Towards 2030 EU “RES-based Power System”: Taking stock & looking ahead

“Towards 2030” EU research Workshop @ Florence SchoolJean-Michel Glachant

Loyola de Palacio Professor at EUI (Robert Schuman Centre)Director Florence School of Regulation

Our & my research journey “Towards 2030 Frontier of EU System”

• 1- Tacking stock with 20 past years: building EU market with & without EU “Common Market Frame” (1996-2015)

a/ Opening MS markets in the EU without any “Common Market Frame” (1996-2009)

b/ Berlin Council 2007 “green light to “Big EU Packages shift” but not a shift towards “Common Market Green Frame”

c/ Ending (2013-15) with EU “Common Market Frame” conceived for EU fleet of CCGTs pushing everywhere similar energy price signals

d/ BTW this “EU Common Market Frame” is not in 3d Package – but comes from new institutional frame built (ACER –ENTSOs-Grid Codes etc.) + Infrastructure Package

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a/ MeltingPot: EU Market Frame “swallow” growing RES till 2030. Not true / SaladBowl: what to do with inadequate EU Frame for 15 coming years?b/ For ex. EU wholesale energy prices do not trigger generation investment: what to do with Gen. adequacy & SoS? MS frame? Or EU frame? >> Both SoS & EnergyMix are “sovereign rights” of MSc/ What “RES Back-Office” Policy Making @EUlevel? DGComp? Competition Policy to provide any coherent NEW Market Frame ? ? ? d/ BUT EU also has “regulation producers”: ENTSO-E + ACER. Well…e/ What if EU System core is not anymore (CentralGen / TrsmGridsOp) + (SupplyDispatch / OpenWholesale) But (DistribGen / DistribGridsOp) + (DemandResponse / SmartRetail)Then >> 2 changes to make: 1°Market Frame & 2°Institutional Frame

>> Could “Energy Union” provide both ? ? ?

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2- Looking Ahead: “RES Push”

questions “Common Market Frame”

Towards the 2030 Frontier of EU System

• 3- Any “Energy Union” policy reframing?

a/…”Energy Union” New Packages? Is “New EU Legislation” so likely?

b/… “Energy Union” New Grid Codes? Is “New EU self-Regulation” so likely?

c/… Still a “Smart Market Frame Blank” in Policy Making at “Energy Union” level?

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• 1.1.1 The 1st & 2nd Directives: each country opens its own EU Internal Market (1996-2004):

a/ (nothing European in MS markets openings after 1st Directive Leigh Hancher /) b/ >> Unifying MS? Impossible Gjm “reproduce UK reform?” >> Harmonizing MS? What is key? (Jm-Leveque Edward Elgar) c/ & How to get it? (Piebalgs: we have NRAs, Ergeg, ETSO, FlrFor + Reg. initiatives)

• 1.2.1 Locked into 2nd Directive’s trap: DG COMP unlocks with Sector Enquiry (2005-2006) and “Rosy” Berlin Council keeps it open:

a/…DG COMP Sector Enquiry (Germany: smoking guns and Utilities U-Turn)…b/… “Rosy” Berlin Council favors 3d Package take-off

• 1.2.3 The 3d Directive “EU Power Institution design” prevails over “EU Power Market Design” (2007-2009) : a/… (“Rosy” Berlin Council favors 3d Package take-off) BUT 20-20-20 RES Policy not factored in “EU

P.T.M vision” >> Unbundling Unbundlingb/… “anyway” EU P.T.M is not in the 3d Directive but in its implementation… (ACER / ENTSO-E / Florence Forum as a proxy for Eurelectric – Efet - Ifiec) opening all MS markets with a minimum set of rules (each MO keeps its clients and order book / each TSO keeps is capacity calculation)

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[I] Opening EU power markets without any common “Market Frame” (1996-2009)

(I-1)

[I] Ending with EU “Power Common Frame” (2013-14)

• 1.2.1 Pricing EU energy on Day-Ahead: a gigantic “market based” Merit Order at continental scale

…of course grid access permitting…

• 1.2.2 Simplifying Access to EU Grid : coupling bids cross-border via “market coupling” (operated by Grid Operators and PXs)

…but Day Ahead is not “real time” delivery; so many hazards…

• 1.2.3 Looking at “Balancing & reserves” procurement cross-border: the next “frontier” of EU power market design

… well: what a rosy picture… indeed…

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• 1-3.1 Pricing energy Day-Ahead: P.T.M assumes that energy bid forecasts at Day Ahead is actual power market equilibrium

What if CCGTs Day Ahead commitment replaced by intraday variable WindMills&PV? What if “ generation capacity adequacy” looses Day Ahead pricing as good proxy of system value of capacity?

