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Electricity Market Design Presentation at the 31st USAEE/IAEE North American Conference November 5-7 Austin, Texas

Electricity Market Design Presentation at the 31st USAEE/IAEE North American Conference November 5-7 Austin, Texas. Lars Bergman IAEE and Stockholm School of Economics. Drivers of renewable power in Europe. The EU ”20-20-20” Directive

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Electricity Market Design Presentation at the 31st USAEE/IAEE North American Conference November 5-7 Austin, Texas

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  1. Electricity Market DesignPresentation at the 31st USAEE/IAEE North American ConferenceNovember 5-7Austin, Texas Lars Bergman IAEE and Stockholm School of Economics

  2. Drivers of renewable power in Europe • The EU ”20-20-20” Directive • 20 % reduction of CO2 emissions in 2020 comparedto 1990 • 20 % renewable (primary) energy in 2020 comparedto 1990. Estimated toimplyaround 35 % renewableelectricity • 20 % moreefficientuse of energy in 2020 comparedto 1990 • A new directive on energyefficiency has recentlybeenconfirmed by the European Parliament • The German decision tophaseoutnuclearpower

  3. Sharp increase in renewable generation:The German example Source: BMU-Leitstudie 2010

  4. Renewables are heavily subsidised – but the costs are also falling • According to the German solar energy industry association (BSW) the installation cost of solar PV has fallen around 65% since 2006. Increased competition has caused difficulties for many solar PV manufacturers.

  5. Capacity markets is not a new discussion – but there is a renewed interest in Europe • Push for carbon neutral power sector and fast increase in renewables challenges the evolving European power market • Wind and solar less controllable and flexible – and dependent on weather • Significant contribution to energy production, but little firm capacity • Need for flexible generation and demand response • Challenges in financing conventional power plants Wind and solar production, 50 Hertz control area Example weeks, 2011

  6. Greece Quantity based mechanism Italy Price based mechanism. Proposal for reliability contracts SE & FI Strategic reserve UK Capacity market from 2015 Spain & Portugal Price based mechanism Norway RKOM Ireland Price based mechanism Poland Proposed as part of market reform Russia Capacity market + long term contracts Germany “Proposal” France Capacity obligations from 2015 The evolving European market model is challenged before it has hit the ground… • The Target Model for the European power market is based on an energy only design • Current and evolving market design is far from “pure” energy only • Existing capacity mechanisms in several countries • With various design and purposes • Proposal and discussions in several other countries • Are we (unintentionally) going towards a patchwork… • …and how will that affect the integrated European market

  7. Towards a new market design? • European TSOsarecoordinatingtheir investment plans and foresee major transmission capacityinvestments in order to • Accomodate fast growth of wind and other intermittent power • Reducebottlenecks in the transmission system in order toenhancecompetition and cross-bordertrade • In the Nordic area: Increasednumber of price areas, but far from nodalpricing

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