Grid Integration of Renewable Electricity Trading and Transmission Roundtable: Summary and Highlights

October 10th 2007, Berlin

Background
The need for a 50% reduction in global greenhouse gas emissions by 2050, as recently agreed by G8 leaders in Heiligendamm, presents many challenges. Among other things, it implies rapid acceleration in the growth of renewable energy. As an outcome of its Grid Integration of Renewable Electricity Project, the IEA will provide recommendations to the Hokkaido 2008 G8 Summit on how to efficiently increase the share of renewable electricity through evolution of transmission systems and markets. The recommendations will be based on existing initiatives and knowledge in the electricity sector. Following the May meeting focusing on technology development aspects, the Trading and Transmission Roundtable was held in the Official Representation of Baden-Wrttemberg in Berlin, In conjunction with the 52nd Meeting of the Renewable Energy Working Party, on October 10th 2007. This document gathers together some of the key points raised in presentations and discussions at the roundtable. For the sake of brevity, only elements related to the scope of the current phase of the IEA work are included below. Particular focus during the day was had on variable output technologies. The final report will however relate to renewable energy sources as a whole. Participants who feel that important elements have been overlooked are warmly encouraged to contact hugo.chandler@iea.org

1. Transmission Aspects Raised at the Roundtable

Key Points Interconnection among countries has other benefits aside from easing integration of renewables. Besides smoothening RES variability, interconnection can reduce balancing costs, encourage true competition bringing about lower prices, and support networks. The sharing and optimal use of transmission capacity could help avoid excessive new build. Transmission systems are aging almost year for year, in terms of average lifetime. This means that integrating new elements to old infrastructure should be done with care. Strong long term planning is essential to integrate RES. For efficient development, planning on a system wide basis is essential, taking into account the three elements of conventional generation, renewables, and the specificities of the network. 1

Extension or upgrade of transmission lines will be necessary to integrate high penetrations of renewables. However, renewables can in return provide services and support to networks. Existing technology is not being taken up fast enough. Great efficiency gains are possible, in some case without the creation of new transmission corridors. However, existing legal regulations, established with other aims in mind, can prevent some state-of-the-art practices from being taken up. The fit-and-forget attitude for distributed generators belongs in the past. Generators should take a more active role in network support. Greater understanding of market based incentives to incentivise grid extension and upgrade is needed in order to give right pricing signals to RES developers, and to share costs in a fair and transparent way. Acceptability of risk of disturbance, in terms of duration, frequency and scale, must be adequately understood (regardless of generation portfolio / grid aspects). Public resistance to new transmission corridors is a major constraint in many countries. Underground transmission cables may have potential to counteract resistance.

International Interconnection Although energy policy making remains mainly at the national level, the international dimension must not be overlooked. The integration of markets in Europe has had significant benefit for variable output renewables, particularly wind energy, not least in the consolidation of balancing areas. Interconnection among countries can smoothen variability, reduce balancing costs, encourage true competition bringing about lower prices, and support networks. Terna SpA, the Italian TSO, has carried out a number of feasibility studies relating to the interconnection of Italy with a number of Mediterranean neighbours including Croatia, Libya, Algeria and Tunisia. Motivations for interconnection include increased system security, integration of renewables, increased efficiency and effectiveness of transmission system, and congestion reduction. Italian and Tunisian governments have signed an agreement with the objective of establishing an interconnection. A Memorandum of Understanding has also been signed between STEG (Socit Tunisienne de lElectricit et du Gaz) and Terna. Expected advantages for Italy include: i) diversification of supply, as an alternative to transalpine corridors (often highly congested); ii) cheap electricity; and iii) improved frequency stability. Expected advantages for Tunisia include: i) availability of significant reserve, allowing reduction of operational margins, reducing total production cost; and ii) improved response to network disturbances. The economic study accompanying the Terna feasibility study suggests that the link would be beneficial in terms of investment and operating costs. Key parameters are the electricity price in Italy and the production cost in Tunisia. Other interconnections are being considered between Italy and the Balkans, across the Adriatic Sea. Two potential connection points with Croatia are under investigation: Velebit (Cr) to Fano (It), and Konisko (Cr) to Candia (It).

The Australia / Tasmania link is a good example of the additional system security to be gleaned from interconnection. Tasmania is rich in wind and hydro resources but drought conditions after the after the link was developed have, conversely, meant that power has flowed in the opposite direction (to Tasmania).

