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Åsa Grytli Tveten: Renewable energy in Northern European power markets: effects, challenges and integration options, PhD thesis, Norwegian University of Life Sciences, 2015.

Abstract

The Northern European power system is currently experiencing an extensive growth in production from renewable energy sources (RE), which is expected to continue in the coming decades. Due to the variable, uncertain and location-specific supply of variable renewable energy technologies (VRE) like wind, solar and run-of-river hydropower, increasing deployment levels cause increasing integration costs and power system challenges. The variable nature of VRE technologies causes challenges related to excess supply and congestion. Furthermore, the merit order effect from VRE variability causes a downward effect on electricity prices, with associated reduced profitability, or market value, of VRE technologies. A flexible power system that could adjust to changes in supply is advantageous for cost-effective integration of high VRE market shares and for mitigating the drop in the VRE market value.

The main objective of this thesis is to investigate how the increasing RE market shares in Northern Europe towards 2030 will affect the power market and the value of VRE, and how increased power system flexibility can improve integration, hence increasing the market value of VRE. Based on some methodological limitations and knowledge gaps identified in the existing literature, three sub-objectives (SO) are investigated: SO1) Power market effects of the Norwegian-Swedish tradable green certificates and the German solar feed-in tariffs, SO2) Benefits of increased interconnection between thermal and hydropower dominated regions and SO3) Effects of increased demand-side flexibility (DSF) for improved VRE integration.

An updated and improved power market version of the partial equilibrium model Balmorel has been developed as part of this work. In addition to the Nordic countries and Germany, detailed representations of the interconnected power systems of Netherlands and the UK have been included in the model. In contrast to previous model versions, with stronger focus on thermal power regions, the current version provides detailed regionalized modeling of the Nordic hydropower system. The new model version also includes pumped storage, thermal power plant cycling, regionalized investment costs and potential for RE investments in Norway and Sweden towards 2020, and endogenous modeling of within-day shifts in demand. The model has been thoroughly calibrated for the baseline year 2012.

The sub-objectives of the thesis are analyzed through the combination of theoretical analysis, literature study, empirical and scenario analysis. The increased renewable electricity generation (REG) caused by the RE policies investigated in SO1 is found to cause considerable reductions in average electricity price levels. This demonstrates the importance of taking the merit order effect into account when assessing the net consumers’ costs of RE policies. Furthermore, the merit order effect is found to cause considerably reduced profit for VRE producers for increasing market shares. This will likely be an important limitation for achieving high VRE market shares in the future and has implications for the support levels required to ensure VRE profitability, for the evaluation of power plant profitability and for the choice of location of VRE investments.

The different flexibility measures investigated are found to provide different benefits in terms of improved VRE integration. Thermal-hydro interconnection (SO2) is found to be most efficient for reducing curtailment of wind power and total VRE, and for increasing the wind market value. Increased DSF (SO3) is found to be more beneficial for solar power and run-ofriver market value and more efficient for reducing peak load and short-term price variation.

The system benefits of DSF are, however, found to be more important than the very limited savings for the consumers. Policies or market designs stimulating increased DSF will hence likely be needed to fully utilize the technical potential. From a system perspective, a combination of flexibility measures is found to be the most beneficial for improving integration and market value of all VRE technologies, reducing VRE curtailment, peak demand and price variation.

With the expected fuel and carbon prices towards 2030, increased REG is generally found to substitute natural gas before more emission intensive technologies. Furthermore, implementing increased system flexibility is not found to cause any significant GHG emission effects. These findings are, however, sensitive to future carbon price levels. Nevertheless, increasing VRE market shares towards 2030 will enable more ambitious European emission reduction targets in the future. Policies and flexibility measures that facilitate higher VRE deployment rates will hence likely have a positive GHG emission effect in the longer run.

In line with theory and previous literature, the study results demonstrate the importance of a high temporal and spatial resolution for a realistic modeling of power markets with high VRE market shares.