EU emissions trading in a crowded national climate policy space – some findings from the INTERACT project

Climate policy in EU Member States is becoming increasingly crowded. Multiple instruments have been introduced at both the Member State and EU levels and new instruments are regularly being proposed. As the number of instruments grows, so does the potential for interaction between them. This interaction can be complementary and mutually reinforcing, but there is also the risk that different policy instruments will interfere with one another and undermine the objectives and credibility of each. The central aim of the EU-funded research project “Interaction in EU Climate Policy” (INTERACT) has been to develop a systematic approach to analysing policy interaction and to use this approach to explore the potential interactions between the proposed EU Emissions Trading Scheme (EU ETS) and other instruments within both EU and Member State climate policy

CO2 cost pass through and windfall profits in the power sector’

This paper analyses the implications of the EU ETS for the power sector, notably the impact of free allocation of CO2 emission allowances on the price of electricity and the profitability of power generation. Besides some theoretical reflections, the paper presents empirical and model estimates of CO2 cost pass through, indicating that pass through rates vary between 40 and 100 percent of CO2 costs, or – in absolute terms – between 3 and 18 €/MWh, depending on the carbon intensity of the marginal production unit and other, market or technology specific factors concerned. As a result, power companies realise substantial windfall profits, indicated by empirical and model estimates presented in the paper. In order to avoid these windfall profits, the paper concludes that free allocation to power companies should be phased out in favour of auctioning

Classifying and modelling demand response in power systems

Demand response (DR) is expected to play a major role in integrating large shares of variable renewable energy (VRE) sources in power systems. For example, DR can increase or decrease consumption depending on the VRE availability, and use generating and network assets more efficiently. Detailed DR models are usually very complex, hence, unsuitable for large-scale energy models, where simplicity and linearity are key elements to keep a reasonable computational performance. In contrast, aggregated DR models are usually too simplistic and therefore conclusions derived from them may be misleading. This paper focuses on classifying and modelling DR in large-scale models. The first part of the paper classifies different DR services, and provides an overview of benefits and challenges. The second part presents mathematical formulations for different types of DR ranging from curtailment and ideal shifting, to shifting including saturation and immediate load recovery. Here, we suggest a collection of linear constraints that are appropriate for large-scale power systems and integrated energy system models, but sufficiently sophisticated to capture the key effects of DR in the energy system. We also propose a mixed-integer programming formulation for load shifting that guarantees immediate load recovery, and its linear relaxation better approximates the exact solution compared with previous models

Benefits of an integrated power and hydrogen offshore grid in a net-zero North Sea energy system

The North Sea Offshore Grid concept has been envisioned as a promising alternative to: 1) ease the integration of offshore wind and onshore energy systems, and 2) increase the cross-border capacity between the North Sea region countries at low cost. In this paper we explore the techno-economic benefits of the North Sea Offshore Grid using two case studies: a power-based offshore grid, where only investments in power assets are allowed (i.e. offshore wind, HVDC/HVAC interconnectors); and a power-and-hydrogen offshore grid, where investments in offshore hydrogen assets are also permitted (i.e. offshore electrolysers, new hydrogen pipelines and retrofitted natural gas pipelines). In this paper we present a novel methodology, in which extensive offshore spatial data is analysed to define meaningful regions via data clustering. These regions are incorporated to the Integrated Energy System Analysis for the North Sea region (IESA-NS) model. In this optimization model, the scenarios are run without any specific technology ban and under open optimization. The scenario results show that the deployment of an offshore grid provides relevant cost savings, ranging from 1% to 4.1% of relative cost decrease (2.3 bn € to 8.7 bn €) in the power-based, and ranging from 2.8% to 7% of relative cost decrease (6 bn € to 14.9 bn €) in the power-and-hydrogen based. In the most extreme scenario an offshore grid permits to integrate 283 GW of HVDC connected offshore wind and 196 GW of HVDC meshed interconnectors. Even in the most conservative scenario the offshore grid integrates 59 GW of HVDC connected offshore wind capacity and 92 GW of HVDC meshed interconnectors. When allowed, the deployment of offshore electrolysis is considerable, ranging from 61 GW to 96 GW, with capacity factors of around 30%

Detailed spatial analysis of renewables’ potential and heat:A study of Groningen Province in the northern Netherlands

