Insight from Brussels: Renewables win in new EU power market design

Renewables are the big winners in the European Union’s new power market rules, which are designed to help the grid cope with ever increasing shares of variable sources such as wind and solar.

This is part of the EU’s long-term push to cut its greenhouse gas emissions and reduce fossil fuel imports.

At the end of 2018 it adopted a binding target to source at least 32% of its final energy demand, including heating and transport, from renewables by 2030.

That translates into sourcing more than half its electricity from renewables by 2030, up from around 30% today, and that upwards trajectory will only continue as the EU seeks to decarbonize its economy by 2050.

The EU’s new power market design regulation, which is expected to become binding in 2019, aims to create a flexible, responsive and integrated grid, able to cope with renewable inputs that vary hugely from day to day and from country to country.

In Denmark, for example, which has for years invested heavily in wind, the share of renewables in its power output varied from zero to 100% within 2017, according to formal EU power grid operators’ body Entso-e.

That worked out as around 70% on average for the year for Denmark, compared with well under 50% for most of the rest of the EU.

Overall, the EU still sources 70% of its power from non-renewable sources, and this 70:30 ratio has “remained broadly consistent” over the last three years, Entso-e said this year.

The new power market rules are intended to help renewable power grow, and support the flexibility options needed to cope with more variable output. For example, the rules retain priority dispatch for existing renewable power plants, but allow transmission system operators to curtail output from new renewable power plants.

TSOs will also have to report on all redispatch actions – interventions in the expected priority order of different generation assets to balance the grid. They will have to follow recommendations from regulators on how to be more efficient in their redispatch, and avoid curtailing renewables.

"This will help give transparency on any 'must-run obligation' agreements with conventional power plants that are crowding out renewables from the grid," trade body WindEurope said.

The solar sector is also delighted with the new rules, in particular for securing "the uptake of small scale and locally owned solar installations" in the EU, its trade body SolarPower Europe said. This "will pave the way for a new solar boom in Europe.”

CO2 limits for power plants

One of the most controversial parts of the new rules centered on emission limits for power plants taking part in national capacity remuneration mechanisms. Such mechanisms, which pay power plant operators to keep capacity available, are becoming popular with many EU governments worried about long-term electricity supply security in markets dominated by variable renewables.

The final deal – like all EU energy policy – is a compromise between what the European Commission, the executive arm of the EU, wants, and what national governments are willing to accept.

The EC was keen to ensure that governments did not use such mechanisms to support power plants with high carbon emissions, such as coal and lignite, and in this it partly succeeded.

Plants starting up after the power market design regulation enters into force – likely to be around mid- to late-2019 – with emissions higher than 550 g CO2/kWh will not be allowed to take part in capacity mechanisms or receive capacity payments.

Existing power plants emitting both more than 550 g CO2/kWh and more than 350 kg CO2 on average per year per installed kW will only be able to receive capacity payments until July 1, 2025.

These criteria impact all unabated coal and lignite power plants, which have emissions well above 550g CO2/kWh. They mean that existing unabated coal and lignite plants will only be eligible to receive capacity payments beyond July 2025 if they run for very limited hours to stay under the yearly average emissions limit. And new unabated coal and lignite plant coming online after 2019 will not be eligible for any capacity payments.

But there is an important exception. National governments will not have to apply the new emission limits to commitments or capacity contracts concluded before December 31, 2019.

This means Poland, which relies heavily on coal-fired power, was able to grant a 15-year capacity contract to the planned 1 GW coal-fired Ostroleka C power plant in December. Ostroleka is expected online in 2023, which means it will be allowed to receive capacity payments until 2038.

Polish energy officials have said this will be Poland’s last large coal plant, and that renewables will be the new focus. Poland aims to source 27% of its electricity and 21% of total final energy demand from renewables by 2030, according to its first draft integrated national energy and climate plan.

All EU governments have had to prepare such draft plans showing how they intend to help the EU meet its 2030 targets. The EC is to review them to ensure they collectively meet the 32% EU target, as well as the 32.5% energy efficiency improvement target.

That means 2019 will see a long negotiation between the EC and national governments over who should do what on renewables. But the trajectory remains clear – more renewables, less fossil fuels.