Upgrading and extending existing transmission systems Technology push will complement demand pull (Figure 1). A number of technological advances have the potential to improve the operation of transmission systems. These include dynamic line rating, high temperature conductors, DC transmission, smart metering / increased consumer flexibility, power electronic devices for load flow control (FACTS), superconducting components, intentional islanding, black-start capable sub-systems (on distribution level), and probabilistic network operation. In effect, significant capacity and other gains are feasible, without the addition of new transmission corridors, simply through increasing the efficiency of existing corridors. And yet many potentially beneficial technologies, despite their readiness for use, are not commonly taken up in practice. A 2007 Energie Analyses study suggests that 50% wind in Denmark in 2025 is possible with known technology, and can be achieved without new overhead lines.
Figure 1: Presentation extract on technology push

While the uptake of renewable energy has very strong popular support, the extension of transmission systems, which is likely to be necessary to varying degrees in order to bring renewable energy to the market, can be problematic because of local opposition to new lines. This is one of the reasons that new transmission can take so long to build: 10 to 15 years according to European Commission estimates. The use of underground cables would bypass local opposition, as well as bringing other advantages. Workshop participants highlighted that HVDC technology, which might also be used, is increasingly cost effective compared to AC cables (Figure 2).

Figure 2: Presentation extract showing reducing relative costs of HVDC cables.

It was pointed out that in Italy, constraints to increasing transmission in existing transmission lines may exist in the form of regulations related to exposure to magnetic fields, developed with public health in mind, and which do not take into account the state of the art.

Shared Access to and Costs of Transmission Transmission access in Great Britain is undergoing review. Under previous arrangements, a generator wishing to connect to or use the transmission network has had to apply for firm Transmission Entry Capacity (TEC), and has been exposed to the full cost of any work associated with their connection. The present GB system was designed so that all generation can contribute to meeting peak demand. GB is now is developing a revised user commitment model, wherein the burden of new connections will be shared by the connecting generator, existing generators and demand customers. Moreover, existing users have had the advantage over new generators in that they retained the option to renew on an enduring basis. While existing generators are able to give very short notice of closure, new generation may be blocked from the transmission they need. In order to secure TEC in time for when the plant is completed, projects may have to apply for TEC even before planning permission is granted. In Scotland there are 13 GW of potential wind energy projects waiting for connection approval. According to GB 2020 targets, projected 70 GW demand will be met by 105 GW of generation (the 50% margin being due to the substantial deployment of (variable) wind power): participants proposed that to develop 105 GW of transmission capacity would be excessive; the alternative being that generators share transmission capacity. Limited access rights could be traded between parties, possibly with some form of non-firm overrun product. Under the proposed connect and manage approach, a generator would have guaranteed access within a specific timescale, and if unable to provide access, the system operator would be required to buy back capacity during some hours.

Offshore Wind Transmission HVDC technology is significant in this context. E.ON is scheduled to build a 400 MW wind farm Borkum 2, which would be the most distant and largest offshore wind farm in the world. E.ON has signed a connection contract with ABB based on HVDC technology. In Germany there are 1336 licensed sites in the North and Baltic seas, most of which are 30 to 80 km off the mainland. In December 2006, new Legislation the Infrastructure Planning Acceleration Act (Infrastrukturplanungsbeschleunigungsgesetz) - gave responsibility for the grid connection of offshore wind farms to TSOs (E.ON Netz and Vattenfall Europe Transmission). The TSOs will plan, run and finance the grid connection from the wind farms transformer station to the onshore transmission grid. This is intended to ensure a systematic planning approach, avoiding one-windfarm-one-cable-type development (See Figure 3), and should yield a 20 % cost reduction for wind farm developers.
Figure 3: a systematic approach to offshore wind farm connection

2. Market and Other Aspects Raised at the Roundtable

Key Points Evolution of transparent market structures can enhance the integration of renewable electricity. Transparent balancing mechanisms, where prices reflect real cost, are essential. Short gate closure times (hour vs. day) increases accuracy of forecasting for variable renewables, reduce imbalance penalties, and greatly increase the predictability of output. Greater integration of variable output electricity is likely to bring greater price volatility, an incentive for greater demand side participation. Markets should develop to encourage greater participation on the demand side. Political will alone is not enough to create investor confidence in renewables. Markets should be designed to adequately reflect the full value of renewable energy. 5

Large balancing areas enable balancing to be spread to where it is cheapest. Current market designs may not encourage generation portfolio flexibility or adequate capacity margins to enable variable output technologies while maintaining system security. An effective step towards renewables integration can be made through the full unbundling of transmission and generation ownership, and of ownership and operation of transmission systems.