Spatially sensitive regional renewables’ potentials are greatly influenced by existing land-use claims and related spatial and environmental policies. Similarly, heat particularly related to low-temperature demand applications in the built environment (BE) is highly spatially explicit. This study developed an analytical approach for a detailed spatial analysis of future solar PV, onshore wind, biomass, and geothermal and industrial waste heat potentials at a regional level and applied in the Dutch Province of Groningen. We included spatial policies, various spatial claims, and other land-use constraints in developing renewable scenarios for 2030 and 2050. We simultaneously considered major spatial claims and multiple renewable energy sources. Claims considered are the BE, agriculture, forest, nature, and network and energy infrastructure, with each connected to social, ecological, environmental, technical, economic, and policy-related constraints. Heat demand was further analyzed by creating highly granular demand density maps, comparing them with regional heat supply potential, and identifying the economic feasibility of heat networks. We analyzed the possibilities of combining multiple renewables on the same land. The 2050 renewable scenarios results ranged 2–66 PJ for solar PV and 0–48 PJ for onshore wind and biomass ranged 3.5–25 PJ for both 2030 and 2050. These large ranges of potentials show the significant impact of spatial constraints and underline the need for understanding how they shape future energy policies. The heat demand density map shows that future heat networks are feasible in large population centers. Our approach is pragmatic and replicable in other regions, subject to data availability

Classification, Potential Role, and Modeling of Power-to-Heat and Thermal Energy Storage in Energy Systems

Most of the power-to-heat and thermal energy storage technologies are mature and already impact the European energy transition. However, detailed models of these technologies are usually very complex, making it challenging to implement them in large-scale energy models, where simplicity, e.g., linearity and appropriate accuracy, are desirable due to computational limitations. In the literature, the main power-to-heat and thermal energy storage technologies across all sectors have not been clearly identified and characterized. Their potential roles have not been fully discussed from the European perspective, and their mathematical modeling equations have not been presented in a compiled form. This paper contributes to the research gap in three main parts. First, it identifies and classifies the major power-to-heat and thermal energy storage technologies that are climate-neutral, efficient, and technologically matured to supplement or substitute the current fossil fuel-based heating. The second part presents the technology readiness levels of the identified technologies and discusses their potential role in a sustainable European energy system. The third part presents the mathematical modeling equations for the technologies in large-scale optimization energy models. We identified electric heat pumps, electric boilers, electric resistance heaters, and hybrid heating systems as the most promising power-to-heat options. We grouped the most promising thermal energy storage technologies under four major categories. Low-temperature electric heat pumps, electric boilers, electric resistance heaters, and sensible and latent heat storages show high technology readiness levels to facilitate a large share of the heat demand. Finally, the mathematical formulations capture the main effects of the identified technologies

Regionalization of a national integrated energy system model:A case study of the northern Netherlands

Integrated energy system modeling tools predominantly focus on the (inter)national or local scales. The intermediate level is important from the perspective of regional policy making, particularly for identifying the potentials and constraints of various renewable resources. Additionally, distribution variations of economic and social sectors, such as housing, agriculture, industries, and energy infrastructure, foster regional energy demand differences. We used an existing optimization-based national integrated energy system model, Options Portfolio for Emission Reduction Assessment or OPERA, for our analysis. The modeling framework was subdivided into four major blocks: the economic structure, the built environment and industries, renewable energy potentials, and energy infrastructure, including district heating. Our scenario emphasized extensive use of intermittent renewables to achieve low greenhouse gas emissions. Our multi-node, regionalized model revealed the significant impacts of spatial parameters on the outputs of different technology options. Our case study was the northern region of the Netherlands. The region generated a significant amount of hydrogen (H2) from offshore wind, i.e. 620 Peta Joule (PJ), and transmitted a substantial volume of H2 (390 PJ) to the rest of the Netherlands. Additionally, the total renewable share in the primary energy mix of almost every northern region is ∼90% or more compared to ∼70% for the rest of the Netherlands. The results confirm the added value of regionalized modeling from the perspective of regional policy making as opposed to relying solely on national energy system models. Furthermore, we suggest that the regionalization of national models is an appropriate method to analyze regional energy systems

EU climate and energy policy beyond 2020: are additional targets and instruments for renewables economically reasonable?

