In need of a flexible gas market to support the integration of renewable energy

EURELECTRIC –

In the context of European policies striving towards the decarbonization of the electricity sector, it is expected that this objective will be met by means of a massive deployment of variable renewable energy. In this framework, EURELECTRIC, representing the European electricity industry, published a document in May 2014  highlighting the potential of the gas sector towards achieving this goal.

Although counter-intuitive, it is explained how in the mid-term, a competitive gas market can contribute to a cost-efficient transition to a low-carbon economy. This is driven by the nature of the predominant renewable electricity supply: current estimates show that wind and solar are likely to make up 50% of renewable generation in Europe in 2020. As this electricity generation comes from fluctuating resources, their output is inherently variable and facing limited predictability. EURELECTRIC argues that in absence of a massive deployment of other solutions such as storage and demand response, gas-fired power plants will need to take the role as back-up power provider, i.e. balancing the supply and demand, and thus ensuring power system reliability in a cost-efficiency way.

Gas-fired power plants are well-suited to deal with the variability of renewable generation from a technical perspective. Typically characterized by quick start-up times and high ramping capabilities, gas-fired power plants seem a natural partner for renewable electricity. In reality, this requires the implementation of flexible operation modes such as very short operating periods and low output operation. New combined-cycle gas turbines (CCGTs) can be designed to support these capabilities, but older plants may face expensive re-engineering costs. These additional costs are put forward as a major barrier for a sector which already faces low profitability margins due to decreasing spark spread, i.e. the margin between electricity price and fuel cost of gas-fired power plants.

EURELECTRIC argues that the gas sector has to conduct an impact assessment when the CCGTs pick up this balancing role. First of all, European TSOs for gas  have to carefully assess the available flexibility to deal with fast gas consumption ramps and gas network imbalances. Flexibility adequacy has to be studied, in joint cooperation with the electricity TSOs, thereby taking into account the gas and electricity network development plans.  Also at the operational level, cooperation becomes a necessity since security measures in one network will impact operational security in the other network. The report puts forward the need for a flexible gas market design, ensuring the access to liquid gas markets. This has to be achieved by means of access to wholesale day-ahead or intraday markets, efficient cross-border capacity allocation and congestion management mechanisms, well-functioning balancing markets, access to gas storage, well-designed transmission tariffs, appropriate information exchange between market actors, and efficient power plant connection arrangements.

In conclusion, it can be expected that flexibility by conventional power plants is needed in the short- and the mid-term to balance renewable generation. Therefore, a solution has to be found for the low profitability of these power plants. Falling spark spreads driven by renewable energy, and relatively cheap coal, is currently resulting in mothballing and de-commission of gas-fired power plants across Europe. At the same time, one has to avoid that measures to support gas-fired power plants will not, under any circumstances, prevent new flexibility providers such as storage and demand response from gradually participating and eventually from taking over this role.

More information:http://www.eurelectric.org/media/130545/flexiblegasmarketpaper_final_lr-2014-2250-0001-01-e.pdf