Designing New Energy Markets to Promote Renewables

Di Foggia, Giacomo and Beccarello, Massimo (2024): Designing New Energy Markets to Promote Renewables. Published in: Heliyon , Vol. 10, No. 10 (2024): E31427.

Abstract

The drive toward decarbonization has spurred the growth of renewable energy sources, reshaping energy production and consumption patterns. As the energy landscape evolves, so must the market design supporting it to steer the integration of renewable energy. Addressing the challenges of promoting distributed renewable energy is paramount for developing a cleaner energy system and meeting decarbonization targets. This study presents a modern market design that efficiently integrates renewable energy sources, long-term contracts, and flexibility technologies into a single evolved market framework. The approach described herein provides proper price signals for diverse assets and decouples renewable energy from fossil fuels, ensuring economic viability and efficient integration. Taking into consideration key barriers and drivers, the findings provide insights for perfecting energy markets, meeting decarbonization targets, and guiding policymaking to boost cleaner energy systems.

• Item Type: MPRA Paper
• Language: English
• Keywords: market design; RES; Environmental economics; energy markets; energy price
• Subjects: H - Public Economics > H4 - Publicly Provided Goods > H40 - General; L - Industrial Organization > L8 - Industry Studies: Services > L88 - Government Policy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy

References

S. Impram, S. Varbak Nese, B. Oral, Challenges of renewable energy penetration on power system flexibility: A survey, Energy Strateg. Rev. 31 (2020) 100539. https://doi.org/10.1016/j.esr.2020.100539.

F. Martins, P. Moura, A.T. de Almeida, The Role of Electrification in the Decarbonization of the Energy Sector in Portugal, Energies 15 (2022). https://doi.org/10.3390/en15051759.

C. Kuzemko, M. Blondeel, C. Dupont, M.C. Brisbois, Russia’s war on Ukraine, European energy policy responses & implications for sustainable transformations, Energy Res. Soc. Sci. 93 (2022) 102842. https://doi.org/10.1016/j.erss.2022.102842.

M. Simionescu, C.B. Păuna, T. Diaconescu, Renewable Energy and Economic Performance in the Context of the European Green Deal, Energies 13 (2020). https://doi.org/10.3390/en13236440.

P.O. Eikrland, The Third Internal Energy Market Package: New Power Relations among Member States, EU Institutions and Non-state Actors?, JCMS J. Common Mark. Stud. 49 (2011) 243–263. https://doi.org/10.1111/j.1468-5965.2010.02140.x.

A. Metaxas, M. Mathioulakis, M. Lykidi, Implementation of the target model: Regulatory reforms and obstacles for the regional market coupling, Eur. Energy Clim. J. 8 (2019) 28–43. https://doi.org/10.4337/eecj.2019.03-04.02.

O. Liutak, O. Baula, A. Poruchnyk, Y. Stoliarchuk, P. Kravchuk, I. Kostynets, The Development Of Renewable Energy In The Context Of Formation Of Innovative Economy And Energy Independence As The Geopolitical Priorities Of The State, IOP Conf. Ser. Earth Environ. Sci. 628 (2021) 12012. https://doi.org/10.1088/1755-1315/628/1/012012.

M. Maeder, O. Weiss, K. Boulouchos, Assessing the need for flexibility technologies in decarbonized power systems: A new model applied to Central Europe, Appl. Energy 282 (2021) 116050. https://doi.org/10.1016/j.apenergy.2020.116050.

J.M. Uribe, S. Mosquera-López, O.J. Arenas, Assessing the relationship between electricity and natural gas prices in European markets in times of distress, Energy Policy 166 (2022) 113018. https://doi.org/10.1016/j.enpol.2022.113018.

M.T. Koecklin, G. Longoria, D.Z. Fitiwi, J.F. DeCarolis, J. Curtis, Public acceptance of renewable electricity generation and transmission network developments: Insights from Ireland, Energy Policy 151 (2021) 112185. https://doi.org/10.1016/j.enpol.2021.112185.

B. Guler, E. Çelebi, J. Nathwani, A ‘Regional Energy Hub’ for achieving a low-carbon energy transition, Energy Policy 113 (2018) 376–385. https://doi.org/10.1016/j.enpol.2017.10.044.

