IEEE Power & Energy Magazine - January/February 2021 - 100

in my view

Alberto Pototschnig

capacity remuneration
advancing the spread of renewables

THE EUROPEAN GREEN DEAL,
setting the decarbonization strategy of
the European Union (EU) for the period
to 2050, envisages a 50−55% reduction
in greenhouse gas emissions with respect
to 1990 levels by 2030 and carbon neutrality by 2050. This ambitious pathway
requires a much greater penetration of
renewables in the energy system. The
current 32% renewable penetration target
for final energy consumption set for 2030
only two years ago is, therefore, likely to
be increased to 38−40%. The electricity
sector typically contributes more than
proportionately to the achievement of
the overall target. This means that we
can expect renewable-based generation
to represent approximately two-thirds of
final electricity consumption by 2030, up
from roughly 30% in 2019.
A large share of the increased renewable-based generation capacity would
be wind and solar. These technologies
are characterized by zero or near-zero
marginal costs, but when compared to
conventional generation, they are also
more variable and less dependable in
providing electricity with a profile that
follows the pattern of demand. Therefore, the security of supply requires the
availability of backup dispatchable capacity to follow and serve the residual
load-the difference between demandand renewable-based generation.
The merit-order effect of the greater
penetration of renewable-based generation implies that this flexible backup caDigital Object Identifier 10.1109/MPE.2020.3033372
Date of current version: 6 January 2021

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ieee power & energy magazine

pacity, which, in the shorter term, will be
mostly provided by conventional (gasfired) plants, will be called to produce
for a decreasing and highly variable
number of hours and thus require higher
revenues when it generates.
Therefore, a simplistic assessment
of the implications of this change in the
generation mix and cost structure on
the electricity price profile suggests a
larger number of hours when the electricity price in the market will be set by
renewable-based generation at zero or
very low levels and a few hours in which
prices might reach very high levels. This
could possibly be up to the value of lost
load (VOLL) when available generation
capacity is unable to meet demand, to allow nonrenewable-based generation capacity to recover its fixed costs.
However, a more elaborate assessment
could recognize that the distribution of
prices might not necessarily be as binomial
as it might appear at first, especially considering technological development and
the emergence of new technologies and
facilities in the market. For example, more
variable prices may enable energy storage
facilities to take advantage of arbitrage opportunities by charging when prices are
low and discharging at higher prices. The
future will also see power-to-gas technologies develop, which will allow for the
storage of energy in molecular form over
longer periods of time. The further development of demand-side response and other
decentralized resources may also contribute to curbing price spikes. Therefore, low
prices might not always be that low, and
high prices might not always be that high.

Negative Market Prices
and Renewable Support
Schemes
In this context, specific attention should
be paid to negative market prices. According to the 2019 Market Monitoring
Report of the European Union Agency
for the Cooperation of Energy Regulators (ACER) and the Council of European
Energy Regulators (CEER), there were
more than 500 occurrences of negative
hourly prices in the EU day-ahead market
in both 2017 and 2018. Different circumstances can lead to negative prices occurring. In the past, these occurrences were
fairly rare and mostly caused by the limited flexibility, in technical and economic
terms, of some conventional generators. It
was cheaper to produce at negative prices
than to switch generating units off for one
or a few hours. More recently, negative
prices have also been the result of ill-designed renewable support schemes. Some
of these schemes have been providing
supplemental revenues-through feed-in
premiums-to renewable-based generation plants, even during times of negative
prices. This means that such plants are incentivized to generate even when there is
excess production in the system, at least as
long as the supplemental revenue component compensates for the negative price.
Therefore, it seems urgent that the
design of feed-in premiums and similar schemes excludes support when the
market signals excess supply through
negative prices. This is a no-regret move,
even though, in the future, the -occurrence
(continued on p. 98)
january/february 2021

IEEE Power & Energy Magazine - January/February 2021

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