Europe looks to electricity consumption dominated by renewables
“Our challenge ahead is to make Europe Number One in renewables. We must prepare for an energy system in which more than half of electricity consumption is powered by renewables,” said Miguel Arias Cañete, Commissioner for Climate Action and Energy at the International Energy Agency (IEA), speaking in Brussels earlier this month.
He was launching a report with key recommendations for European electricity market design, containing best practices on ways in which to “re-power” electricity markets with ones that suit an agenda aiming for both de-carbonization and a secure supply in a post COP 21 world.
The IEA’s report, Re-powering Markets: Market design and regulation during the transition to low-carbon power systems suggests that electricity markets are undergoing massive transformation, as the push for low-carbon power generation shifts the industry towards high investment in renewables and other new technologies - even as demand stagnates or declines in many countries.
It draws on the agency’s review of best practices in electricity market design, mainly in Europe, the United States and Australia, offering guidance to governments, regulators, companies and investors on how to transition to low-carbon generation.
Building the electricity markets of the future, the report explains, requires “a comprehensive framework that encourages low-carbon investments and operational efficiency but also keeps security of supply as a top priority.” That requires efficient markets, it says, “which are best achieved by introducing prices that reflect supply and demand conditions as often as possible and as close as possible to locations where the energy is generated or consumed.”
Today markets are adopting technology that allows such pricing, including day-ahead, intraday and real-time trading, as well as by zone to stimulate cross-border trade, says the report. The detailed price information “needs to be transparent to communicate the cost of electricity in specific circumstances as well as the relative value of different forms of electricity generation so that all participants, even those from neighboring markets, learn where and when to operate and invest,” it adds.
There are always going to be times and places where the wind does not blow and the sun does not shine. But efficient markets unlock the flexibility to deal with the variability of renewables – whether there is a paucity or an abundance - says the IEA. They also need to cope with weather forecasting errors and network congestion.
In order to attract investments in a timely manner and at the scale required, the report says that the shift to a low-carbon energy system requires a robust carbon price to help reveal the right value for various technologies. “That is part of the regulation with long-term arrangements that is necessary - investors, governments and consumers all have to share the risks in the transition, it explains, to ensure efficient and lowest-cost evolution.”
Founded in 1974, the IEA’s initial remit was to help countries co-ordinate a collective response to major disruptions in the supply of oil. But while this remains a key aspect of its work, the agency has evolved and now, with 29 member countries, is at the heart of global dialogue on energy, providing authoritative statistics and analysis.
The U.N. secretary-general, Ban Ki-Moon recently told a conference of investors representing $22 trillion worth of assets, that although energy from “clean” sources such as solar and wind was increasing rapidly, its growth was “not nearly fast enough”. He called on international investors to double their commitments in clean energy by 2020.
The Financial Times, reporting from the conference, quoted Mindy Lubber, president of Ceres, the U.S. group working with investors on environmental and social issues and conference organizer as saying: “Having investors articulate the need for a price on carbon could change the entire debate in the U.S. and around the world.”
While the recent weak crude oil price has had a positive impact on renewable energy, many countries will need better energy policies and regulations to attract investment, according to a paper on the issue presented by industry executives at the World Economic Forum in Davos last month.
Dina Medland is an independent writer, editor and commentator with a strong focus on issues around corporate governance, ethics, the workings of the boardroom and sustainable business. She is on the team of contributors to @ForbesEurope and is an ex-Financial Times staff member who has been a regular contributor in recent years. Further details about her background and a portfolio of work – including her commercially sponsored blog ‘Board Talk’ are available on her website http://www.dinamedland.com