Covid-19 Reveals Critical Flaw In European Power Systems – Lack Of Flexibility

Wood Mackenzie

Coronavirus had a sudden and dramatic negative impact on power demand, which fell by 20% in the UK during the lockdown period with similar drops across Europe. Coronavirus power demand destruction has given us a glimpse into the future when variable renewable energy (VRE: wind and solar) makes up a higher proportion of power supply. At current levels, the power system lacks the flexibility to support this variability: the bigger the share of VRE in a system, the greater the challenge.

Will Covid-19 be a wake-up call to get Europe on track for its new flexibility feet build-out? Wood Mackenzie’s Rory McCarthy and Victor Laurent discuss the flexibility challenges faced in the UK, an island lacking interconnection and therefore needing flexibility before its European mainland counterparts.

Flexible resource outlook for Europe’s big five power markets

Markets have been built on the assumption that at current levels of renewables, particularly VRE, there is enough system flexibility. The policy focus has been to deploy low-cost wind and solar. Little attention is paid to grid stability or ensuring dispatchable renewable power. There is also a glut of incumbent capacity, from coal to pump storage that can provide various levels of flexibility. These are sunk investments, which can be challenging to displace.

Power system flexibility is essential as our power networks transition to renewables. VRE levels are increasing to meet net zero emission targets, which threatens grid stability. Wood Mackenzie expects the power system flexibility asset mix in Europe’s big five markets (Germany, France, Italy, Spain and UK [GB]) to grow from 122 GW in 2020 to 205 GW by 2030 and 265 GW by 2040. This is made up of gas peakers, pump storage, interconnectors and energy storage. Energy storage is set to become the winning asset in annual deployment growth terms.

However, the market framework is still not clear for this growth. New market services will be needed to bolster the investment case for a new flexibility fleet build-out.

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Flexible resource outlook for Europe’s big five power markets

In the UK (GB power market), the system operator has been pushed to its limits.

Record levels of renewable penetration, even before lockdown

Even before the lockdown took hold, the GB power market broke renewable penetration records. In the first three months of the year a record 47% of electricity was provided from renewables, up from 36% in first three months of 2019. This was mainly due to large wind resource availability. Balancing costs throughout this period were relatively low.

It is easy to assume that winter months, when demand peaks, would result in more challenges and higher costs to the system operator. On the contrary, the grid can be at its most stable at these times. Supported by the large mass of synchronous turbines such as nuclear and gas, the grid is strong.

Balancing costs ramped up as lockdown commenced

The challenges really take hold when high VRE generation coincides with low demand. This was highlighted when the lockdown started on 23 March.

Over this period, we have witnessed an average 20% reduction (National Grid) in demand coinciding with high renewables penetration levels.

The big flexibility question

As we have seen in the UK, the country’s residual capacity (i.e. reserve thermal plants) need to be flexible to adapt to extreme load changes. Therefore, the need for flexibility impacts the entire system: from generators (e.g. acceleration of start time, start-stop cycles, and ramp capabilities) to storage technologies (e.g. batteries, hydrogen, hydro) and active power grids (e.g. demand-response, prosumers).

The need for flexibility is accrued by the UK’s thirst for green energy but can only be achieved with long-term governmental support. Admittedly when the marginal cost of production for VRE is zero, curtailment will always be a balancing option. However, when trying to increase VRE penetration to enable a net zero power system, extreme levels of curtailment seen in the UK or Germany go against the main policy need. A better option would be to have more flexibility, particularly energy storage. It can be used to move VRE to times when it is required and provide a stack of services to balance the grid.

This introduces a big question. Does our market need a complete rehaul in order to deliver this new breed of system flexibility?

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