Electricity Market Design 2030-2050: Moving Towards Implementation

Report (2021)

Climate change and ambitious emission-reduction targets call for an extensive decarbonization of electricity systems, with increasing levels of Renewable Energy Sources (RES) and demand flexibility to ... [more ▼]

Climate change and ambitious emission-reduction targets call for an extensive decarbonization of electricity systems, with increasing levels of Renewable Energy Sources (RES) and demand flexibility to balance the variable and intermittent electricity supply. A successful energy transition will lead to an economically and ecologically sustainable future with an affordable, reliable, and carbon-neutral supply of electricity. In order to achieve these objectives, a consistent and enabling market design is required. The Kopernikus Project SynErgie investigates how demand flexibility of the German industry can be leveraged and how a future-proof electricity market design should be organized, with more than 80 project partners from academia, industry, governmental and non-governmental organizations, energy suppliers, and network operators. In our SynErgie Whitepaper Electricity Spot Market Design 2030-2050 [1], we argued for a transition towards Locational Marginal Prices (LMPs) (aka. nodal prices) in Germany in a single step as a core element of a sustainable German energy policy. We motivated a well-designed transition towards LMPs, discussed various challenges, and provided a new perspective on electricity market design in terms of technological opportunities, bid languages, and strategic implications. This second SynErgie Whitepaper Electricity Market Design 2030-2050: Moving Towards Implementation aims at further concretizing the future German market design and provides first guidelines for an implementation of LMPs in Germany. Numerical studies –while not being free of abstractions –give evidence that LMPs generate efficient locational price signals and contribute to manage the complex coordination challenge in (long-term) electricity markets, ultimately reducing price differences between nodes. Spot and derivatives markets require adjustments in order to enable an efficient dispatch and price discovery, while maintaining high liquidity and low transaction costs. Moreover, a successful LMP implementation requires an integration into European market coupling and appropriate interfaces for distribution grids as well as sector coupling. Strategic implications with regard to long-term investments need to be considered, along with mechanisms to support RES investments. As a facilitator for an LMP system, digital technologies should be considered jointly with the market design transition under an enabling regulatory framework. Additional policies can address distributional effects of an LMP system and further prevent market power abuse. Overall, we argue for a well-designed electricity spot market with LMPs, composed of various auctions at different time frames, delivering an efficient market clearing, considering grid constraints, co-optimizing ancillary services, and providing locational prices according to a carefully designed pricing scheme. The spot market is tightly integrated with liquid and accessible derivatives markets, embedded into European market coupling mechanisms, and allows for functional interfaces to distribution systems and other energy sectors. Long-term resource adequacy is ensured and existing RES policies transition properly to the new market design. Mechanisms to mitigate market power and distributional effects are in place and the market design leverages the potential of modern information technologies. Arapid expansion of wind andsolar capacity will be needed to decarbonize the integrated energy system but will most likely also increase the scarcity of the infrastructure. Therefore, an efficient use of the resource "grid" will be a key factor of a successful energy transition. The implementation of an LMPs system of prices with finer space and time granularity promises many upsides and can be a cornerstone for a futureproof electricity system, economic competitiveness, and a decarbonized economy and society. Among the upsides, demand response (and other market participants with opportunity costs) can be efficiently and coherently incentivized to address network constraints, a task zonal systems with redispatch fail at. The transition to LMPs requires a thorough consideration of all the details and specifications involved in the new market design. With this whitepaper, we provide relevant perspectives and first practical guidelines for this crucial milestone of the energy transition. [less ▲]

Initial conditions for the marketing of demand flexibility: status quo analysis and meta study. 2 version

Report (2019)

The present work is part of the research project "Synchronized and energy-adaptive production technology for the flexible alignment of industrial processes to a fluctuating energy supply (SynErgie ... [more ▼]