• 1-3.2- Simplifying Grid Access: P.T.M assumes that actual “grid location” of generation is not big deal if EU market is made of “zones” being coupled

What if not? If actual location of Generation on grids becomes key for EU System Operation & for EU Market Equilibrium… If actual design of individual zones of system operation becomes “EU system significant”

• 1-3.3- Looking at “Balancing & reserves” procurement cross-border: P.T.M assumes that procurement is “Zee” key in system balancing & reserves

What if not? If “demand” of system services is key. If we need players to become highly responsible for / responsive to their action on system’s balancing & reserves needs…

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[I] EU Market Frame

achieved? Wait a minute…

[II] The EU “RES Push” questioningIntegrating RES?Or creating RES efficient EU market frame?

• 2.1.1 How much RES could the existing Market Frameswallow?

a/ Discussion1 /no problem: it should work; market based (Melting Pot)

b/ Discussion2 /a problem: it shouldn’t work; design issue (Salad Bowl)

• 2.1.2 EU wholesale energy prices do not trigger generation investment: and so what?

a/ Discussion1 / Temporary or Permanent issue? Lasting as long as redundant plants (overcapacity) are not closed? Or Permanent issue : adequacy of energy market price based generation investment cannot be assumed anymore (Newbery, Green-Leauthier)?

b/ Discussion2 / Feasibility of a Europeanization of MS SoS mechanisms? EU wide single SoS mechanism inefficient? What minimal EU harmonization of SoS principles?

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• 2.1.3 The “RES Back-Office” Policy Making at EU level

a/… RES Wholesale PolicyMaking: Discussion/ or No discussion? DG COMP Nov 2013 “Guide Lines”: a “legally binding” frame >> Germany “happy” to follow> > but how to get EU harmonized Market Frame?

b/… CapacMechan PolicyMaking: Discussion / or No Discussion? DG COMP Nov 2013 basic principles - April 2015 DG COMP Enquiry >> but where to get the harmonized Market Design?

Big Issue: both SoS&Energy Mix key MS powers (HinkleyPoint UK Nuke)

April 2015: new sector enquiry based on “new enquiry principles”

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[II] The EU “RES Push” questioningIntegrating RES?Or creating RES efficient EU market frame?

• 2.1.4 “Smart retail” the new frontier of EU system?What if EU System core is not anymore

(CentralGen / TrsmGridsOp) + (SupplyDispatch / OpenWholesale)

But

(DistribGen / DistribGridsOp) + (DemandResponse / SmartRetail)

Then

2 changes to make: 1°Market Frame & 2°Institutional Frame

>? >?

Could “Energy Union” provide both ? ? ?

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[II] The EU “RES Push” questioningIntegrating RES?

Or creating RES efficient EU market frame?

[ “II – EU RES Push questioning”]Shifting from 2015 market frame to “2030 RES adequate frame”

• +1/ Pricing better capacity & energy at all time horizons >> new sequence of Markets surrounding “Day Ahead Energy Market”?

• LT “Capacity Contracting”: adequacy for 2020 added to EU market process?

• *ST “Flexibility service”: Market Valued “Last Minute Flex” for System + Players Risk Hedging?

• +2/ Un-Simplifying Grid Access?

*To put “actual grid operation constraints” as variable for RES sup. schemes

**Redefining “zones” / or going nodal in EU wholesale “market design”

• +3/ Internalizing full system costs & benefits of “Balancing & reserves” in value of individual usages of system by demand and by generation

*Demand “big thing” of EU power market design? Requires “Dynamic Pricing”?

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[ “II – EU RES Push questioning”]Need for 2030 “Retail & Demand” EU market frame to appear? If

2015 “Wholesale & Supply” market frame cannot deal with?

• .1 - Smartening everything till 2030?*Apps to spotting & booking taxis, private cars, or private B&B**Enhancing CarDriving & roads via software&sensors; parcel delivery: drones ***Shift to 2030 smart homes & Internet of things?

• .2 - Millions of households both producers & consumers?*more receptive to smartening interactions GEN / Load?**big enough base to make it “business sensible” market target?

• .3 – “Demand response” needed or key for 2030 system operation>> key “big paradigm shift” of EU power market frame? >> Upgrading Demand as actual center of EU electricity system?

