Market Arrangements for Offshore Wind Energy Networks
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Downloaded from orbit.dtu.dk on: Oct 02, 2021 Market arrangements for offshore wind energy networks Kitzing, Lena; Garzón González, Mario Publication date: 2020 Document Version Publisher's PDF, also known as Version of record Link back to DTU Orbit Citation (APA): Kitzing, L., & Garzón González, M. (2020). Market arrangements for offshore wind energy networks. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. Users may download and print one copy of any publication from the public portal for the purpose of private study or research. You may not further distribute the material or use it for any profit-making activity or commercial gain You may freely distribute the URL identifying the publication in the public portal If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Market arrangements for offshore wind energy networks NSON-DK Deliverable 5.2 Lena Kitzing (DTU) Mario Garzón González (DTU) July 2020 Authors: Lena Kitzing and Mario Garzón González Title: Market arrangements for offshore wind energy networks Summary: This report describes offshore market arrangements for offshore Contract no.: wind energy in interconnected offshore hubs, analysed for NSON- 2016-1-12438 (ForskEL) DK WP5, with focus on the North Sea region and especially on Denmark. The aim of this study is to explore different market Project no.: arrangements for massive offshore wind generation in the North Sea 43277 that is at the same time internationally connected. The approach that we are taking for this is an economic feasibility study for a concrete Sponsorship: ForskEL case, an offshore hub or energy island. The hub (or energy island) connects 12 GW of offshore wind farms and interconnection capacity between Denmark, The Netherlands, and Germany. The complex energy system model Balmorel is used for optimising different economic scenarios. Our quantitative economic analysis suggests that, from the countries connected to the hub, Germany would be the only one receiving net total economic benefits from the implementation, if no reallocation mechanism is agreed upon. Since the benefits in Germany are more than ten times higher than the losses incurred in the other participating countries, we foresee that cost-and-benefit sharing mechanisms and benefit transfers between countries will play an important role in the realisation of interconnected offshore hubs. Market arrangements play an important role in this, as they reallocate surplus between different types of actors and between countries. The question of which electricity market the offshore wind farms in an interconnected hub should be assigned to, who should own which assets, and how the offshore wind farms should be remunerated, is investigated. Our results indicate that creating a separate offshore bidding zone can lead to a more efficient energy system set-up than sending the electricity to a home country market or granting Financial Transmission Rights to the offshore wind farm operators. Technical University of Denmark DTU Department of Technology, Management and Economics, Energy Economcis and Regulation Group Kgs. Lyngby Denmark +45 24 65 90 64 [email protected] Preface The work presented in this report is deliverable D5.2 of the North Sea Offshore Network – Denmark (NSON-DK) project. The report is prepared in collaboration between DTU Wind Energy and DTU Management Engineering. The NSON-DK project is funded by contract nr. 2016-1-12438 under the ForskEL program administrated by the Danish Transmission System Operator Energinet. It is carried out as collaboration between DTU Wind Energy (lead), DTU Management Engineering and Ea Energy Analyses. Lyngby, Denmark, July 2020 Market arrangements for offshore wind energy networks Contents 1. INTRODUCTION 5 2. BACKGROUND AND SUBJECT OF INVESTIGATION 5 3. OFFSHORE MARKET DESIGN OPTIONS 6 4. CASE STUDY: INTERNATIONAL OFFSHORE HUB / ENERGY ISLAND 7 4.1 The North Sea Wind Power Hub concept 7 4.2 Support regimes in the participating countries 8 4.3 Scenarios and optimisation objective 9 5. ENERGY SYSTEM MODEL OPTIMISATION USING BALMOREL 9 5.1 Modelling scope and major assumptions 10 5.2 Modelling procedure 11 5.3 Future energy system 14 6. RESULTS 15 6.1 Economic feasibility of the hub 15 6.2 Economic impact of the hub under different market arrangements 18 6.3 Support requirements of the hub-connected wind farms 20 6.4 Implications for the attractiveness of market arrangements 21 7. CONCLUSIONS 22 REFERENCES 23 ACKNOWLEDGEMENTS 25 Market arrangements for offshore wind energy networks 1. Introduction