiyan, Rajon ; Bichler, Martin ; Bindu, Shilpa ; Bjørndal, Endre ; Bjørndal, Mette ; Buhl, Hans Ulrich ; Chaves-Ávila, José Pablo ; Gerard, Helena ; Gross, Stephan ; Hanny, Lisa ; Knörr, Johannes ; Köhnen, Clara Sophie ; Marques, Luciana ; Monti, Antonello ; Neuhoff, Karsten ; Neumann, Christoph ; Ocenic, Elena ; Ott, Marion ; Pichlmeier, Markus ; Richstein, Jörn C. ; Rinck, Maximilian ; Röhrich, Felix ; Röhrig, Paul Maximilian ; Sauer, Alexander ; Strüker, Jens ; Troncia, Matteo ; Wagner, Johannes ; Weibelzahl, Martin ; Zilke, Philip:
Electricity Market Design 2030-2050 : Shaping Future Electricity Markets for a Climate-Neutral Europe.
Sankt Augustin , 2021 . - 53 S.
DOI: https://doi.org/10.24406/fit-n-644366

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Abstract

Speeding up the energy transition in the European Union (EU) is a major task to quickly reduce harmful greenhouse gas emissions. Market design plays a crucial role in the decarbonization of the European energy system, driving the expansion of both Renewable Energy Sources (RES) and accompanying flexibility sources. In particular, demand flexibility by energy-intensive industrial companies can play a key role. By flexibilizing their production processes, industrial companies can contribute to an increased use of variable RES (in the following referred to as Variable Renewable Energy (VRE)) to lower the CO2 footprint of their products with positive effects on economic competitiveness. Together with other flexibility sources like electric vehicles, the EU can transition to a just, low-carbon society and economy with benefits for all. However, to actually realize these benefits, market design must account for the changing production and consumption characteristics, e.g., the intermittency of VRE. Starting with current challenges of the energy transition that need to be solved with a future market designin the EU, the whitepaper takes alternative market design options and recent technological developments into account, which are highly intertwined. The whitepaper elaborates on the role of, for instance, flexibility, digital technologies, market design with locational incentives, and possible transition pathways in a European context. The “Clean energy for all Europeans” package offers a new opportunity to deepen the integration of different national electricity systems, whereby Transmission System Operators (TSOs) are required to reserve at least 70% of transmission capacities for cross-border trades from 2025 onwards. The corresponding scarcity of transmission capacities on the national level, however, may aggravate congestion to a critical extent, calling for transformational changes in market design involving, e.g., a redefinition of bidding zones close to the network-node level. The present whitepaper can be seen as part of a series of whitepapers on electricity market design 2030 - 2050 [14, 15] and continues the analysis of regionally differentiated prices or Locational Marginal Pricing (LMP) as a means to address congestion problems in future VRE-based electricity systems. Thereby, the whitepaper extends the findings of the previous two whitepapers (where in the latter whitepapers, e.g., a detailed discussion of the pros and cons of LMP can be found) and elaborates on the question how LMP could be implemented in one or several European countries and how possible implementation pathways may look like in a coupled European system. Moreover, the whitepaper describes preparatory steps that are necessary for the introduction of LMP, and – at the same time – create advantages for countries under both, a nodal and zonal market design. All in all, the results and outcomes of the whitepaper shall support the market design transition in Europe and, thus, the integration and activation of flexibility potentials to foster a fast reduction of CO2 emissions through a better use of VRE. Therefore, the whitepaper contributes with concrete policy measures to the overarching vision of a future European electricity market design that bases on low-carbon technologies and enhances welfare and fairness, while ensuring economic competitiveness of Europe. We would like to thank all the partners and are grateful for the financial support from the Federal Ministry of Education and Research as well as the Project Management Jülich.
Martin Bichler, Hans Ulrich Buhl, and Martin Weibelzahl (SynErgie) Antonello Monti (OneNet)