Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 3-2024: Renewable Integration and Power System Operation: The Role of Market Conditions

Daniel Davi-Arderius (), Tooraj Jamasb () and Juan Rosellon ()
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Daniel Davi-Arderius: University of Barcelona & Chair of Energy Sustainability, Barcelona Institute of Economics (IEB), Spain. Copenhagen School of Energy Infrastructure (CSEI), Copenhagen Business School, Denmark
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Juan Rosellon: Centro de Investigación y Docencia Económicas, Mexico; German Institute for Economic Research (DIW Berlin), Germany; Center for Energy Studies, Rice University, USA; University of Barcelona & Chair of Energy Sustainability, Barcelona Institute of Economics (IEB), Spain.

Abstract: The 2022 energy crisis highlighted the dependence of the European electricity sector on imported natural gas. The European Union adopted measures to reduce gas consumption with peak shaving, energy efficiency, and accelerating the adoption of renewables. We investigate a well-known operational but under-researched issue related to integration of renewables, i.e. the need for conventional generation to ensure system operation requirements (inertia, frequency stability or voltage control) in highly decarbonized systems, which is essential for power system reliability. We analyze the rescheduled supply in Spain in the day-ahead market to respect network constraints, namely ‘redispatching’. Most of the activated volumes are synchronous generators (combined cycle or coal), while an equivalent volume of scheduled renewables (wind) is curtailed to balance the system. These actions have an annual cost of nearly 0.5b€, higher CO2 emissions, and reduce the savings in gas consumption. We also estimate how dispatched volumes evolve under programs that target demand or promote renewables. The Spanish case anticipates similar scenarios in other countries and in the EU. Our main conclusion is that some conventional generators are needed for safe operation of the system and RES and countries need to carefully assess whether to disconnect them from the network. Moreover, solving grid congestions is a necessary but not sufficient for efficient integration of renewables. Grid operators should increase digitalization investments and implement advanced grid planning and operation to anticipate operational constraints.

Keywords: Renewables; Decarbonization; Generation mix; Redispatching; Renewable curtailment; Synchronous generators; Day-ahead market; Network constraints; Gas crisis; System operator; Smart grids; Digitalization

JEL-codes: L51; L94; Q41; Q42

Language: English

34 pages, January 23, 2024

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