EU energy forum feels winds of change in power sector

The EU’s current electricity market lets fossil fuels dictate the price of renewable energies. [Source: EC - Audiovisual Service / Photo: Phlippe Huguen]

Although formal negotiations over a market design proposal are just beginning, a conference involving industry leaders and senior policymakers this week showed which way the winds of change are blowing in the electricity sector as the need to integrate intermittent wind and solar power increases.

It is by now clear there will be a place for state-backed capacity schemes to keep on stand-by conventional plants that would perish in a market driven purely by the wholesale price of power.

There was also increasing interest in the potentially revolutionary contribution of batteries, with Europe appearing poised for a boom in electric vehicles and home storage of electricity.

Electricity in transition

Europe’s electricity system is on the cusp of a deep revolution, driven by the imperative of decarbonisation and the move towards decentralised renewables energy production.

Opening the 3rd EU Energy Summit on Tuesday (28 March), EU Climate and Energy Commissioner Miguel Arias Cañete recalled that the Winter Package of eight legislative proposals, published in November last year, brought the total of Energy Union legislation submitted to 90%.

“Going forward this year, an important file for the Commission is continuing our work on low emission mobility…we are now preparing for the post-2020 period, setting new CO2 targets for cars and vans and fostering the transition towards low and zero emissions vehicles.”

Straight after the event, Cañete set off for Beijing and discussions with senior officials on clean energy cooperation, low-emission mobility and emissions trading.

Electric cars and batteries

Back in Brussels, Luxembourgish Green MEP Claude Turmes told attendees where he thought things were heading.

“The future is about renewables, efficiency and interconnectivity – and efficiency must be the number one policy,” he said. “Don’t be surprised if in five or eight years we see primary energy consumption in Europe drop like hell, also because we will electrify transport.”

All the necessary technology to build and deploy 100% renewables-driven electric cars is already there, Turmes said. “The only question is where will the batteries be produced. In Europe, or will we import them?”

Peter Carlsson, a former supply chain manager at Tesla, the US e-car pioneer, pitched a solution. He was in town drumming up support for his new venture, Northvolt, which wants to build Europe’s largest battery production plant. The planned facility would be capable of producing 32 GWh storage capacity annually.

Demand in Europe for new batteries was set to “snowball” to around 150 GWh by 2025, Carlsson predicted, compared to 6 GWh in 2015.

“We think we’re going to be able to finance the majority of this through the private sector, but it is also important to have…European backing,” Carlsson said on the sidelines of the conference.

“Tesla would not have been able to industrialise if they hadn’t got a loan from the [US] department of energy of 500 million dollars,” he noted. “It is also interesting to look at how the EU can drive the market in the right way,” Carlsson added, noting widespread agreement on the need to build smart grids with distributed storage.

European power grid on cusp of storage revolution

An electricity market revamp could see battery storage go mainstream. But questions remain over who will put the infrastructure in place.

A new market blueprint

The Brussels conference was rounded off with a discussion on electricity market design, described as being “at the core” of the Energy Union project.

“Today we are living in a new normal where the reserve margin needed [for electricity] is much higher,” said Simone Mori, executive vice-president of Italian multinational Enel. However, he saw digitalisation underpinning a “demand side revolution” to manage increasingly distributed generation.

The European Commission aims to put consumers at the centre of the new electricity market design, and envisages them reacting in real time to changes in wholesale prices.

However, the Commission’s plan to facilitate scarcity pricing by removing price regulation and caps – although a “step in the right direction” – was not enough, according to Bolesław Jankowski, vice-president of Polish electricity generator PGE.

“To keep the lights on, further intervention is needed in the form of capacity markets,” he stressed.

Jankowski rejected the EU executive’s proposal to limit capacity schemes to plants that emit less than 550g of CO2 per kWh of power generated – which would effectively ban support for new coal-fired plants. He argued that the EU should rely solely on its emissions trading system instead to achieve climate goals.

Poland needs capacity market to avoid power shortages, says minister

Poland needs a power capacity market to help coal-fired power plants compete with producers of renewable energy and to avoid power shortages, the energy minister said on Wednesday (18 May).

Julio Castro of Spanish utility Iberdrola said the Commission’s focus on pricing addressed a key problem faced by renewable power generators: prices plummet when output is high. He also welcomed proposed schemes to pay for conventional plants to be kept on standby, even if they are needed for less than 1,000 hours a year.

Spot market, long-term investments

Toni Volpe of Italian firm Falck Renewables noted the irony of the EU’s current electricity market structure, saying it worked against Europe’s decarbonisation goals.

“On the same market, you let the fossil fuel set the price for the product trying to chase the fossil fuel away – which is renewables,” he remarked, calling for two separate markets.

While this idea is a far cry from current EU policy thinking, it drew support from Portuguese firm EDP. Utilities are investing in renewables overseas – not in Europe – because of the possibility of having long-term contracts there, argued Pedro Vitório. “You’re not going to invest in anything that has 20 or 25 years of life on the basis of short-term spot markets,” he remarked.

However, the EU executive’s Director-General for Energy, Dominique Ristori, said the Commission had made a conscious decision to pay more attention to integrated short-term markets for electricity.

“Electricity prices should reflect the exact value of electricity at each point in time and location,” he said. He then acknowledged an oversight in earlier planning. “We have largely ignored storage – it was a big error in the past…we should facilitate the development of a real internal market for batteries in particular,” Ristori said.

It was left to José Blanco López, the Spanish MEP charged with drafting the European Parliament’s position on the revised renewable energy directive (RED II), to provide a snippet of concrete policy news.

The Commission has proposed a 2030 target of 27% of the EU’s overall final energy consumption, which it estimates would mean some 46% of electricity generation. Blanco Lopez said he wants to propose a target of 35%. He called on EU energy ministers to support him.

A European Commission proposal for a new EU electricity market design was unveiled on 30 November as part of a Winter Package of Energy Union legislation that promises to put consumers in the driving seat.

The European Commission promised a “new deal for consumers” saying the new market design would do away with all forms of price regulation. Consumers will be exposed to price fluctuations, but also empowered to react to them, for example by moderating consumption during peak times and buying kilowatt-hours when demand, and prices, are low.

The goal is to create a market fit for a growing share of power from intermittent renewable sources, chiefly wind and solar.

One area that looks set for rapid growth on the back of these changes is battery storage, which could enable consumers to buy electricity when it is going cheap, and use it later when peak demand pushes prices up. Storage capacity may also come in the guise of electric vehicles connected to the grid.

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