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[ “II – EU RES Push questioning”]Retail: the 2030 frontier of EU power market frame?

• 1.1 - Smarten the pricing(s)? Dum price – dum guy?*Fixed insensitive “feed-in” for PV/Wind ~to move to SystemFlex sensitive ?**Fixed insensitive “consumer tariffs” ~to move to SystemFlex sensitive?

• 1.2 – Smarten access to distribution grids? Where is Demand @center?*Unbundling Dstr.Grids to facilitate innovative entry ** Open access to data within data protection *Create Dstr. Grids “System Flex incentive regulation”?** Go to more innovation? Or more Distrib. Grids protection?

• 1.3 –Embedding “Demand response” into “local energy systems”?>> the newt “very big paradigm shift” of EU grid power design? *Why “TSO central zoning & control” should keep system operation “central” if GEN & Load match more & better when decentralized into “local systems”?

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[III] Any “Energy union” policy reframing? May “Energy Union” bring the missing comprehensive framework?

• III.1 Is “New EU legislation” so likely?

a/ the big legislative appetite of the EC “Energy Union” Communication (25 Feb 2015): du “jamais vu”

b/ likelihood in current institutional & political frame? Some auxiliaries: *“push for SoS”; and for the **push “for Paris conference & 2030 horizon”

• III.2 Is EU “New EU regulation” so likely?

a/ Getting it done by ENTSO-E /Acer/EDSO&FlorenceForum (Eurelectric; etc)?

b/ the ENTSO-E SoS Regional initiatives & TSOs agenda

• III.3 Still a “Smart Market Frame” Blank in Policy Making at EU level?

a/ a “EU Moto” (Donelly, Canete, Sefcovic; Delors – Vinois)

b/ How to get? Enough EDSO &Eurelectric (New Entrant?) push @MS level?

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IV. Commission’s 25 Feb./Not BAU for #Market Design and #Governance?

1- EU 4th Big Package Internal Market & Governance#Market

*Legislation 2016; retail & wholesale; integrating RES; phasing out non market based support; coordinating Capacity Mechanisms .

**Legislation 2018 Electricity security of supply (= ‘recall’ of national SoS)

#Governance

***Review framework from 3d Package notably for ACER (to ++power of Europeanizing regulation) & ENTSOs (to ++ as regional operational entitiesto create)

****Propose guidance for ‘regional cooperation for market integration’ and to act at regional level wih regu. Bodies, MS and stakeholders

*****Create ‘Energy Infrastructure Forum’ with MS, Regional coop. Groups, and EU institutions (ACER? Banks?) by late 2015

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IV. Commission’s 25 Feb./Not BAU for #Supply Security and #Ext.Governance

2- EU actions for Security of Supply

#SoS *Legislation: Revision Gas Regulation by 2015-2016

** Implementation of existing PCIs with adequate financing

** *Strategy for LNG an its storage

** **Council 19-20 March : explore feasibility of gas joint-buyingmechanism

#ExtGov ** ***Legislation: Revision Decision International Agreement for Commission to intervene ex ante before signature of agreements with 1/3 countries

** ** **Coordination Commission / HR-VP / MS to create international diplomacy for energy & climate issues; for international treaties (as TTIP) or within WTO, and launch new initiatives (as agreement with India, withChina ;etc) in field RES, Ener.eff, etc.

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IV. Commission’s 25 Feb./Not BAU #for Sustainability beyond Market

3- Fields of EU actions for sustainability:

*Legislation to revise EnerEff directive &make proposals to meet 2030target

**RES package by 2016-17 incl.sustainable &cost-effective biomass, biofuels

*** Legislation to achieve Oct2014GHG target in ETS & non-ETS sectors

** **Legislation ‘Full Road Transport Package’ covering efficient pricing of infrastructures; rool-out of intelligent transport; enhancing ener.eff

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** ***Strategy to facilitate Investment in efficient ‘Heating & Cooling’

** ** **Create Smart financing for smart buildings fund

** ** ***To push MS & regions to use more the funds to renovate housings

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**** **** Strategy for transport research & innovation agenda

**** **** *Revision ‘Strategic Energy Technology Plan’

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How to conclude? Yes 2030 a big shift#Many Energy Union(s) drafted on 25th Feb. #Which(s) to get? #I don’t know! # To be seen from 2019…

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Thank you for your attention

Email contact: jean-michel.glachant@eui.eu

Follow me on Twitter: @JMGlachant already 7 034 tweets

My web site: http://www.florence-school.eu