C. Peñasco, L.D. Anadón, E. Verdolini, Systematic review of the outcomes and trade-offs of ten types of decarbonization policy instruments, Nat. Clim. Chang. 11 (2021) 257–265. https://doi.org/10.1038/s41558-020-00971-x.

M. Beccarello, G. Di Foggia, Emissions trading system: Bridging the gap between environmental targets and fair competition, Environ. Res. Commun. 5 (2023). https://doi.org/10.1088/2515-7620/acefb3.

L. Strupeit, A. Palm, Overcoming barriers to renewable energy diffusion: Business models for customer-sited solar photovoltaics in Japan, Germany and the United States, J. Clean. Prod. 123 (2016) 124–136. https://doi.org/10.1016/j.jclepro.2015.06.120.

K. Hainsch, K. Löffler, T. Burandt, H. Auer, P. Crespo del Granado, P. Pisciella, S. Zwickl-Bernhard, Energy transition scenarios: What policies, societal attitudes, and technology developments will realize the EU Green Deal?, Energy 239 (2022) 122067. https://doi.org/10.1016/j.energy.2021.122067.

S. Ruggiero, V. Varho, P. Rikkonen, Transition to distributed energy generation in Finland: Prospects and barriers, Energy Policy 86 (2015) 433–443. https://doi.org/10.1016/j.enpol.2015.07.024.

R.A. Verzijlbergh, L.J. De Vries, G.P.J. Dijkema, P.M. Herder, Institutional challenges caused by the integration of renewable energy sources in the European electricity sector, Renew. Sustain. Energy Rev. 75 (2017) 660–667. https://doi.org/10.1016/j.rser.2016.11.039.

L. Baker, A. Hook, B.K. Sovacool, Power struggles: Governing renewable electricity in a time of technological disruption, Geoforum 118 (2021) 93–105. https://doi.org/10.1016/j.geoforum.2020.12.006.

A.S. Brouwer, M. van den Broek, A. Seebregts, A. Faaij, Operational flexibility and economics of power plants in future low-carbon power systems, Appl. Energy 156 (2015) 107–128. https://doi.org/10.1016/j.apenergy.2015.06.065.

J. Riesz, M. Milligan, Designing electricity markets for a high penetration of variable renewables, WIREs Energy Environ. 4 (2015) 279–289. https://doi.org/10.1002/wene.137.

Z. Vrontisi, K. Fragkiadakis, M. Kannavou, P. Capros, Energy system transition and macroeconomic impacts of a European decarbonization action towards a below 2 °C climate stabilization, Clim. Change 162 (2020) 1857–1875. https://doi.org/10.1007/s10584-019-02440-7.

G. Pepermans, European energy market liberalization: experiences and challenges, Int. J. Econ. Policy Stud. 13 (2019) 3–26. https://doi.org/10.1007/s42495-018-0009-0.

C. Ochoa, A. van Ackere, Winners and losers of market coupling, Energy 80 (2015) 522–534. https://doi.org/10.1016/j.energy.2014.11.088.

P. Ringler, D. Keles, W. Fichtner, How to benefit from a common European electricity market design, Energy Policy 101 (2017) 629–643. https://doi.org/10.1016/j.enpol.2016.11.011.

D. Newbery, G. Strbac, I. Viehoff, The benefits of integrating European electricity markets, Energy Policy 94 (2016) 253–263. https://doi.org/10.1016/j.enpol.2016.03.047.

M.G. Pollitt, The European Single Market in Electricity: An Economic Assessment, Rev. Ind. Organ. 55 (2019) 63–87. https://doi.org/10.1007/s11151-019-09682-w.

G. Di Foggia, M. Beccarello, M. Borgarello, F. Bazzocchi, S. Moscarelli, Market-Based Instruments to Promote Energy Efficiency: Insights from the Italian Case, Energies 15 (2022) 7574. https://doi.org/10.3390/en15207574.

T. Xia, Q. Ji, D. Zhang, J. Han, Asymmetric and extreme influence of energy price changes on renewable energy stock performance, J. Clean. Prod. 241 (2019) 118338. https://doi.org/10.1016/j.jclepro.2019.118338.

M. Mulder, B. Scholtens, The impact of renewable energy on electricity prices in the Netherlands, Renew. Energy 57 (2013) 94–100. https://doi.org/10.1016/j.renene.2013.01.025.

