IEEE Power & Energy Magazine - January/February 2021 - 59

Finally, under a market design with a carefully considered price ceiling, very high CO2 prices and subsequently
very high consumer energy bills are avoided while the CO2
emissions reduction targets are not compromised. In conclusion, the introduction of a price floor and a price ceiling in
the EU ETS constitutes an effective way to achieve carbon
reduction targets with reduced risks for both low-carbon
investments and electricity consumers.

The Role and Value of Flexibility

around £8 billion/year in a system meeting a more ambitious
target of 50 gCO2/kWh, as illustrated in Figure 6. The components of these cost savings include.
✔✔ savings in operating expenses, by the avoided curtailment of zero-cost renewable generation and the more
cost-efficient provision of the required balancing services (operating expenditures)
✔✔ savings in capital expenses associated with reinforcing distribution [D capital expenditures (CAPEX)]
transmission (T CAPEX), and interconnection assets
(I CAPEX) driven by reduced peak demand levels and
the cost-effective management of network constraints
✔✔ savings in capital expenses associated with investments in conventional generation [G CAPEX (conventional)], driven by reduced peak demand levels and
reduced requirements for generation flexibility
✔✔ savings in capital expenses associated with investments in low-carbon generation [G CAPEX (lowcarbon)] while meeting the carbon target, which is
the most dominant benefit in the lower carbon emission scenario of 50 gCO2/kWh due to the high cost of
firm low-carbon generation technologies (i.e., carbon
capture and storage and nuclear), driven by the much
more efficient utilization of lower-cost variable renewable generation.

CO2 Emissions
(Mton/Year)

CO2 Price (€/ton)

The new flexibility resources, predominantly energy storage and
demand-side response (DSR), play a key role in reducing the
costs associated with the transition to a low-carbon energy
future. An important part of these flexibility resources corresponds to the large-scale technical -solutions, such as bulk,
long-duration energy storage, that can deal with extreme
events of long periods of low wind and solar generation output and DSR from large industrial/commercial consumers
that can flexibly schedule some of their processes. However, in the emerging decentralized and digitalized energy
paradigm, another very promising part corresponds to
small-scale and distributed forms of flexibility sources at
the local distribution level, such as residential smart appliances, smart-charging electric vehicles (EVs) with potential
vehicle-to-grid capabilities, distributed generation, and distributed energy storage, including heat storage. These resources
are owned by small electricity
Original ETS
Price Floor
Price Floor and Ceiling
customers who, enabled by the
500
CO2 Price
advancements in digital technolo50% Envelope
gies, are gradually transformed
400
90% Envelope
from passive electricity consumPrice Floor
ers to active prosumers, consider300
Price Ceiling
ing their dual ability to flexibly
manage their electricity demand
200
and produce electricity through
microgeneration. This paradigm
100
change is reflected in the Clean
Energy for All Europeans package recently presented by the EC,
which highlights the empower(a)
600
ment of energy end users through
500
the active involvement in energy
400
system operation and planning.
300
According to a comprehensive
200
study conducted by Imperial Col0
lege London through an advanced
0
10 20 30 40 0
10 20 30 40 0
10 20 30 40
whole electricity system model,
Time (Years)
Time (Years)
Time (Years)
the potential cost savings brought
Median CO2
50% Env.
CO2 Cap
by the intelligent coordination of
90% Env.
Emissions
flexibility in the Great Britain sys(b)
tem are around £3.8 billion/year
in a system meeting the Great figure 5. The impacts of alternative CO2 market designs on CO2 prices and emisBritain benchmark emissions tar- sions. Env: Envelope; Mton: metric ton. [Courtesy of Jörn Richstein of the German
get of 100 gCO2/kWh in 2030 and Institute (DIW, Berlin), based on data from Richstein et al.]
january/february 2021	

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IEEE Power & Energy Magazine - January/February 2021

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