Flexibility needs capability market, peak prices not enough: Wartsila

Relying on peak prices to recover the costs of flexible generation and storage assets will not attract sufficient investment to balance Europe's increasingly volatile power markets, Anja Frada, chief operating officer at Wartsila Energy, told S&P Global Commodity Insights March 9.

Europe needs at least 1,100 GW of renewable capacity by 2030 to meet EU climate goals, supported by 19 GW of new flexible gas capacity and 50 GW of energy storage, according to Wartsila modeling.

"We have to ensure enough investment in flexibility," Frada said.

The EU's current incentives, notably capacity markets focused on keeping old fossil plants available, risked undermining this and delaying the transition, she said.

Meanwhile, the need for flexibility was growing exponentially.

Between now and 2030, the increasing share of renewables in Europe's energy mix from 37% in 2022 to 58% in 2030 will increase the average net load variation from plus/minus 90 GW to plus/minus 210 GW over the same period, according to Wartsila modeling.

"Relying solely on peak prices to recover the cost of investment and operations for flexible balancing power capacity with low operating hours will not attract investors or potential owners," the company said in a recent report on market design.

Frada said a recent European investment of nearly Eur5 billion in new capacity had focused on an inflexible fossil fuel plant not suited to a supporting role for renewables.

Further, capacity markets in Europe tended to contract existing coal, gas and nuclear plants with similar baseload characteristics.

The answer was a new type of "capability market" rewarding not just firm capacity, but also the flexible attributes needed to integrate renewables and reduce curtailments.

"The essence of a capability market is to look at capacity, but also to look at the technological attributes of that capacity is to ensure it will run optimally with renewables," Frada said.

Large combined cycle gas turbines were sub-optimal in this analysis.

"Huge CCGTs are best run at baseload, that is their key attribute and when they are most efficient. They don't ramp up or down very quickly. The system needs responses in minutes, not hours," she said.

As well as being more expensive as a solution, requiring large CCGTs to flex extended fossil plant operation "for an unnecessarily long time," Frada said.

A more responsive system would shut down gas plants whenever they were not needed, avoiding curtailment of renewables.

Hence Wartsila's advocacy of its gas engine and battery storage products.

"Flexibility is the key, and gas engines can ramp up and down in minutes. They can part-load while retaining efficiency and these smaller plants are modular, so you can have 10 engines but just one running. This is cheaper to run and better suited to renewables," Frada said.

Assuming capital costs of $780/MW for gas engines and $1,020/MW for gas turbines and overall annual capacity factors of 20%, Wartsila data showed a levelized cost of electricity from gas engines of $215.40/MWh versus $230.50/MWh for heavy-duty gas turbines.

"Between now and 2025-26, all our machines will be able to fire alternative fuels, either 100% or in blends," Frada said.

This applied to renewable hydrogen and all its e-fuel derivatives, she said.