Market design Market designs differ considerably, nationally and regionally (particularly in the US). Some common characteristics should be targeted: unbundled ownership and operation of networks, and separate ownership of transmission and generation; fair and easy access for all market players, open retail markets, comprehensive trading arrangements, demand side participation, and a transparent balancing mechanism. No market to date has completed the process of liberalisation. An ideal market is one where the true costs and benefits of generating and transmitting electricity are reflected in the price. However, in practice it may be necessary to compromise in order to effectively incentivise renewables. In Nordic, UK, Australian and PJM (US) markets, liberalisation of markets has had a positive effect in terms of price reduction, better utilisation of generation and transmission assets, higher productivity and better investment decisions. A number of different ways of trading electricity from variable sources are in use in Europe: I. No trade: the whole wind generation is interpreted as imbalance power and settled with imbalance prices. II. Trade on futures market (no short-term forecasting): the average wind generation is traded in form of quarterly futures base products III. Trade on futures and spot market : average wind generation is sold in form of a quarterly futures base product; deviations between forecasted and mean power are traded on the spot market; deviations between measured and forecasted wind power are settled with imbalance prices IV. Trade on spot market : wind power forecasts are traded on the spot market; deviations between measured and forecasted wind power are settled with imbalance prices

Figure 4: Great Britain Electricity Market Arrangements

In Ireland, the All Ireland Market for Electricity went live on November 1st. Features include a mandatory gross pool, capacity payments, trading at half hourly intervals, and ex-post settlement. In the US, an enormous variety of markets exist but share some common features exist. The system operator is always operationally separate from market participation. Structures are split into two groups: those where an ISO runs the system and those where it is run by a traditional, vertically integrated utility. ISOs tend to be found in the northeast, Midwest, California and Texas; these are areas with active wind energy developments. Cause or coincidence? Large independent system operators in the US are found in the northeast, Midwest, California, and Texas, and include PJM, MISO, NYISO, ISONE, ERCOT, CAISO, and SPP. All these markets feature day-ahead and real-time hourly energy markets, 5, 10, or 15 minute balancing energy intervals and hourly markets for ancillary services (regulation & contingency reserves. Capacity markets are a contentious issue but are in use in places for reliability purposes. In the UK, at 20% penetration of wind energy, participants estimated that 20GW of conventional plant would be operating at a load factor of less than 10%. This suggests a change in the role for conventional plant from baseload to peaking generation. Markets mechanisms should be designed to incentivise more peaking generation investments when needed. Increased penetrations of renewable electricity will likely result in increased price volatility, presenting new incentive for demand side response to price signals (assuming this volatility is visible to large and small consumers).

Balancing and Gate Closure Major considerations with the integration of large amounts of variable renewables, in terms of balancing, may include increased requirement for operational reserves and high requirement for system flexibility.

The size of the balancing area has significant importance. In the Nordel system, imbalances are able to flow to neighbouring countries, giving a smoothening effect. Only the net imbalance needs be addressed, and regulating power is activated wherever it is cheapest. In contrast, in the UCTE region (approx five times the size of Nordel) unplanned production must be balanced in each control block, meaning higher costs for variable renewables, particularly if combined with early scheduling. The objective of imbalance penalties is to change the behaviour of generators that are able to regulate their output; their application to generators whose output depends on a fluctuating resource is ineffectual. Consequently in the USA, FERC provides partial exemption from penalties for wind generators. Some ISOs provide further exemption if wind plants participate in communal forecasting. In Europe, imbalance costs very considerably, from 0.8 to 12.3 /MWh according to recent studies. The amount of imbalance cost to be paid is a function of the forecast error. The latter is contingent on the spatial distribution of wind farms, meteorological accuracy, local topography, forecast methodology, and on the forecast horizon (gate closure) in UCTE region this may be as much as three days (over weekend). Day ahead markets, which may in fact entail prediction of output 12-36 hours ahead, greatly reduce the accuracy of production predicted: 60-65%, compared to an hour-ahead market wherein more than 95% (of wind) can be predicted.

