WindEurope’s position on the legal framework necessary to achieve climate neutrality and energy security in Europe was published in April 2022. It considers the importance of the Russian invasion of Ukraine for the shape of the European energy system, the impact of the energy transformation on the consumers’ situation and the achievement of climate goals by expanding renewable energy sources.
These problems were discussed during the WindEurope conference in Bilbao (5-7 April this year). A delegation of the Polish Wind Energy Association (PWEA) participated in discussion sessions organized by WindEurope among experts and industry leaders. Our Association also organized a workshop devoted to the preliminary conclusions of the report on the availability of offshore vessels prepared by PWEA, the premiere of which will take place at the annual conference in Serock (June 13-15 this year).

We invite you to read the WindEurope position paper

 

Executive Summary

Europe is committed to becoming climate neutral by 2050. This requires ramping up wind capacity from 190 GW today to 1,300 GW driving the renewables-based electrification of our economy. The current geopolitical situation and resulting energy crisis put into even sharper focus the need to accelerate the transition to home-grown zero-carbon energy. This paper recommends the required adjustments to the energy market design to 1) send the right investment signals to deploy the needed wind volumes 2) guarantee energy security 3) ensure a cost-effective management of a fully decarbonised energy system.

In parallel a high-level political debate on how to reduce the impact of high energy prices on consumers is ongoing. While the recommended measures aim to also address these concerns, this paper focuses on its initial objective that had been decided just before the energy price surge in 2021 and that was WindEurope’s position on electricity market design improvements to ensure the necessary investment trajectory towards climate neutrality.

Europe recently agreed a significant reform of its Energy Market Design with the ‘Clean Energy for All Europeans’ package. It must build on this reform rather than enact radical changes in response to the current crisis that would have lasting negative consequences for the transition to climate neutrality. Short-term wholesale markets (based on the marginal cost approach) are very efficient in reflecting the real value of electricity at any given time. The marginal pricing mechanism must be maintained.

As it transitions to an energy system with very high shares of variable renewables, Europe must adapt its energy market design to address the following challenges:

  • Short term wholesale market signals are not sufficient on their own to drive investments in new renewable power generation capacity in the volumes needed to deliver climate neutrality.
  • High price uncertainty in the long term is not viable for consumers, generation asset developers and investors alike and it increases the financial risk and costs of investments in new power capacity.
  • Incentives for building new flexible capacity or flexibility capabilities in new and existing assets, including renewables, are inefficient or missing.

 

To deliver a climate neutral and energy secure system, Europe market design must:

➢ Ensure efficient dispatch: Short-term wholesale markets need to evolve but they should remain the main mechanism for ensuring cost efficient power plant dispatch and settlement of electricity market contracts.

➢ Unlock investments in new capacity: Long-term contracts (2-sided Contracts for Difference, Power Purchase Agreements, “10 year plus” futures traded on stock exchanges etc.) will help unlock the investments needed to accelerate renewables deployment. Long-term contracts provide energy consumers, asset developers and investors certainty and reduce the impact of short-term fluctuations in prices. Next to auctions, Governments should enable market-driven projects.

➢ Accelerate grid buildout: System operators, renewable asset developers, technology suppliers and end-users need deeper cooperation since the early design stages to accelerate grid development and optimisation and to create locational investment signals.

➢ Make the best use of the grid: to alleviate grid scarcity and structural congestion and to create flexible capacity, we will need limited centralised or regional auctions for renewables co-located with storage (short- and long-term) alongside accelerated grid build-out and optimisation.

➢ Ensure energy security: Long-term adequacy mechanisms (Capacity Remuneration Mechanisms) should be fully consistent with the delivery of climate neutrality. They should only be deployed in countries that temporarily need them for security of supply. They should meet an emissions performance standard starting from the European Investment Bank (EIB) lending policy standard and decreasing over time. They should be limited to providing the required adequacy and designed to minimise distortive impacts on energy markets.

➢Drive energy system integration: The design and implementation of balancing markets, including cross-border trading, but also of 2-sided CfDs must be improved to incentivise a more market- and system-responsive operation of wind farms.

➢ Reward flexibility: Ancillary services must be designed providing long-term visibility and harmonisation to drive investments in new flexible resources.