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Rethinking the electricity market design: Remuneration mechanisms to reach high RES shares. Results from a Spanish case study

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  • Gerres, Timo
  • Chaves Ávila, José Pablo
  • Martín Martínez, Francisco
  • Abbad, Michel Rivier
  • Arín, Rafael Cossent
  • Sánchez Miralles, Álvaro

Abstract

Electricity systems experience a period of transition towards decarbonisation and face multiple uncertainties. Variable renewable energy resources undergo a rapid cost decline while policy makers push for stricter decarbonisation targets to limit global warming and to comply with international commitments such as the 2015 Paris Agreement. In this context, a better understanding on how today's electricity market design has to be modified to comply with high shares of variable RES generation is required. This work demonstrates the need to extend the current electricity market design by additional remuneration mechanisms to reach imposed quotas of renewable generation and provide investment incentives for new firm capacity. A Spanish case study presented in this paper explores the electricity system transition between 2025 and 2040. An electricity system resource expansion model (SPLODER) is used to study different policies and estimate the evolution of investments and costs over the transition period. Results indicate that the interactions between energy market prices, additional capacity and RES remuneration mechanisms are particularly sensible to policy decisions, demand growth and technological developments. Conclusions indicate that such remuneration mechanisms must account for the uncertainty of future electricity market developments and additional hedging alternatives are required to ensure the cost recovery of new generation technologies.

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  • Gerres, Timo & Chaves Ávila, José Pablo & Martín Martínez, Francisco & Abbad, Michel Rivier & Arín, Rafael Cossent & Sánchez Miralles, Álvaro, 2019. "Rethinking the electricity market design: Remuneration mechanisms to reach high RES shares. Results from a Spanish case study," Energy Policy, Elsevier, vol. 129(C), pages 1320-1330.
    • Handle: RePEc:eee:enepol:v:129:y:2019:i:c:p:1320-1330
    DOI: 10.1016/j.enpol.2019.03.034
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    4. Perica Ilak & Lin Herenčić & Ivan Rajšl & Sara Raos & Željko Tomšić, 2021. "Equilibrium Pricing with Duality-Based Method: Approach for Market-Oriented Capacity Remuneration Mechanism," Energies, MDPI, vol. 14(3), pages 1-19, January.
    5. J.P. Chaves & R. Cossent & T. Gómez San Román & P. Linares & M. Rivier, 2023. "An assessment of the European electricity market reform options and a pragmatic proposal," Working Papers EPRG2305, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    6. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2021. "The Merit-Order Effect on the Swedish bidding zone with the highest electricity flow in the Elspot market," Energy Economics, Elsevier, vol. 102(C).
    7. Matteo Troncia & José Pablo Chaves Ávila & Carlos Damas Silva & Helena Gerard & Gwen Willeghems, 2023. "Market-Based TSO–DSO Coordination: A Comprehensive Theoretical Market Framework and Lessons from Real-World Implementations," Energies, MDPI, vol. 16(19), pages 1-28, October.
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    9. Aryani, Morteza & Ahmadian, Mohammad & Sheikh-El-Eslami, Mohammad-Kazem, 2021. "Coordination of risk-based generation investments in conventional and renewable capacities in oligopolistic electricity markets: A robust regulatory tool," Energy, Elsevier, vol. 214(C).
    10. Macedo, Daniela Pereira & Marques, António Cardoso & Damette, Olivier, 2022. "The role of electricity flows and renewable electricity production in the behaviour of electricity prices in Spain," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 885-900.
    11. Söder, Lennart & Tómasson, Egill & Estanqueiro, Ana & Flynn, Damian & Hodge, Bri-Mathias & Kiviluoma, Juha & Korpås, Magnus & Neau, Emmanuel & Couto, António & Pudjianto, Danny & Strbac, Goran & Burke, 2020. "Review of wind generation within adequacy calculations and capacity markets for different power systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 119(C).
    12. Sam Wilkinson & Michele John & Gregory M. Morrison, 2021. "Rooftop PV and the Renewable Energy Transition; a Review of Driving Forces and Analytical Frameworks," Sustainability, MDPI, vol. 13(10), pages 1-25, May.
    13. S. Wogrin & D. Tejada-Arango & S. Delikaraoglou & A. Lamadrid & A. Botterud, 2022. "The impact of convexity on expansion planning in low-carbon electricity markets," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 30(3), pages 574-593, October.

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