53520-1208-1020 www.ewea.org About EWEA EWEA is the voice of the wind industry, actively promoting wind power in Europe and worldwide. It has over 700 members from almost 60 Creating the Internal countries, including wind turbine manufacturers with a leading share of the world wind power market, plus component suppliers, research institutes, national wind and renewables associations, developers, contractors, electricity providers, finance and insurance companies, ISBN 978 - 2 - 930670 - 01 - 0 Energy Market in Europe and consultants. This combined strength makes EWEA the world’s largest and most powerful wind energy network. Rue d’Arlon 80 | B-1040 Brussels Tel: +32 2 213 18 11 - Fax: +32 2 213 18 90 9 782930 670010 E-mail: [email protected] A report by the European Wind Energy Association - September 2012 Creating the Internal Energy Market a report by the European Wind Energy Association Text and analysis: Iván Pineda, Paul Wilczek (European Wind Energy Association-EWEA) Data collection and data analysis: EWEA Contributing author: Jacopo Moccia, Stephane Bourgeois, Justin Wilkes (EWEA) Revision and editing: Zoë Casey (EWEA) Design coordination: Jesús Quesada (EWEA) Cover photo: Markus Haslinger - Winner Global Wind Day photo contest 2012 Design: Giselinde Vandevelde Print: www.artoos.be EWEA has joined a climate neutral printing programme. It makes choices as to what it prints and how, based on environmental criteria. The CO2 emissions of the printing process are then calculated and compensated by green emission allowances purchased from a sustainable project. Published in September 2012 ISBN: 978 -2-930670-01-0 2 Creating the Internal Energy Market Content Executive Summary .......................................................................................................................4 1 Integrating wind energy into the market .................................................................................8 Main findings ....................................................................................................................................... 9 Policy recommendations ....................................................................................................................... 9 1.1 The European energy-only market for electricity .............................................................................. 10 1.1.1 Bilateral agreements and power exchanges ................................................................................. 10 1.1.2 Power trading time frames ......................................................................................................... 13 1.1.3 Congestion management and transmission capacity allocation ..................................................... 17 1.2 State of play of electricity market liberalisation ............................................................................... 19 1.3 Risks in the market for wind power producers ................................................................................ 22 2 The EU Target Model and roadmap for electricity market integration .............................. 24 Main findings ..................................................................................................................................... 25 Policy recommendations ..................................................................................................................... 25 2.1 The EU-wide Target Model for electricity market integration .............................................................. 26 2.1.1 Flow-based transmission capacity allocation ......................................................................... 28 2.1.2 Day-ahead market coupling .................................................................................................. 28 2.1.3 Intraday continuous implicit cross-border trading ................................................................... 33 2.1.4 Balancing market ................................................................................................................ 34 2.2 Benefits of wind power in an integrated electricity market ................................................................ 36 3 Post Target Model – The development of a future flexible power system ........................ 38 Main findings ..................................................................................................................................... 39 Policy recommendations ..................................................................................................................... 39 3.1 Wind energy contribution to system adequacy ................................................................................ 39 3.2 Grid support services market ........................................................................................................ 42 3.2.1 Capabilities of wind power plants ......................................................................................... 43 Bibliography ................................................................................................................................ 46 Creating the Internal Energy Market 3 Photo: iStockPhoto EXECUTIVE SUMMARY This EWEA report serves two main purposes: 2. Integration of large amounts of wind energy in a cost efficient manner requires changing the current • Contribute to the debate on the completion of an market arrangements. Market rules are not cur- Internal Energy Market (IEM) by 2014 and provide rently designed to facilitate the integration of wind views on present electricity market integration ap- energy. This creates significant challenges for its proaches and the development of a future flexible cost efficient integration into the market. Integra- power system with a large scale uptake of wind tion costs are not a consequence of the technol- power. ogy capability itself, but due to existing rigid market rules and institutional frameworks that were never • Place the current regulatory frameworks for wind designed with wind power, or other variable genera- power integration in the context of developing a tion technologies, in mind. This prevents the full single EU market for energy. To this end, it com- and cost-efficient exploitation of their capabilities. pares the impact of wind energy deployment with the major obstacles blocking and integrated inter- 3. The 2009 Renewable Energy Directive is based on nal market. the rationale that a positive framework for renewa- ble energy develop ment is necessary due to a num- Wind power is capable of supplying a share of ber of market and regulatory failures or imperfec- European electricity demand comparable to the lev- tions3. Thus, support mechanisms for wind power els currently being met by conventional technolo- and other renewables should be seen in the context gies such as fossil fuels, nuclear and large hydro of an unfinished lib eralisation and as compensation power. The envisaged share of around 14% of elec- for the numerous market failures that arise from tricity demand (up from some 6.5% currently) met an internal market that is fragmented, dysfunctional by wind in 20201, and the 2050 scenarios from and far from fully developed. Prevailing market dis- the European Commission showing wind energy as tortions – in the forms of continued massive sub- the key generating technology – providing between sidies to fossil fuels and nuclear energy, market 31.6% and 48.7% of electricity production2 – require concentration and regulated prices - together with market rules to adapt to the generation mix of the market rules that do not consider wind energy char- future. The envisaged level of wind energy penetra- acteristics create increased market risks for wind tion will require cooperation among decision makers energy generators. and stakeholders in the electricity sector, to make the necessary changes to a European energy market 4. Logically, full exposure of wind energy generators that has been developed with traditional centralised to market risks can only take place under the pre- power plants in mind. conditions that markets are functional, competitive, liquid and transparent and that all technologies are Main findings exposed to the same conditions on a level playing field. As long as this is not the case in the frag- 1. Structural market distortions remain the main ob- mented European electricity markets, exposing stacle to creating an internal energy market and wind generators to market risks, while other power integrating wind energy. The level of liberalisation technologies are shielded from those risks, will af- of European electricity markets remains low while fect wind power deployment and delay the benefits large incumbents, high market concentration, con- of its large scale penetration for society and the tinued massive subsidies to fossil fuels and nucle- environment and, in the end, make electricity more ar energy and regulated prices remain the rule rath- expensive than necessary for the consumer. er than the exception. 1 According to the National Renewable Energy Action Plans (NREAPs) from Member States 2 European Commission 2050 Roadmap (21) 3 European Commission, Renewable Energy Strategy Impact Assessment (24) Creating the Internal Energy Market 5 Executive summary 5. The EU Target Model (TM) does not effectively enable investments to be recovered in a more flexible sys- optimal wind energy integration into the European tem, over fewer running hours. power markets. Whilst the TM is an important step towards