The NSON-DK project studies how the future massive offshore wind power and the associated offshore grid development will affect the Danish power system in the short, medium and long term. This report describes the offshore market scenarios developed in NSON-DK WP5, with focus on the North Sea region and especially on Denmark. The scenarios specify developments towards 2050, with 2040 providing a medium term view of the future; and 2030 as a starting point of the analysis (the first year of assumed need for offshore market arrangements through the possible establishment of an international offshore hub). The aim of this study is to explore different market arrangements for massive offshore wind generation in the North Sea that is at the same time internationally connected. The approach that we are taking for this is an economic feasibility study for a concrete case, an offshore hub or energy island. The energy island connects 12 GW of offshore wind farms and interconnection capacity between Denmark, The Netherlands, and Germany. The complex energy system model Balmorel is used for optimisation. 2. Background and subject of investigation Offshore wind energy is expected to be one of the main sources of electricity in the future European energy system (EC, 2018). At the end of 2019, there was more than 22 GW of offshore wind power installed capacity in Europe (WindEurope, 2019). Maintaining the annual level of 3.5 GW installed in 2019 would be insufficient to reach the ambitious targets for offshore wind. New strategies and international collaboration are required to accelerate the integration of offshore wind in the European energy system. As a consequence, multiple organisations around the North Sea Region are taking action. During the last decade, there has been a strong willingness among North Sea Region countries to cooperate: Following the Political Declaration in 2009 (European Council, 2009), the North Seas Countries’ Offshore Grid Initiative (NSCOGI) was formalised in 2010. The objectives of NSCOGI were to achieve an efficient and economic use of renewable energy resources, as well as optimise infrastructure investments. NSCOGI was supported by regulators, transmission system operators (TSOs) and energy ministries from the 10 country members. In 2016, this cooperation was strengthen by the formation of The North Seas Energy Cooperation (NSEC) (NSEC, 2016). The NSEC is formed by Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and Sweden since United Kingdom departure from EU in 2020. The organisation is divided in four groups: Hybrid and joint projects, Maritime Spatial Planning, Support framework and finance, and Delivering 2050 (NSEC, 2020). The Delivering 2050 group is focused on onshore grid planning, sector coupling, sector integration and a Hub-and-Spoke concept. Some of the areas in which the NSEC is working are at the same time the objectives from other transnational organisations like the CPMR North Sea Commission (CPMR, 2019), which emphasises the relevance of these goals for the North Sea Region countries. In the future, the energy system will have to be significantly different in the North Sea Region countries, in order to achieve the goal of net zero emissions by 2050. Both energy supply and demand Market arrangements for offshore wind energy networks 5 patterns will change, driven by the required increase in deployment of renewable energy, and the decarbonisation of the energy end use. Furthermore, the flexibility of the system will have to increase to maintain the security of supply while the peak generation of renewable energy generation will exceed demand at certain times. Electric and thermal storage, together with the production of electro- and bio-fuels, could play an important role to absorb the fluctuations of variable renewable energy, if the technology achieves the maturity levels required by the system. In addition, high interconnection capacity between countries is expected to evacuate the excess of renewable energy produced, and avoid bottlenecks in the grid. Moreover, the European energy system could use electric vehicles as an electric grid balance mechanism, if the fleet increases significantly. Offshore networks, meshed grids and hubs have gained interest of different stakeholders over the past decade (Schröder, 2013). Currently, one of the projects that is receiving a lot of attention is The North Sea Wind Power Hub (NSWPH). The NSWPH consortium is formed by the TSOs Energinet and Tennet, the Port of Rotterdam, and Gasunie (an European energy infrastructure company). This consortium is, among other institutions, adding the techno-economic