The European Council has proposed to stick to a more ambitious GHG target but to scrap a binding RES target for the post-2020 period. This is in line with many existing assessments which demonstrate that additional RES policies impair the cost-effectiveness of addressing a single CO2 externality, and should therefore be abolished. Our analysis explores to what extent this reasoning holds in a secondbest setting with multiple externalities related to fossil and nuclear power generation and policy constraints. In this context, an additional RES policy may help to address externalities for which firstbest policy responses are not available. We use a fully integrated combination of two separate models the top-down, global macro-economic model E3MG and the bottom-up, global electricity sector model FTT:Power – to test this hypothesis. Our quantitative analysis confirms that pursuing an ambitious RES target may mitigate nuclear risks and at least partly also negative non-carbon externalities associated with the production, import and use of fossil fuels. In addition, we demonstrate that an additional RES target does not necessarily impair GDP and other macro-economic measures if rigid assumptions of purely rational behaviour of market participants and perfect market clearing are relaxed. Overall, our analysis thus demonstrates that RES policies implemented in addition to GHG policies are not per se welfare decreasing. There are plausible settings in which an additional RES policy may outperform a single GHG/ETS strategy. Due to the fact, however, that i) policies may have a multiplicity of impacts, ii) the size of these impacts is subject to uncertainties and iii) their valuation is contingent on individual preferences, an unambiguous, “objective” economic assessment is impossible. Thus, the eventual decision on the optimal choice and design of climate and energy policies can only be taken politically

Modelling a highly decarbonised North Sea energy system in 2050:A multinational approach

The North Sea region, located in the Northwest of Europe, is expected to be a frontrunner in the European energy transition. This paper aims to analyse different optimal system configurations in order to meet net-zero emission targets in 2050. Overall, the paper presents two main contributions: first, we develop and introduce the IESA-NS model. The IESA-NS model is an optimization integrated energy system model written as a linear problem. The IESA-NS model optimizes the long-term investment planning and short-term operation of seven North Sea region countries (Belgium, Denmark, Germany, the Netherlands, Norway, Sweden and the United Kingdom). The model can optimize multiple years simultaneously, accounts for all the national GHG emissions and includes a thorough representation of all the sectors of the energy system. Second, we run several decarbonisation scenarios with net-zero emission targets in 2050. Relevant parameters varied to produce the scenarios include biomass availability, VRE potentials, low social acceptance of onshore VRE, ban of CCUS or mitigation targets in international transport and industry feedstock. Results show a large use of hydrogen when international transport emissions are considered in the targets (5.6 EJ to 7.3 EJ). Electrolysis is the preferred pathway for hydrogen production (up to 6.4 EJ), far ahead of natural gas reforming (up to 2.2 EJ). Allowing offshore interconnectors (e.g. meshed offshore grid between the Netherlands, Germany and the United Kingdom) permits to integrate larger amounts of offshore wind (122 GW to 191 GW of additional capacity compared to reference scenarios), while substantially increasing the cross-border interconnection capacities (up to 120 GW). All the biomass available is used in the scenarios across multiple end uses, including biofuel production (up to 3.5 EJ), high temperature heat (up to 2.5 EJ), feedstock for industry (up to 2 EJ), residential heat (up to 600 PJ) and power generation (up to 900 PJ). In general, most of the results justify the development of multinational energy system models, in which the spatial coverage lays between national and continental models

High technical and temporal resolution integrated energy system modelling of industrial decarbonisation

Owing to the complexity of the sector, industrial activities are often represented with limited technological resolution in integrated energy system models. In this study, we enriched the technological description of industrial activities in the integrated energy system analysis optimisation (IESA-Opt) model, a peer-reviewed energy system optimisation model that can simultaneously provide optimal capacity planning for the hourly operation of all integrated sectors. We used this enriched model to analyse the industrial decarbonisation of the Netherlands for four key activities: high-value chemicals, hydrocarbons, ammonia, and steel production. The analyses performed comprised 1) exploring optimality in a reference scenario; 2) exploring the feasibility and implications of four extreme industrial cases with different technological archetypes, namely a bio-based industry, a hydrogen-based industry, a fully electrified industry, and retrofitting of current assets into carbon capture utilisation and storage; and 3) performing sensitivity analyses on key topics such as imported biomass, hydrogen, and natural gas prices, carbon storage potentials, technological learning, and the demand for olefins. The results of this study show that it is feasible for the energy system to have a fully bio-based, hydrogen-based, fully electrified, and retrofitted industry to achieve full decarbonisation while allowing for an optimal technological mix to yield at least a 10% cheaper transition. We also show that owing to the high predominance of the fuel component in the levelled cost of industrial products, substantial reductions in overnight investment costs of green technologies have a limited effect on their adoption. Finally, we reveal that based on the current (2022) energy prices, the energy transition is cost-effective, and fossil fuels can be fully displaced from industry and the national mix by 2050