Capacity Value The capacity value of wind energy is generally reduced as penetrations increase (Figure 5). Increasing the size of balancing areas, in turn, increases capacity value - having a smoothing effect on variability and reducing forecast areas (Figure 6).
Figure 5: Presentation extract showing reduction in capacity value with increasing penetration

Figure 6: Presentation extract showing that geographical dispersal of wind plant can increase capacity value

ICT Fast markets can be facilitated by uptake of new information and communication technology. System operators need to have good and rapid information on the system state, also from the neighbouring systems. Short term forecasts of generation need to be communicated to the market. The January 8th 2005 storm In Denmark, when an unpredicted drop in wind power in 6 hours occurred, would have been easier to handle if there had been better communication between East and West Denmark (2 to 3 hours apart).

Ancillary Services from Distributed Generation The fit-and-forget attitude to distributed generation is likely to become increasing outdated. The future will see PV taking a more active role. A number of ancillary services can be provided by PV, including: voltage control, reactive power compensation, loss compensation and harmonic filtering. At present, only limited ancillary services markets for distributed generation exist, such as revenue for reactive power in Spain. No market exists for voltage control at the distribution network level, no market for harmonic compensation, and only limited access exists for small units to balancing markets.

Integration Costs The cost of transmission network reinforcement and new lines needed to connect new renewable electricity plant depends on where the resource is located related to the load. In the USA, the costs of integrating wind energy vary significantly according to whether or not a transparent market and ISO are in place. For around 30% capacity penetration, costs cited 9

range from US$ 0.6 4.41 in areas with ISOs, to 8.84 16.16 in areas still on the traditional utility model. The latter include the areas with hydro penetration, which is usually considered to mitigate variability this is due to opportunity costs of hydro power in local markets. In the Ireland, according to the recent Eirgrid scenario, with a gas price of c100 / gross therm and wind capital cost of 1000 /kW, savings are to be had from having wind as opposed to gas plant. If CO2 credits are also considered, there are higher potential benefits.

3. Flexibility aspects raised

The flexibility needs of RES-Ev (over a defined time and area) could be expressed in the extreme variation or forecast error in MW, once the smoothing effect of geographical and technological aggregation are taken into account, as well as the forecast horizon time scale. This needs to be superimposed on existing flexibility needs due to load forecast errors and contingencies. The flexibility resource offered by the system, again over a defined time and area, in MW, results from the dispatchability of the existing generation portfolio, interconnection capacity, demand side measures, and reversible storage. Electricity market and system operation practices will have a significant effect on this flexibility, particularly the size of the balancing area, which can reduce variability and forecast errors, and pool larger balancing resources; and the timescale of flexibility needed, whether hours or day ahead. Individual countries will face differing degrees of effort/cost in integrating variable renewable energy generation. The effort/cost will be a function of: grid upgrades needed, depending on the distance from the resource to load centres and the existing network strength flexibility of the power system (existing, means to increase): generation, interconnection, storage, DSM flexibility of operation practices/markets: time scale, area size variability of RES-Ev resources: distributed / concentrated; dominated by one / many uncorrelated resources

4. Next Steps in the Project

This summary and PPTs at the Roundtable, as well as a link to the Technology Experts Meeting held in May, can be found at http://www.iea.org/Textbase/work/workshopdetail.asp?WS_ID=335 In the New year, the IEA Secretariat will produce an Executive Summary including the key findings and recommendations intended for the Hokkaido G8 Summit in July 2008. A final report will also be prepared, providing more detailed and supporting analysis, and proposing areas for further work.

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Annex 1: Final Agenda

Wednesday 10th October
08h30 Registration 09h00 Welcome and Opening Remarks Neil Hirst, Director, Energy Technology Office, IEA Secretariat Hugo Chandler, Renewable Energy Unit, IEA Secretariat

09h10 Introduction, summary of the May Technology Roundtable, and explanation of approach Session 1: Networks

Chair: Neil Hirst, Director, Energy Technology Office, IEA Secretariat

09h20 Network options for renewables: perspective of the ENARD Implementing Agreement

Stig Goethe, Electricity Networks Analysis, Research and Development Implementing Agreement (ENARD) Massimo Rebolini, Terna Rete Elettrica Nazionale, Italy Phil Baker, Department for Business, Enterprise and Regulatory Reform, UK Albrecht Tiedeman, Deutsche Energie-Agentur, Germany

09h35 Bridging the Mediterranean: international interconnections: Tunisia, Italy, Croatia 09h50 Transmission access in the UK, and new regulations on transmission from offshore wind farms 10h05 Integration of renewable electricity in Germany - challenges for the transmission and distribution network 10h20 Coffee Break

