The urgent need for decarbonisation has significantly accelerated the adoption of renewable energy sources (RES), transforming the landscape of energy production and consumption. To effectively integrate these renewable sources, the design of energy markets must evolve accordingly. This research explores a contemporary market framework aimed at efficiently incorporating RES, promoting long-term contracts, and leveraging flexibility technologies, thus ensuring economic viability and integration.
Introduction
The exponential growth of RES underscores the necessity for a substantial restructuring of energy market designs. Key drivers include the global push for decarbonisation, recent geopolitical shifts, and evolving energy market dynamics. Traditional market systems face challenges in integrating RES and optimising economic resources to maintain sustainability. The European Union’s (EU) target model, part of the EU’s Third Energy Package, initially aimed at reducing price disparities between member states. However, this model was conceived under a different economic context focused on optimising diverse energy sources. There is an urgent need to adapt market designs to better integrate intermittent RES and flexibility technologies.
Key Challenges and Research Question
The primary challenge lies in designing a market that effectively integrates RES while maintaining market stability and efficiency. The central research question addresses how innovative market designs can facilitate the integration of RES, ensuring the stability and efficiency of the energy market in alignment with decarbonisation targets. This study proposes a framework emphasising long-term contracts between renewable energy suppliers and consumers and establishing distinct markets for RES and flexibility technologies to provide precise price signals.
Decoupling Renewable Energy from Fossil Fuels
Decoupling the RES market from the natural gas market is crucial for efficient integration and economic viability. The framework advances beyond equating RES with conventional thermal generation, acknowledging the distinct cost structures and operational models of renewable and flexibility technologies. Effective planning of transmission and distribution networks, closely linked to RES capacity, is vital for facilitating the energy transition.
Proposed Market Design
The study introduces a renewable energy market framework comprising three pillars: the renewable energy market, the flexibility market, and a long-term contract platform.
- Renewable Energy Market: This market ensures adequate income for all generators while maintaining dispatch based on short-term marginal costs. A dedicated platform promotes the valuation and trade of RES, benefiting from lower production costs and decoupling from gas. The market structure includes price caps to protect producers and consumers, encouraging participation from traders, retailers, and independent renewable energy producers.
- Flexibility Market: This market equips operators with tools to ensure the sustainability of traded products, offering diverse product types to meet various risk-hedging needs and provide price signals for developing flexibility technologies. A gradual integration of flexibility assets ensures optimal use of existing resources while introducing competitive and innovative technologies.
- Long-Term Contract Platform: This platform facilitates trading clean energy for new and existing capacities through long-term contracts. It aims to match supply and demand, standardise contracts, and mitigate counterparty risks. Proper price signals for different technologies are ensured by separating energy and flexibility markets.
Policy Implications and Future Directions
Decarbonising energy generation and transforming energy markets can yield substantial environmental, social, technological, and economic benefits. The proposed market design offers valuable insights for policymakers and industry stakeholders, guiding the development of sustainable and efficient energy markets aligned with decarbonisation targets. Improved coordination between transmission and distribution systems, increased investment in clean energy, and effective integration of prosumers and energy communities are essential for realising these benefits.
This comprehensive framework represents a significant leap toward achieving cleaner energy markets, providing innovative solutions to the challenges of decarbonisation and market integration. By addressing the complex interplay between RES and flexibility technologies, this study contributes to the pursuit of a sustainable and efficient energy future.
Source
Designing new energy markets to promote renewables, CellPress, 2024-05-30
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