NATIONAL RENEWABLE POLICIES IN AN INTERNATIONAL ELECTRICITY MARKET : A SOCIO-TECHNICAL STUDY

QC 20180403</p

NATIONAL RENEWABLE POLICIES IN AN INTERNATIONAL ELECTRICITY MARKET : A SOCIO-TECHNICAL STUDY

QC 20180403</p

NATIONAL RENEWABLE POLICIES IN AN INTERNATIONAL ELECTRICITY MARKET : A SOCIO-TECHNICAL STUDY

QC 20180403</p

National Renewable Policies in an International Electricity Market: A Socio-Technical Study

The current regulatory framework under which the support schemes for Renewable energy sources specifically for electricity (RES-E) operate, is provided for by the Directive 2009/28/EC. It sets a 20% target for energy consumption, while relying on legally binding, national targets until 2020. The goal to promote RES-E, in the European context, coexists with goals of ensuring a single internal market for electricity, and security of supply in the European Union, and these simultaneous goals are not always congruent with each other.Today, significant amounts of intermittent RES-E in the energy mix have led to unintended effects. An important consequence is the so called ‘merit-order effect’, where the spot market electricity price reduces to the extent by which the renewable electricity generation displaces demand along the merit order. There is concern that part of the merit order effect spreads across national borders. Vitally, implications of the merit order effect on the effectiveness of RES-E support schemes are unclear. Another important effect of the price reduction is that, the lower the average electricity market price, the greater the costs of subsidies, making the phasing out of subsidies for renewable, intermittent sources more difficult. With respect to electricity fromrenewable sources, this achievement of the three objectives took the shape of "making renewable support schemes more market-based", "ensuring renewables are driven bymarket signals". However, it is not often clearwhat is meant by such statements in policy documents by the EC. What features of the support scheme are being referred to? What would it mean for renewables solely to be drivenby market signals? How would features of support schemes impact for instance, the merit order effect, and vice-versa? These issues are encapsulated in the first problem addressed in the thesis: to unravel the interactions between renewable support scheme design and a single isolated electricity spotmarket, with a long termperspective.Since countries are now increasingly interconnected, the secondmajor issue tackled in this thesis concerns cross border effects due to different renewable support schemes between neighbouring countries in a common electricity market. This issue addresses concerns about the merit-order effect spreading across national borders, and the ensuing distributional implications.The final issue addressed in this dissertation relates to the long term economic viability of electricity fromrenewable sources given the current institutional and physical setting they operate in. Costs of renewable technologies have dropped dramatically and yet effects such as their reducing market value lead to questions about whether it is possible for them to attain economic viability in a decarbonised power sector. Accordingly, the main research question in this dissertation is:How do national renewable electricity support schemes interact with the electricity market over the long term (20-30 years) as the European Union transitions to a decarbonized energy system?Energy & Industr

NATIONAL RENEWABLE POLICIES IN AN INTERNATIONAL ELECTRICITY MARKET : A SOCIO-TECHNICAL STUDY

QC 20180403</p

Orchestrating Investment in an Evolving Power Sector: An Analysis of Capacity Markets

There is increasing concern that energy-only markets are inadequate when it comes to ensuring generation adequacy in the power sector over the long term. This is reflected in the fact that several Independent System Operators have commissioned studies about security of supply over the last few years; OFGEM and CEER (Council of European Energy Regulators) are some of them. There is some empirical evidence and substantial theory as to why incentives for investments are insufficient in such markets. Capacity mechanisms are policy tools that aim at providing incentive to this investment into reliability – both over the long-term and short-term. Compounding this inadequacy of energy-only markets is the expected change in the composition of the generating portfolio over the coming decades. It is expected that the European electricity industry is almost entirely carbon free by 2050. In addition, implementation of a capacity market in a country in hugely interconnected Europe might show cross border effects that need further insight and understanding. The purpose of this work is to evaluate the effectiveness of capacity markets, a type of capacity mechanism, in its ability to ensure long term generation adequacy, and more generally, improve the performance of the electricity sector and increase consumer and producer welfare. The effectiveness of capacity markets are assessed primarily on the following indicators: performance of the electricity market (adequacy of supply, stable energy prices), consumer welfare and producer welfare. This work is part of a larger project at the Energy and Industry section of TPM, EMLab Generation, which is focused on studying the electricity market in transition towards a low-carbon regime. The methodology applied to carry out this research is agent based modelling. A model of the capacity market has been built and analysed. In order to conceptualize a capacity market model, a thorough literature review and empirical study was carried out on the existing variations of capacity markets that are implemented across the world. While there are slight variations between them, the overarching principle beind them remains the same - to administratively place an obligation on the load to buy supply to meet a certain reserve margin of generation. The New York ISO Installed Capacity (NYISO ICAP) market was used as the primary basis to conceptualize the capacity market. The NYISO ICAP was chosen due to its relatively simple design (there are no forward capacity requirements), and well-established nature. The conceptualization was then adapted to the existing EMLab model. From this conceptual model a pseudo code for the formal model was created, and then implemented in the software. After a lengthy process of verification, the experimental set-up was designed to reflect 1. a sensitivity analysis to capacity market design parameters such as price cap and slope. 2. the effect of a capacity market in a single country, with and without target investment in renewable energy 3. the effect of a capacity market in a two country scenario, with one of the countries having an energy-only market, also with and without target investment in renewable energy. The insights from the model are mainly that the capacity market works as intended, improves the performance of the electricity sector in general, affects the adequacy and therefore the stability of the power system, affects the type of generation portfolio that might arise as a result. Specifically, On Capacity Market Design - The performance of the electricity market is highly sensitive to the price cap and slope of the capacity market. To ensure the desired level of adequacy in the system, the price cap in the capacity market must be sufficiently high (1.5 times CONE) to incentivize and induce investment. If a low price cap (say, CONE) is implemented, there could still be sufficient investment signal if the demand curve is relatively flat. A vertical demand curve is detrimental to the electricity market in general, because staggered revenues from the capacity market hugely increase the volatility in the system, reducing consumer benefit, leading even to negative profits (on an average) for producers. On Cross Border Effects of Capacity Market - The capacity market ensures the desired reserve margin in the country where it has been implemented. However it does so at a higher cost to the consumers of that country. The reasoning behind this is explained in the previous chapter. Interestingly, the model suggests that, without export constraints, between the two countries involved, the surplus capacity in the country with the capacity market dampens investment in the neighbouring country with an energy only market. This even leads to a marginally higher chance of outages in the neighbouring country. On Performance of the Capacity Market with Substantial Renewable Energy - Simulations suggest that reserve margins may need to be increased if the same level of reliability were to be maintained in a scenario with substantial renewable energy generation. Although the choice of capacity mechanism is highly dependant on the context, this work does not intend to recommend capacity market as the solution for problems with the energy only market. However, this research provides valuable insight into capacity market design, on the effects if the capacity market on producers and consumers, and in other relevant scenarios as described above.Energy and IndustryInfrastructure Systems & Services DepartmentTechnology, Policy and Managemen

