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Europe without borders. (by night). European electricity production portfolios. Nuclear Coal Gas Oil Mix Hydraulic Wind. Why is the wholesale market important?. For electricity: Supply = demand (constantly!) Limited storage (except for pump storage in CH and N)

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Europe without borders

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Europe without borders

(by night)

European electricity production portfolios








Why is the wholesale market important?

  • For electricity:

  • Supply = demand (constantly!)

  • Limited storage (except for pump storage in CH and N)

  • Trading optimizes supply according to the location and time of demand and creates a wholesale tier

  • Cross border wholesale transactions help efficient price finding over a wider European area

  • Seasonal and diurnal variations in availability of some production sources reflected in efficient peak pricing

Why is the wholesale market important?

  • Thus trading can optimize the market by creating:

    • Efficiencies across regions and countries

    • Efficiencies between fuels used in generation

    • (gas, coal, hydro, nuclear, wind, etc.)

    • Efficiencies by virtue of play of inter-related products(e.g. weather derivatives; emission allowances; transmission rights)

    • Efficiencies through financial markets and derivatives

    • Efficiencies stimulated by price signals of new products

Much renewable power output is outside the market

  • Current situation in several EU countries:

    • Subsidised fixed price paid, independent from the market price of electricity (called “feed-in tariff”)

    • Preferential access to the grid (now mandatory in EU)

    • No balancing obligations for renewable generators

    • Resulting loop flows create artificial grid congestion

    • Major distortions ensue in the electricity market

Strange effects of the current situation

  • Negative prices up to € 3,000 per MWh in central Europe when the wind blows in off-peak hours; occasional price spikes when it does not

  • Cross-border transmission capacity on congested borders is not allocated in forward timeframes, owing to unpredictability of wind and solar generators’ output

  • Up to 60% of the electricity market in countries with high renewable generation penetration is effectively foreclosed to exporters inside the EU

What solutions can ensure better integration?

  • Renewable generation and supply should become part of the electricity market, subject to normal dispatch and balancing mechanisms

  • Financial support should be granted on a market basis, either through premium payments or (preferably) the establishment of quota and certificate schemes

  • The renewable attributes of wind and solar power production must become tradable on a cross-border basis

Stylised description of generation costs for existing and new renewable power locations

Quota with certificates ensures adjustment of support to reach renewable target

The European dimension of using certificates to trade renewable attributes of electricity (1)

Geographical flexibility as to the location of new renewable generation facilities, mediated through market mechanisms would be an efficient way to lower overall costs of achieving EU renewable targets

But EU Directive 2009/28/EC excludes the use of market mechanisms across borders except after the agreement of “joint projects”

The European dimension of using certificates to trade renewable attributes of electricity (2)

Making certificates issued in countries with quota schemes eligible for credits in other EU Member States would be a good step towards a pan-European quota arrangement.

A further evolution could entail the creation of an EU top-up certificate, redeemable also in countries retaining feed-in tariffs.

Reality check !

  • 100% renewable energy (even just electricity) in the EU in 2050 is not realistic

    • Gas will not disappear that quickly

    • Nuclear will stay for a while

    • Challenge of matching peak demand for electricity with peaking supply if hydrocarbons are excluded

What would be the characteristics of the ideal support scheme to expand wind and solar power output while enabling integration into grid systems andsafeguarding a well-functioning wholesale electricity market throughout Europe?


Financial support consistent with market needs

  • Full integration of RES into the electricity market to promote liquidity and transparency

  • Flexibility to build RES generation where most efficient geographically

  • Guarantee at EU level that renewable attributes of RES generation are eligible for credits across borders

  • Transition for older technologies (wind, PV) away from subsidy and towards reliance on the EU ETS

Market-based mechanisms reduce costs

Such mechanisms also facilitate free trade



  • Quick large-scale RES generation deployment in Europe will still depend largely on subsidies up to 2020

  • Subsidies do not have to be purely national and can be granted through market mechanisms

  • If market mechanisms and geographic flexibillity are precluded, costs rise, competition diminishes, and network congestion management is distorted

  • Reliance on the price of carbon emission allowances under the EU ETS may be a better solution post-2020

Thank you for attention

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