The present work is part of the research project "Synchronized and energy-adaptive production technology for the flexible alignment of industrial processes to a fluctuating energy supply (SynErgie)" funded by the Federal Ministry of Education and Research. As one of the "Kopernikus projects for the energy transition", the SynErgie research project aims to enable energy-intensive industries in Germany to adapt their electricity demand to the increasingly fluctuating electricity supply. In the past, electricity systems were usually designed so that the generation side of the market was adapted to the temporal behavior of consumption. However, due to the increased expansion of volatile renewable energies, power generation is subject to uncontrollable, weather-dependent fluctuations, which is why making the overall system more flexible is becoming increasingly important. Because the producer side can only offer the required flexibility in the form of a reduction in feed-in, there is a so-called flexibility gap. As became clear on December 14, 2018 and January 10, 2019, this flexibility gap is already pushing the power system to its limits of stability. Only through the use of many compensation mechanisms or With options for flexibility, the security of supply could just be maintained on these days. The industrial processes considered in SynErgie represent a subset of potential flexibility options and can contribute to load adjustment to fluctuating generation as well as to the provision of system services and relief of the grids. In a liberalized, competitive electricity market, the market and regulatory framework conditions are of great relevance with regard to the development of the potential for flexibility in demand. This study therefore first describes the basics of the electricity market design and the constituent legal framework. Current discussions about the basic price system (unit price system vs. zonal system vs. nodal system) are not dealt with. The processing of these discussions as well as the specific analysis of the effects of the price system on demand flexibility is the content of the work packages of the Cluster IV “Market and Electricity System” pending in SynErgie II. The present study therefore rather works on potential obstacles to the participation of flexible demand processes and always refers to the application to industrial processes. The analysis forms the basis for future work in Cluster IV and provides cross-cluster information about the status quo of market structures and regulatory framework conditions. In addition to the systematic processing of the market framework, the scientific literature and already published studies on the subject of demand flexibility (demand side management and demand response) are analyzed and summarized in a meta study. The analysis forms the basis for future work in Cluster IV and provides cross-cluster information about the status quo of market structures and regulatory framework conditions. In addition to the systematic processing of the market framework, the scientific literature and already published studies on the subject of demand flexibility (demand side management and demand response) are analyzed and summarized in a meta study. The analysis forms the basis for future work in Cluster IV and provides cross-cluster information about the status quo of market structures and regulatory framework conditions. In addition to the systematic processing of the market framework, the scientific literature and already published studies on the subject of demand flexibility (demand side management and demand response) are analyzed and summarized in a meta study. [less ▲]

Initial conditions for the marketing of flexibility in demand: status quo analysis and meta-study

Report (2017)

Die vorliegende Arbeit ist Teil des durch das Bundesministerium für Bildung und Forschung geförderten Forschungsprojektes Synchronisierte und energieadaptive Produktionstechnik zur flexiblen Ausrichtung ... [more ▼]

Die vorliegende Arbeit ist Teil des durch das Bundesministerium für Bildung und Forschung geförderten Forschungsprojektes Synchronisierte und energieadaptive Produktionstechnik zur flexiblen Ausrichtung von Industrieprozessen auf eine fluktuierende Energieversorgung (SynErgie). Ziel des Forschungsprojektes ist die Befähigung der energieintensiven Industrien in Deutschland, die Stromnachfrage dem zunehmend fluktuierenden Stromangebot anzupassen. In der Vergangenheit waren Stromsysteme in der Regel dahingehend ausgelegt, dass die Erzeugungsseite des Marktes an das zeitliche Verhalten des Verbrauchs angepasst war. Durch den verstärkten Ausbau volatiler erneuerbarer Energien unterliegt die Stromerzeugung jedoch unkontrollierbaren, wetterabhängigen Schwankungen, weshalb eine Flexibilisierung des Gesamtsystems zunehmend an Bedeutung gewinnt. Die in SynErgie betrachteten Industrieprozesse stellen dabei eine Teilmenge potenzieller Flexibilisierungsoptionen dar und können zur Lastanpassung an schwankende Erzeugung sowie zur Bereitstellung von Systemdienstleistungen und Entlastung der Netze beitragen. In einem liberalisierten, wettbewerblichen Strommarkt sind im Hinblick auf die Erschließung der Potenziale der Nachfrageflexibilität die marktlichen und regulatorischen Rahmenbedingungen von hoher Relevanz. Diese Studie beschreibt daher zunächst die Grundlagen des Strommarktdesigns und des konstituierenden gesetzlichen Rahmens. Dabei wird stets der Bezug zur Anwendung auf Industrieprozesse genommen und potenzielle Hemmnisse der Partizipation flexibler Nachfrageprozesse aufgearbeitet. Die Analyse bildet den Ausgangspunkt für die folgenden Arbeitspakete im Cluster IV und dient der clusterübergreifenden Information über den Status Quo der Marktstrukturen und regulatorischen Rahmenbedingungen. Neben der systematischen Aufarbeitung des marktlichen Rahmens werden die wissenschaftliche Literatur sowie bereits publizierte Studien zum Thema Nachfrageflexibilität (Demand Side Management und Demand Response) in einer Metastudie analysiert und zusammengefasst. [less ▲]