Extreme numbers coming up in production and consumption markets

There are many options to create electricity markets, highly relevant for climate policy. Each has different infrastructure requirements, both public and private, and each has different shares of more public and more private infrastructure elements. There is a direct relation with other climate policy instrumentation, with some instruments fragmenting markets and well-functioning markets supporting other climate policy instruments.

Long term developments will lead to substantial shifts in terms of actors linked to the grid, both for climate reasons, supply security reasons and energy efficiency reasons, with climate reasons focused on here. The number of primary producers may well increase from a few hundred not so long ago to several tens of millions in the next decades. The number of storage facilities will grow from a few hundred to several tens of millions. Transformation technologies with storage,

as to heat and hydrogen, will increase from a few hundred to maybe up to tens of millions. Final users will become active market participants as in smart grids and the internet of things in the hundreds of millions. See Figure 3 for the actors involved and their potential numbers. Key characteristic of the transition is an extreme shift towards decentralization, and mostly a shift towards dispatchable technologies with fast reaction time options, and also in the use phase extremely short reactions time. This structural change in number and type of actors will require development of new electricity markets, and related energy markets, and new infrastructure for transmission and storage. The EU market will also be connected to other electricity markets, certainly including Norway and Switzerland but with high potential also for Iceland and possibly Eastern Europe, non-EU Balkan countries and North African countries.

Currently, the European grid consists of a set of mainly national transmission grids, with substantial differences between them, and with limited connections, and a high number of distribution grids, with various ownership. Most countries have unbundled substantially following the Unbundling Directive, with operation of grids by mostly public Transmission System Operators (TSOs), and details as on their independence further worked out, see (EC 2013). Pricing systems differ between all of them. Swing producers (larger producers who adapt the volume of production for load balancing) and grid operators work closely together at wholesale markets to maintain grid balance and stability, also at international markets for swing producers. Sometimes these actors are fully independent, sometimes they are closely connected and sometimes they are combined in one organization, as a quasi-public near monopolist. There are some high tension international connections, both AC and DC, based on mainly bilateral agreements. Some grid operators have gone international as traders, and some operate in more than one country.

Differentiated prices for producers and for users are common, different between different countries, as based on feed-in tariffs and similar with cost distributed uneven over different users, and also by differentiated tax regimes. The Commission is pressing for wider international trade options, requiring national public interventions to be better mutually aligned (COM 2013) and setting quantitative targets (COM 2015), and adjoining rules how international trade is to be organized, as in relation to load balancing (COM 2015b). At a technical level the alignment has been evolving in cooperation with ENTSO-E (European Network of Transmission System Operators - Electricity), who also are involved in development of EU market rules (“network codes”). Though clearly opening up to European market development, no clear pan-European market design is yet involved.

What could be long term development options, reckoning with the challenge of the coming power system without fuel (Taylor and Dhople 2015). Intermittent, non-dispatchable, decentralized primary production becomes dominant, with much primary production having close to zero short term marginal costs. Secondary production and active demand reaction will play a key role in market stabilization, under adequate market design. North-south and East West linkages can also flatten out production and consumption somewhat. One line jumps out now: With high voltage direct current (HVDC) transmission becoming the long distance mode of transport, national and subnational grids can be adequately linked with high efficiency. They also can function more independently, without rising faults levels due to intermittency and related fast shifts in flows.

For the 2-degrees climate stabilization target CO2 emissions in electricity production are to be reduced by over 95% by 2050, see section 3.4. CCS may become up to 80% effective only, see (IEA 2015), where applicable. It may only play a supporting role therefor regarding fossils. The

conclusion is that future energy supply systems, long term, will have to be dominated by non-fossil production, that is renewables and nuclear. The expansion of renewables in the next half century will probably be based on wind and solar electricity, both with high intermittency, limited predictability and non-dispatchability. One fine Christmas day the wind has not blown for days over a week and snow had covered all solar panels. Most emission free is not or only limited dispatchable in relation to demand.

• Wind/wave Intermittent and non-dispatchable

• Solar Intermittent and non-dispatchable

• Concentrated solar Intermittent with some heat storage dispatchable

• Tidal Intermittent and non-dispatchable

• Nuclear Stable and only slightly dispatchable

• Geothermal Stable and somewhat dispatchable

• Biomass with CCS Substantially variable and dispatchable

Figure 3. Actors potentially involved in market clearing in the long term electricity market

Matching final demand with varying primary supply just is not possible most of the time. Final demand can be spread out in time and can be timed in relation to supply to some extent only.

Larger grids can even out demand, like over East-West time zones and can link hotspots in supply Pp Primary

Electricity Supply Small Large Scale 10⁷ Scale 10³

Grid

L Grid losses St Storage

(& 2^ndSupply) T-Grid 10³

T Trans-formation &

Storage 10⁸

Final Energy Use:

• Work (cars, pumps, …)

• Heating

• Cooling

• Chemistry

• Lighting

• IT

• Etc. 10¹⁰

Non-electric Energy Supply: 10⁶

• Fossil heat

• Solar heat

• Geo heat

• Hydro work

• Bio-solar, etc.

Market clearance at time i:

Pp_i+ Ps_i + Po_i = D_i+ St_i+ Sd_i+ T_i+ L_i

Sd Storage (& 2^ndSupply) D-Grid 10⁸

Po

Production Off-grid 10⁵

Heat Wind, sun,

wave, tide, geo, ..

©Gjalt Huppes

Transmission & Distribution

Ps Secondary Supply 10⁷

D

Final grid Electricity Demand

10⁸

Fuels (fossil, nuclear, bio, …)

(like Scottish wind) to areas of demand. Flexible supply options like with cheap natural gas installations with CCS, expensive due to their very small load factor, may be incorporated to help cover low renewables supply periods and also for some special peak demand. But primary supply will have to be stored substantially as well for secondary supply. Technical options are there. But how can the vast number of primary and secondary producers be linked to the vast number of to be variable energy users, and all their internet-linked apparatus? The number of primary and secondary grid producers in Europe will rise from a few hundred at the turn of the century to tens of millions in the next decades, see Figure 1.

Coordination is a most demanding issue for electricity, as supply and demand are to match real time, always. Heat, chemical energy like hydrogen, and power as in pumped hydro can be stored more easily, over days and sometimes even seasons and years. Electricity can be stored in battery systems for more frequent use and hence shorter periods. Many options are there in a technical sense now already and can certainly be improved in the course of time. But what will develop in a technical sense, and what will be implemented in practice cannot easily be predicted. It very much depends on incentives created, by climate policies and other policies, but also on the serendipity of invention and innovation. It is for example not possible now to predict the long term role of hydrogen fuel cells in transport and next in grid stabilization. The design of electricity markets will play a key role in the transformation towards a near zero emission electricity system.

There are different views on how this market could be designed, leading to different options.