C. Mac Domhnaill, L. Ryan, Towards renewable electricity in Europe: Revisiting the determinants of renewable electricity in the European Union, Renew. Energy 154 (2020) 955–965. https://doi.org/10.1016/j.renene.2020.03.084.

G. Strbac, D. Papadaskalopoulos, N. Chrysanthopoulos, A. Estanqueiro, H. Algarvio, F. Lopes, L. de Vries, G. Morales-España, J. Sijm, R. Hernandez-Serna, J. Kiviluoma, N. Helisto, Decarbonization of Electricity Systems in Europe: Market Design Challenges, IEEE Power Energy Mag. 19 (2021) 53–63. https://doi.org/10.1109/MPE.2020.3033397.

A.G. Kök, K. Shang, Ş. Yücel, Investments in Renewable and Conventional Energy: The Role of Operational Flexibility, Manuf. Serv. Oper. Manag. 22 (2020) 925–941. https://doi.org/10.1287/msom.2019.0789.

J. Hu, R. Harmsen, W. Crijns-Graus, E. Worrell, M. van den Broek, Identifying barriers to large-scale integration of variable renewable electricity into the electricity market: A literature review of market design, Renew. Sustain. Energy Rev. 81 (2018) 2181–2195. https://doi.org/10.1016/j.rser.2017.06.028.

M.R.M. Cruz, D.Z. Fitiwi, S.F. Santos, J.P.S. Catalão, A comprehensive survey of flexibility options for supporting the low-carbon energy future, Renew. Sustain. Energy Rev. 97 (2018) 338–353. https://doi.org/10.1016/j.rser.2018.08.028.

T. Tröndle, S. Pfenninger, J. Lilliestam, Home-made or imported: On the possibility for renewable electricity autarky on all scales in Europe, Energy Strateg. Rev. 26 (2019) 100388. https://doi.org/10.1016/j.esr.2019.100388.

Y. Parag, B.K. Sovacool, Electricity market design for the prosumer era, Nat. Energy 1 (2016) 16032. https://doi.org/10.1038/nenergy.2016.32.

S. Soeiro, M. Ferreira Dias, Renewable energy community and the European energy market: main motivations, Heliyon 6 (2020) e04511. https://doi.org/10.1016/j.heliyon.2020.e04511.

K. Baltputnis, S. Repo, A. Mutanen, The Role of TSO-DSO Coordination in Flexibility Asset Prequalification, in: 2020 17th Int. Conf. Eur. Energy Mark., 2020: pp. 1–5. https://doi.org/10.1109/EEM49802.2020.9221903.

A. Nawaz, H. Wang, Q. Wu, M. Kumar Ochani, TSO and DSO with large-scale distributed energy resources: A security constrained unit commitment coordinated solution, Int. Trans. Electr. Energy Syst. 30 (2020) e12233. https://doi.org/https://doi.org/10.1002/2050-7038.12233.

A.B. Wilson, Revising the Energy Efficiency Directive: Fit for 55 package, EPRS: European Parliamentary Research Service, 2022. https://doi.org/20.500.12592/tz6j8z.

V. Astrov, D. Hanzl-Weiss, S.M. Leitner, O. Pindiuk, J. PÖSCHL, R. STEHRER, Energy Efficiency and EU Industrial Competitiveness: Energy Costs and their Impact on Manufacturing Activity, Routledge Handb. to Reg. Dev. Cent. East. Eur. (2019) 29–46. https://doi.org/10.4324/9781315586137-3.

B. Knopf, P. Nahmmacher, E. Schmid, The European renewable energy target for 2030 – An impact assessment of the electricity sector, Energy Policy 85 (2015) 50–60. https://doi.org/10.1016/j.enpol.2015.05.010.

Y. Krozer, Cost and benefit of renewable energy in the European Union, Renew. Energy 50 (2013) 68–73. https://doi.org/10.1016/j.renene.2012.06.014.

S.L. Hastings, Triangulation, Encycl. Res. Des. Vol. I (2010) 1538–1541. https://doi.org/10.4135/9781412961288.

M. Lynch, G. Longoria, J. Curtis, Market design options for electricity markets with high variable renewable generation, Util. Policy 73 (2021) 101312. https://doi.org/10.1016/j.jup.2021.101312.