Value Change, Value Conflict, and Policy Innovation: Understanding the Opposition to the Market-Based Economic Dispatch of Electricity Scheme in India Using the Multiple Streams Framework

As policy innovation is essential for upscaling responsible innovation, understanding its relationship to value change(s) occurring or sought in sociotechnical systems is imperative. In this study, we ask: what are the different types of values in the policy process? And, how does value change influence policy innovation? We propose a disaggregation of values and value change based on a four-stream variant of the multiple streams framework (MSF), a conceptual lens increasingly used for explaining policy innovation in sociotechnical transitions. Specifically, we posit that the values that ‘govern’ problem framing, policy design, political decision making, and technological diffusion can evolve relatively independently, potentially leading to value conflict. We apply this framework to the ongoing case of the market-based economic dispatch of electricity (MBED) policy in the Indian energy transition using content analysis. We find that the MBED scheme—with its emphasis on efficiency (problem), economic principles (policy), low-cost dispatch (technology), and centralization (politics)—attempts value change in each stream. Each instance of value change is, however, widely contested, with the ensuing value conflicts resulting in significant opposition to this policy innovation. We conclude that a disaggregation of values based on the MSF can facilitate an analysis of value change and value conflict in sociotechnical transitions and lay the foundation for systematically studying the relationships among technological change, value change, and policy change.Organisation & Governanc

A Modeling Approach To Analyze The Implementation Of Capacity Markets In Germany

Energy & Industr

Towards a comprehensive policy for electricity from renewable energy: Designing for social welfare

The governance of renewable electricity in Europe beyond 2020 is still uncertain. The only certain aspects are that national level targets will be abolished beyond 2020, and that most renewable electricity support schemes will take the form of competitive bidding. The objective of this paper is to assess the impact of policy choices, the so-called Design Elements, related to renewable electricity support schemes on social welfare. Presently, simulation and optimisation models are commonly applied for assessing the value of policy choice. Typically however, such models do not account for bounded rationality, and true uncertainty in investment decisions, and assume perfect information. However such assumptions can hardly be expected to hold in the real-world, especially in sectors where investment decisions which happen under knowledge of past trends and imperfect foresight, are a major determinant of welfare outcomes. The approach employed in this work is fundamentally different in that firstly, there is a shift from a ‘policy’ view to a ‘design element’ based approach of renewable electricity support assessment, and secondly investment decisions are simulated using agent-based modelling. We find that the combination of design elements that provides the highest increase in social welfare is the quantity warranty, with electricity market price accounted for ex-ante, and with technology specificity. Given the current debate on the governance of renewable energy generation in the European Union beyond 2020, the present paper offers guidance to policy makers and analysts who would like a better understanding of the relationship between policy design and social welfare.Energy & IndustryDelft Energy Initiativ

Cross-border effects of capacity mechanisms in interconnected power systems

The cross-border effects of a capacity market and a strategic reserve in interconnected electricity markets are modeled using an agent-based modeling methodology. Both capacity mechanisms improve the security of supply and reduce consumer costs. Our results indicate that interconnections do not affect the effectiveness of a capacity market, while a strategic reserve is affected negatively. The neighboring zone may free ride on the security of supply provided by the zone implementing a capacity mechanism. However, a capacity market causes crowding out of generators in the energy-only zone. A strategic reserve implemented by this region could aid in mitigating this risk.Energy & Industr