North Sea Energy Islands: Impact on National Markets and Grids
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North Sea Energy Islands: Impact on National Markets and Grids Andrea Tosattoa, Xavier Mart´ınez Beselera, Jacob Østergaarda, Pierre Pinsonb, Spyros Chatzivasileiadisa aDepartment of Electrical Engineering, Technical University of Denmark, Kongens Lyngby, 2800, Denmark bDepartment of Technology, Management and Economics, Technical University of Denmark, Kongens Lyngby, 2800, Denmark Abstract Taking concrete steps towards a carbon-free society, the Danish Parliament has recently made an agreement on the establishment of the world’s first two offshore energy hubs, one on the island of Bornholm and one on an artificial island in the North Sea. Being the two first-of-their-kind projects, several aspects related to the inclusion of these “energy islands” in the current market setup are still under discussion. To this end, this paper presents the first large-scale impact analysis of offshore hubs on the whole European power system and electricity market. The detailed models used for such analysis are publicly released with the paper. Our study shows that energy hubs in the North Sea have a positive impact, and overall increase economic welfare in EU. However, when considering the impact on each country, benefits are not shared equally. In order to help the development of such projects, we focus on the identification of market challenges and system needs arising from the hubs. From a market perspective, we show how exporting countries are negatively affected by the lower electricity prices and we point at potential strategic behaviors induced by the large amount of new transmission capacity installed in the North Sea. From a system point of view, we show how the large amount of wind energy stresses conventional generators, which are required to become more flexible, and national grids, which cannot always accommodate large imports from the hubs. Keywords: Energy islands, European electricity market, HVDC transmission, Market impact, North Sea Wind Power Hub, Offshore wind projects 1. Introduction transmission grid have been largely analyzed in the literature [10–14]. The first transmission grid project in the North Sea The Paris Agreement, signed during the Conference of the region was proposed by the European Commission in 2008, Parties in 2015 (COP21), represents an important milestone in as the initial step towards the realization of a European super the pathway toward the transformation of the global energy sec- grid. This proposition resulted in the kickoff of the North Seas tor [1]. In order to mitigate climate change and keep global Countries’ Offshore Grid Initiative (NSCOGI) in 2010 [15]. warming 1.5◦C above pre-industrial levels, ambitious targets re- Ten countries were part of this collaboration: France, Ger- lated to energy efficiency and Renewable Energy Sources (RES) many, Belgium, the Netherlands, Luxembourg, Denmark, Swe- penetration have been set worldwide. As part of this goal, the den, Norway, United Kingdom and Ireland. The growing inter- European Commission is promoting large investments in solar est around the North Sea region resulted in the integration of PV stations and wind farms, which are expected to account for NSCOGI into the new North Seas Energy Cooperation (NSEC) more than 80% of electricity generation in EU by 2050 [2]. in 2016 [16]. Since then, NSEC has focused on the develop- In this context, large efforts have been made to determine ment of concrete cross-border offshore wind and grid projects which technologies and geographical areas are the most suitable (also called “hybrid” projects), with the aim of reducing costs for accelerating RES penetration [3, 4]. In the last decades, off- and space of offshore developments in the region. shore wind energy has drawn increasing attention, such that it is now considered the most promising technology for achieving One project that falls within the scope is the “North Sea RES targets [5]. This is mainly due to (i) scarcity of appropri- Wind Power Hub” (NSWPH) [17]. Kicked off in 2017, the ate on-land sites and (ii) public concerns related to noise, visual NSWPH programme is the result of the joint efforts of En- arXiv:2103.17056v1 [physics.soc-ph] 31 Mar 2021 impact and land utilization [6]. Simultaneously, the North Sea erginet, the Danish electricity and gas Transmission System region has been identified as the most favorable location for Operator (TSO), TenneT and Gasunie, respectively the elec- offshore projects because of (i) excellent wind conditions, (ii) tricity and gas TSOs in the Netherlands and the northern part shallow waters and (iii) relative proximity to several countries, of Germany. The main innovative aspects of the project are: making feasible to combine efforts for the realization of large (i) the concept of “Hub-and-Spoke”, (ii) the construction of offshore wind installations [7, 8]. According to [9], more