Abstract: Structural changes of the electricity market: Regulatory approaches under increasing shares of renewables

Kirsten Sophie Hasberg, Poul Erik Morthorst, Stephanie Ropenus, Karsten Hedegaard, Marie Münster, Niels I Meyer

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    Abstract

    he characteristics of renewable electricity production, namely close-to-zero marginal costs and fluctuating supply, results in an inherent problem: Lacking incentives for the provision of renewable electricity generation capacity. The electricity price is driven towards zero, when renewable production shares increase, as shown in the following diagram, driving down the revenue of electricity producers.

    This creates a dilemma: The incentive to invest in additional renewable installations decreases with increasing market penetration in liberalized markets. That is, the higher the share of renewables, the less profitable is the installation (of any generating capacity, not only renewable) – the ‘missing money’ problem.

    A paradox situation results: With the current market structure, renewables are dependent on support schemes, also in the long run. This is contrary to conventional wisdom, where learning curves and technological development result in increasing competitiveness over time.

    This presentation discusses tendering schemes as a regulatory mechanism to ensure the provision of (renewable) production capacity. Furthermore, it discusses the importance of demand response in creating a well-functioning electricity market. Especially the role of the “prosumer”, i.e. consumers with e.g. electric cars and heat pumps are considered. Furthermore, a redefinition of the role of the Transmission System Operator (TSO) and Distribution System Operators (DSO) is discussed.
    Original languageEnglish
    Title of host publicationDet miljøøkonomiske råds konference 2010
    PublisherDe Økonomiske Råd
    Publication date2010
    Publication statusPublished - 2010
    EventDet miljøøkonomiske råds konference 2010 - Skodsborg Hotel & Spa , Skodsborg, Denmark
    Duration: 23 Aug 201024 Aug 2010

    Conference

    ConferenceDet miljøøkonomiske råds konference 2010
    LocationSkodsborg Hotel & Spa
    CountryDenmark
    CitySkodsborg
    Period23/08/201024/08/2010

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    Keywords

    • electricity market restructuring
    • merit order effect
    • energy policy
    • energy regulation
    • Smart Energy Systems

    Cite this

    Hasberg, K. S., Morthorst, P. E., Ropenus, S., Hedegaard, K., Münster, M., & Meyer, N. I. (2010). Abstract: Structural changes of the electricity market: Regulatory approaches under increasing shares of renewables. In Det miljøøkonomiske råds konference 2010 De Økonomiske Råd.