www.mitportugal.org

Doctoral Program in

Sustainable Energy Systems

2009 NOV 17

Ricardo Bessa (pds09004@fe.up.pt)

Wind Energy, Support Schemes and Deregulated

Electrical Market

Energy Economics

09

European Union Policy Background

2Wind Energy, Support Schemes and Deregulated Electrical Market

1997 White Paper• Community strategy & Action Plan• Community overall RE target of 12% by 2010

• Community RE target of 22.1% by 2010• National indicative RE targets• EC evaluate (in 2005) the application of direct and

indirect support schemes

Directive 2001/77/EC

• Proposal for a new legislative framework for RE• Proposal for mandatory overall RE target of 20% gross

consumption by 2020

2007 Renewable Energy Road Map

• 20% from RES by 2020 and a 10% share of RES in the transport sector

• Mandatory national targets (e.g. 31% Portugal)• National Action Plans before March 2010

Directive 2009/28/EC

09

Support Schemes for RES

• Established to correct market’s failure for account the full cost to society of electricity generation (externalities)

• Two groups: investment support; operating support

3Wind Energy, Support Schemes and Deregulated Electrical Market

Fixed Feed-in Tariff

Market Price + FI premium

Market Price + bounded FI premium

Market Price + TGC revenues

Price based Quantity basedTendering

09

Support Schemes Comparison (1/2)

4Wind Energy, Support Schemes and Deregulated Electrical Market

Viewpoint

A) Fixed Feed-in Tariff

B) Market Price + Premiums

C) Market Price + TGC

D) Tendering

Government

Consumers

(+) technology-specific(+) attractive to investors(-) no contribution to decrease market prices(-) not certain how much RE is promoted (-) no encouragement of RE consumption(-) difficult operation of the power system (-) no incentive to cost reductions(-) windfall profits with decrease of operational costs

(+) technology-specific (+) forecasting tools (+) incentive to efficient operation and cost reduction (+) contribution to decrease market price(-) premium is paid by consumers (-) no encouragement of RES consumption

Like B)(+) stimulate RES consumption (+) reduce the costs of expanding RES capacity(+) possible extension to other countries (-) windfall profits

(+) competition between investors(+) no need to guess the tariff(+) optimal location of RES(-) high administrative costs and a complex procedure(-) intentional delays in the project

09

Support Schemes Comparison (2/2)

5Wind Energy, Support Schemes and Deregulated Electrical Market

Viewpoint

A) Fixed Feed-in Tariff

B) Market Price +

Premiums

C) Market Price + TGC

D) Tenderin

g

Investors

(+) long-term stability and low risk(--/+) only windfall profits for low-cost technologies(+) no planned maintenance with market prices (-) the support could become negative

(+) windfall profits(+) possibility of planned maintenance(+) low risk associated to the premium(+) chance of rising prices (-) price is less predictable(-) penalizations due to forecast errors(-) risk of failing prices (-) reduced windfall profits if premium is bounded

Like B) (-) additional risk of TGC prices

Like A)

Conclusion

for introduction

phase

developed markets

with higherpenetration

like B) and with mature

RE technologies

introduction phase

09

Effectiveness Against Expected Profit

6Wind Energy, Support Schemes and Deregulated Electrical Market

Source: OPTRES, 2007

09

Portuguese Support Scheme for Wind Energy

7Wind Energy, Support Schemes and Deregulated Electrical Market

Before DL 33A/2005 After DL 33A/2005

Wind farms licensed until Feb. 2006

Wind farms licensed after Feb. 2006

85 and 95 €/MWh depending on the load factor. Updated

according to the CPI

73 and 74 €/MWh depending on the load factor. Updated after

the park start operation

15 years since the publication 33 GWh of production or 15 years

• The new regulation is less rewarding

• Prices are not subject to market volatility (only to nature volatility)

• Future: green certificates + market prices

• Installed capacity increased 41.2% from 2005 to 2006

• Fixed feed-in tariff

09

Spanish Support Scheme for Wind Energy

8Wind Energy, Support Schemes and Deregulated Electrical Market

RD 436/2004 RD 661/2007

Wind farms in operation before 2008 Wind farms in operation after 2008

Two options:1. Fixed tariff: 68.9 €/MWh

2. Market price + premium (38.3 €/MWh) + incentive

Two options:1. Fixed tariff: 75.6 €/MWh (20 years)

and 63.2 thereafter2. Market price + variable premium,

cap at 87.79 and floor at €73.66 €/MWh

1. fixed for the whole life2. automatically transferred to the

new regime in 2012

1. fixed for the whole life2. Wait to see...

