Electricity Market Design – How Can the System Benefit from Investments in Flexibility?

EUGINE and EUTurbines had the pleasure to sponsor the EURACTIV hybrid event “Electricity Market Design – How can the System Benefit from Investments in Flexibility?” 

Following the Commission’s proposal on the reform of the Electricity Market Design, presented the previous week, both associations found the 22^nd of March to be the perfect time to involve multiple stakeholders in an exchange on the importance of flexible solutions to a more resilient energy market and a decarbonised energy system. 

In representation of the European Commission, we had Mathilde Lallemand-Dupuy, Policy Officer from the Internal Energy Market Unit, DG ENER; as an independent consultant, we were joined by Dr. Christoph Gatzen, Director at Frontier Economics; representing the European Parliament we had MEP Miapetra Kumpula-Natri, Member of the ITRE committee; the industry perspective was represented by Martin O’Neill, Product Management and Strategy, GE Vernova; and lastly, Ralf Wezel, the Secretary General for EUGINE and EUTurbines represented both associations. 

All speakers welcomed the Commission’s proposal as having multiple positive aspects, although opinions differed when it came to the focus on flexibility timeframes.  

Importantly, Mathilde Lallemand-Dupuy, representing the Commission’s perspective, started by highlighting the fact that both the directive and the regulation had tools to integrate flexibility into the system (like demand response and storage). Nevertheless, she eventually reckons that the new regulation proposal is mainly focused on the short-term side of flexibility and on the non-generation side. Indeed, acknowledging the variability aspect of renewables, the new regulation proposal is aiming to give an extra push to “non-fossil” short term flexibility.  

A few preliminary results from a study commissioned to Frontier Economics were presented by Dr. Christoph Gatzen. The research indicates that having in mind both the decarbonisation goals Europe has set itself and the volatility of renewables, a big gap between supply and demand is to be expected during winter weeks with low amounts of wind and sun. Based on historical weather data and demand and supply forecasts made by ENTSO-E for 2050, a realistic 3-week period of dark doldrums will lead to 94 TWh to 121TWh of supply gap that needs to be covered – numbers that already assume unlimited grid connections all over Europe. The main message then, is that this big gap can be closed if we look at the long-term flexibility aspect.  

In her intervention, MEP Kumpula Natri favoured the predictability of investments. For the MEP, power purchase agreements (PPAs) and contracts for difference (CfD) that will help consumers to stabilise their bills is key. The MEP was adamant in suggesting the inability of a “one size fits all” approach to solve issues of energy security for all Member States, stressing that since different markets face different needs, they will also require different flexibility solutions.   

Representing the industry, Martin O’Neill highlighted the importance of integrating all the available solutions that can contribute to cope with the decarbonisation goals established to be accomplished by 2030, stressing the need to guarantee investments in hard to decarbonise sectors.  

During his participation, our Secretary General Ralf Wezel transmitted the idea that although the Commission’s proposal has a chapter on incentivising investments in new generation, the suggested approach is missing incentives for generation capacities available on demand and as long as needed to fill longer supply gaps from renewables.   A payment based on kilowatt hours produced does not fit with the backup role these power plants would provide.  Instead, Ralf Wezel adds, plants should be paid for the service they provide, whilst ensuring a stable and reliable system. A reference to flexibility alone is not specific enough. The preferable approach, he suggests, would be to define specific capabilities and let the market provide solutions, instead of hand selecting technologies.  

You can now have access to the entire exchange and hear the panellists’ full contributions, including more details on further aspects such as market prices, support schemes, peak shaving products, the importance of adequately paying for grid services, and the IRA. Listen to the podcast of the event or watch the video.