than artificial islands instead of traditional offshore platforms and 180 GW of wind farms must be installed in the North Sea in (iii) the modularity of the project. In other words, the project order to meet the European targets. aims at building several small artificial islands (the hubs) where Together with the development of offshore wind farms, the the energy produced by the wind farms is collected and then economic benefits brought by the realization of an offshore transmitted to onshore via several High-Voltage Direct-Current Preprint submitted to Energy Policy April 1, 2021 (HVDC) links (the spokes). into transmission capacity constraints. The inclusion of energy To facilitate the realization of such hybrid projects, differ- islands is assessed through the realization of an offshore bid- ent analyses have been presented in the literature. In [18], ding zone, motivated by the studies in [26]. for example, the authors focus on three specific projects (UK- The remainder of this paper is structured as follows. Benelux, UK-Norway and German Bight) and carry out a de- Section 2 discusses about market arrangements for hybrid tailed cost benefit analysis, proposing different methods to al- projects. Section 3 presents the modelling assumptions and the locate benefits among the involved parties. In a similar fash- market model used for the simulations. In Section 4, the re- ion, the authors in [19] present different offshore market design sults of the different simulations are presented and discussed, options suitable for new energy islands and study their impli- with particular emphasis on the consequences for market par- cations using a simplified model in Balmorel. Moreover, the ticipants. Section 5 gathers conclusions and the policy implica- European Commission has commissioned several studies to en- tions. gineering consulting firms with the aim of identifying the bar- riers to the realization of such projects [20, 21]. In the same 2. Market arrangements for hybrid projects vein, the Danish Energy Agency has recently made public two studies related to sea areas screening and cost-benefit analyses This section presents different market setup options which of the energy islands [22, 23]. All these studies have helped define the conditions for the transmission of electricity from authorities make an informed decision, with the result that in the offshore wind farms to the onshore grids, and motivates the February 2021 the Danish Parliament agreed on the construc- choice of a new offshore bidding zone in the analyses presented tion of the first energy island in the North Sea [24]. in this paper. The options proposed in [20] are: However, most of the studies so far have focused only on 1. commercial flows to the respective home markets (HM); the North Seas countries, considering the rest of Europe too far for being impacted by a hub in the North Sea. As pointed out 2. dynamic commercial flows to the high-price market in [20], there is the need for broader analyses to understand the (DHPM); impact of energy islands, as more projects are to be expected. The following questions arise. How are market participants im- 3. dynamic commercial flows to the low-price market pacted? Is it technically feasible to integrate such a large share (DLPM); of wind generation? The huge amount of installed wind capac- 4. dedicated offshore bidding zone (OBZ). ity will shift the merit order curve, cutting several conventional generators off. In addition, the produced energy will be highly The following example, inspired by [26] and illustrated in dependent on the weather, and large fluctuations are to be ex- Figure 1, presents an “extreme” case with negative prices to pected. Finally, considering the large amount of transmission highlight the differences between the four arrangements. capacity planned by the involved TSOs, new market opportu- nities will arise for generating companies. How market partici- pants will respond to these changes is not clear yet. BZ1 BZ2 BZ1 BZ2 To this end, this papers aims at providing the first large-scale 10e -5e 10e -5e impact analysis of North Sea Energy Islands on the European GW 4 2 4 0GW electricity market. The goal of the study is to point at the conse- GW GW 2/2 0/1 quences of such projects, with focus on all the European coun- 4/6 tries. More in detail, the contributions of this paper are: 3/3 GW GW GW 3 GW • First detailed market simulations studying the impact 0 across all European countries, including the UK, of dif- BZ3 5e BZ3 5e ferent combinations of wind and transmission capacity in- stalled in the North Sea. a) Home Market b) Dynamic High-Price Market • Evidence and discussion of system needs and market chal- lenges that might arise along with the development of off- BZ1 BZ2 BZ1 BZ2 shore hybrid projects. 10e -5e 10e -5e 4 GW 4 GW The studies are carried out using detailed market models of GW 2 GW 2 the European electricity market and 400 kV transmission grid 0/6 6/6 OBZ in 2030.