• The new regulation is less rewarding, due to price cap

– many producers will only change after 2012

• The former regulation has an higher risk (no price floor)

• 2007 was a special year with a growth of 3515 MW

09

Why the wind farms started to sell in the market?

9

Source: OMEL&AEE, 2009Source: CNE&AEE, 2008

Source: AEE, 2007

Wind Energy, Support Schemes and Deregulated Electrical Market

09

Wind Power and Electricity Prices

10

• Price reduction of 2 €/MWh for each additional 1000 MW in 2007 (AEE, 2008)

• The reduction in the market price (2005-2007) subtracted from the wind energy support scheme does not entail an additional cost for consumers (Miera, 2008)

• The correlation between the market prices and the wind generation is negative (maximum in 2008 with -0.24) (Bludszuweit, 2009)

• The 64% increase in the market price from 2007 to 2008 was due to natural gas and CO2 allowances prices (AEE, 2009)

Wind Energy, Support Schemes and Deregulated Electrical Market

09

Wind Power Bidding Periods

• They make a bid for the DM and update it in the ID markets

11

WPF 36 hrs ahead are required

PPIITI devIDMDM

T

t

spottpE

1

*

T

t

spott

dailybt

bt pEE

1

,int,

T

t

deviationtt

bt pEE

1

*int,

Premium [€/MWh]

Wind Energy, Support Schemes and Deregulated Electrical Market

Total Income:

E*: produced energyEb: energy of the bid

09

The Economic Value of Wind Power Forecast

12

• Three months participation of a wind farm in MIBEL (Angarita, 2007)

– A) Daily Market

– B) Daily Market + Intraday

• Small producers need to invest in forecasting (or buy forecasting services) and IT tools

• For smaller wind farms (<30 MW) the benefits depend on the cost of purchasing forecasts and accuracy of the forecast (Barthelmiea, 2008)

Persistence

Advanced Model

Income [k€] 1150.7 1206.3 5%

Imbalance Penalties Cost/Income

9.5% 4.5% 5%

Persistence

Advanced Model

Income [k€] 1203.2 1224.8 1.8%

Imbalance Penalties Cost/Income

4.3% 3% 1.3%

Wind Energy, Support Schemes and Deregulated Electrical Market

09

Is Spain a Good Example?

• 4h-7h wind generation covered 53% of the load (max of 10300 MW)

• The average over the whole day was 45 % of the load (max of 11500 MW)

• 1000 MW were disconnected due to a short-circuit and no consequences were verified for the consumers

13Wind Energy, Support Schemes and Deregulated Electrical Market

8 of November of 2009

09

Conclusions

• There is no perfect support schemes (each country is a special case)

• Lower risk and stability (associated to the feed-in tariffs) is the main criterion for investors

• Maybe the green certificates + market price will appear more early in Portugal to achieve EU targets

• Spain offers an attractive remuneration and with low risk

• Wind power in the market removes market power, smooth the price peaks during peak hours, gives transparency and decreases financial burden

• Market rules should be adapted to include wind power

– the decrease of gate closures will decrease system deviations and increase wind power income and the system security

• As more wind power is installed, wind power forecast will become more and more important for both sides

14Wind Energy, Support Schemes and Deregulated Electrical Market

09

Some references…

• P.E. Morthorst et al., “Support schemes for renewable energy. A comparative analysis of payment mechanisms in the EU,” Technical Report, May 2005

• Council of European Energy Regulators, “Status review of renewable and energy efficiency support schemes in EU,” Technical Report, Dec. 2008

• M. Ragwitz et al., “Assessment and optimization of renewable energy support schemes in the European electricity market,” Technical Report, Karlsruhe, Feb. 2007

• G.S. de Miera, P.R. González, and I. Vizcaíno, “Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain,” Energy Policy, vol. 36(9), pp. 3345-3359, Sept. 2008

• J. Usaola, J. Angarita, “Benefits of short term wind power prediction programs for the integration of wind energy in electricity markets,” In Proc. of the European Wind Energy Conference, Athens, Greece, 2006

• R. J. Barthelmiea, F. Murraya, and S.C. Pryor, “The economic benefit of short-term forecasting for wind energy in the UK electricity market,” Energy Policy, vol. 36, pp. 1687-1696, 2008

• AEE Wind Power Anuario, Madrid, 2007

• AEE Wind Power Anuario, Madrid, 2008

• AEE Wind Power Anuario, Madrid, 2009

15Wind Energy, Support Schemes and Deregulated Electrical Market

09

State-of-the-art WPF Errors

16

Important for daily market (~11-15% of rated power)Important for intraday market (~7-12% of rated power)

Source: Pinson, 2006

Wind Energy, Support Schemes and Deregulated Electrical Market