10h50 Benefits of recent technology developments to Cornel Ensslin, Ecofys, Germany the transmission and distribution of renewable electricity 11h05 Integration of photovoltaics into distribution systems and markets Helfried Brunner, Arsenal Research, Austria

11h20 Market and power system flexibility: enabling criteria and market classes 11h35 Challenges for market design to facilitate cost effective integration of renewables

Hannele Holttinen, VTT Technical Research Centre of Finland Goran Strbac, Centre for Distributed Generation and Sustainable Electrical Energy, UK All participants

11h50 Roundtable questions and answers session 12h30 Lunch

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Session 2: Markets - Design and Operation

Chair: Antonio Pflger, Head of ETC Division, IEA Secretariat

14h00 An overview of electricity market design and operation 14h15 Market barriers to renewable generation

Kieran McNamara, IEA Secretariat

Hans Henrik Lindboe, Ea Energy Analyses, Denmark Brendan Kirby, Oakridge National Laboratory, United States of America Carlo Obersteiner, EEG, TU Wien, Austria

14h30 Electricity markets in the USA: design and operation

14h45 Marketing wind power on electricity wholesale markets: an analysis of different options 15h00 Coffee Break 15h30 The All-Ireland Integration Study, and allocation of variability costs 15h45 Assessment of national market structures: the approach of the IEAs RETD Implementing Agreement 16h00 Roundtable questions and answers session 16h30 Meeting closes

Paul Smith, Eirgrid, Republic of Ireland Gareth Swales / Michael Wagner, IPA Energy and Water Consulting, United Kingdom All participants

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Annex 2: Registered Participants

Name Sophie Tim Phil Gouri Jens Vicki Helfried Hugo Yasushi Cornel Ana Paolo Stig Nobuyuki Sylvain Neil Andrew Hannele Jorge Andreas Nobuyoshi Khadija Brendan Christian Xavier Jacques Hans Henrik Jim Keiran Giles Toshiya Carlo Junichi Antonio Charlotte Massimo Kurt Hans Ulrich Johannes Kai Martin Rainer Martin Annette Ralph Paul Surname Avril Baack Baker Bhuyan Bmer Brown Brunner Chandler Chiba Ensslin Estanqueiro Frankl Goethe Hara Hercberg Hirst Holdsworth Holttinen Huacuz Indinger Inoue Jdidi Kirby Kjaer Lemaire Lengyel Lindboe MacDougall McNamara Mercier Nanahara Obersteiner Ogasawara Pflger Ramsay Rebolini Rohrig Schrer Schiel Schlegelmilch Schmieg Schneider Schpe Schou Sims Smith Organisation and Country CEA Saclay, France Epuron, Germany BERR, United Kingdom Powertech Labs, Canada / Representing Ocean Implementing Agreement (IEA-OES) Ecofys, Germany Australian Delegation to the OECD Arsenal Research, Austria IEA Secretariat NEDO, Japan Ecofys, Germany INETI, Portugal IEA Secretariat ENARD Implementing Agreement IEA Secretariat EDF, France IEA Secretariat BERR, United Kingdom VTT, Finland Non Conventional Energy Unit IIE, Mexico Austrian Energy Agency NEDO, Japan Renewable Energy Working Party Oak Ridge National Laboratory, United States EWEA, Belgium Warwick Business School, United Kingdom General Directorate for Energy & Raw Materials, France Ea Energy Analyses, Denmark Ontario Power Authority, Canada IEA Secretariat Natural Resources Canada CRIEPI, Japan EEG, Austria Institute of Energy Economics, Japan IEA Secretariat Imperial College London, United Kingdom TERNA, Italy ISET, Germany Swiss Federal Office of Energy VDMA, Germany BMU, Germany DIgSILENT, Germany Forschungszentrum Jlich GmbH, Germany BMU, Germany Danish Energy Authority IEA Secretariat EirGrid, Ireland

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Goran Paul Fernando Snchez Gareth Ito Albrecht Frans Roberto Michael Wilhelm Kaoru Yukato

Strbac Suding Sudn Swales Takatsune Tiedemann Van Hulle Vigotti Wagner Winter Yamaguchi Yoshimoto

Imperial College London, United Kingdom REN 21, France CENER, Spain IPA Energy and Water Consulting, United Kingdom Ministry of Economy, Trade and Industry, Japan DENA, Germany EWEA, Belgium Inergia, Italy IPA Energy and Water Consulting, United Kingdom E.ON, Germany Institute of Energy Economics, Japan NEDO, Japan

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