Europe’s Energy Market: The Need To Overcome Inflexibility and Diluted Market Price Signals

Renewables, demand response, storage and flexible power generation will create a smart and cost-effective energy market.
Published: Thu 15 Oct 2015

SolarPower Europe, the new European Photovoltaic Industry Association (EPIA), has seen a record growth in the number of members this year. The 53% increase in membership includes large industry players, national solar associations, through to start-ups and SMEs.

SolarPower Europe’s secret to growing its numbers

The growth is as a result of the revamping of the organisation, a strong focus on relevant business activities such as the development of the framework and market conditions for solar in Europe, developing best practice guidelines in areas such as tendering and operations and maintenance and finally, actively communicating the opportunities that exist in European markets today. This is according to Dr James Watson, CEO, SolarPower Europe, who will be presenting at the upcoming EMART Energy.   

He told Engerati in an exclusive interview that the growth of SolarPower Europe is not linked to only one market but to the overall growth in interest and understanding from many sectors such as retail (e.g. IKEA), digital (e.g. Google), and electric vehicles (e.g. Tesla) that solar is “THE energy technology that will power Europe now and in the future.”

The future of European market powers and the role of utilities

SolarPower Europe believes that a smart and cost-effective energy market would be based on large contributions of variable electricity from solar and wind energy, and a high degree of flexibility to make optimal use of the energy when it is cheaply available. This means tapping into the large potentials for demand response, storage and flexible power generation to complement variability, explains Dr Watson.

He adds that the signals of the wholesale energy markets will have to properly reward that flexibility, in particular by reflecting scarcity in the system.

However, Dr Watson points out that today, the current oversupply of old baseload power generation in Europe is leading to both inflexibility and a dilution of market price signals. He explains, “The European Emissions Trading Scheme is currently insufficient to provide a price signal for the most polluting power plants to retire and make space for important new investments in the market.”

In this context, he says that Europe’s power market is showing artificially low prices, and paradoxically pushes out less polluting and flexible capacity. “Only if price signals reflect the full cost of electricity today, and if a variability of prices shows at what times power is cheaply available and when it is short, will Europe develop a power market in which different generators and flexibility options will receive the market signals they need.”

Dr Watson adds that the support of European Federation of Energy Traders (EFET) for developing clear wholesale price signals reflecting the growth of renewables is very important for traders.

When it comes to the role of utilities in this new energy market, he believes that utilities will be at the helm of bringing forward this change and that the early adopters will be in the driving seat and gain a market advantage in a world where more revenue will be generated from energy services.

Energiewende-a model for others

Dr Watson believes that Energiewende is an instrument that is delivering the required change in the German energy market and says that it was not introduced too quickly as many may believe.

The phasing out of nuclear power called for a fast introduction of alternative energy suppliers, and in the context of a battle to limit climate change to non-disastrous levels, the only answer is to invest in low carbon technologies, he explains.

“The Energiewende is therefore perfectly timed and a model for other countries to drive the needed de-carbonisation programmes related to their power sectors. Of course not all elements were perfect, but the Energiewende is a good start.”

In conclusion, Dr Watson is looking forward to EMART Energy and is keen to have more discussions around the best way to ensure ‘room’ in the European power mix and whether the region can rely on the EU Emissions Trading Scheme as an exit signal for highly polluting plants.