M. Beccarello, G. Di Foggia, Review and Perspectives of Key Decarbonization Drivers to 2030, Energies 16 (2023) 1345. https://doi.org/10.3390/en16031345.

Confindustria, Proposal for the reform of the italian electricity market [Proposta di riforma del mercato elttrico], 2022. https://www.confindustria.it/proposta-riforma-mercato-elettrico.

M.T. Tolmasquim, T. de Barros Correia, N. Addas Porto, W. Kruger, Electricity market design and renewable energy auctions: The case of Brazil, Energy Policy 158 (2021) 112558. https://doi.org/10.1016/j.enpol.2021.112558.

V. Anatolitis, A. Azanbayev, A.-K. Fleck, How to design efficient renewable energy auctions? Empirical insights from Europe, Energy Policy 166 (2022) 112982. https://doi.org/10.1016/j.enpol.2022.112982.

X. Qin, B. Xu, I. Lestas, Y. Guo, H. Sun, The role of electricity market design for energy storage in cost-efficient decarbonization, Joule 7 (2023) 1227–1240. https://doi.org/10.1016/j.joule.2023.05.014.

J. Buschle, V. Anatolitis, P. Plötz, Empirical evidence on discrimination in multi-technology renewable energy auctions in Europe, Energy Policy 184 (2024) 113853. https://doi.org/10.1016/j.enpol.2023.113853.

B. Guler, E. Çelebi, J. Nathwani, Cost-effective decarbonization through investment in transmission interconnectors as part of regional energy hubs (REH), Electr. J. 34 (2021) 106924. https://doi.org/10.1016/j.tej.2021.106924.

J.J. Cohen, V. Azarova, A. Kollmann, J. Reichl, Preferences for community renewable energy investments in Europe, Energy Econ. 100 (2021) 105386. https://doi.org/10.1016/j.eneco.2021.105386.

V. Casalicchio, G. Manzolini, M.G. Prina, D. Moser, From investment optimization to fair benefit distribution in renewable energy community modelling, Appl. Energy 310 (2022) 118447. https://doi.org/10.1016/j.apenergy.2021.118447.

N. Li, Ö. Okur, Economic analysis of energy communities: Investment options and cost allocation, Appl. Energy 336 (2023) 120706. https://doi.org/10.1016/j.apenergy.2023.120706.

H.K. Fotio, T.N. Nchofoung, S.A. Asongu, Financing renewable energy generation in SSA: Does financial integration matter?, Renew. Energy 201 (2022) 47–59. https://doi.org/10.1016/j.renene.2022.11.047.

A. Ebers Broughel, N. Hampl, Community financing of renewable energy projects in Austria and Switzerland: Profiles of potential investors, Energy Policy 123 (2018) 722–736. https://doi.org/10.1016/j.enpol.2018.08.054.

X. Tang, X. Zhou, Impact of green finance on renewable energy development: A spatiotemporal consistency perspective, Renew. Energy 204 (2023) 320–337. https://doi.org/10.1016/j.renene.2023.01.012.

W. Liu, Y. Shen, A. Razzaq, How renewable energy investment, environmental regulations, and financial development derive renewable energy transition: Evidence from G7 countries, Renew. Energy 206 (2023) 1188–1197. https://doi.org/10.1016/j.renene.2023.02.017.

K. Martens, Investigating subnational success conditions to foster renewable energy community co-operatives, Energy Policy 162 (2022) 112796. https://doi.org/10.1016/j.enpol.2022.112796.

M. Haji Bashi, L. De Tommasi, A. Le Cam, L.S. Relaño, P. Lyons, J. Mundó, I. Pandelieva-Dimova, H. Schapp, K. Loth-Babut, C. Egger, M. Camps, B. Cassidy, G. Angelov, C.E. Stancioff, A review and mapping exercise of energy community regulatory challenges in European member states based on a survey of collective energy actors, Renew. Sustain. Energy Rev. 172 (2023) 113055. https://doi.org/10.1016/j.rser.2022.113055.

A. Cielo, P. Margiaria, P. Lazzeroni, I. Mariuzzo, M. Repetto, Renewable Energy Communities business models under the 2020 Italian regulation, J. Clean. Prod. 316 (2021) 128217. https://doi.org/10.1016/j.jclepro.2021.128217.

C. Inês, P.L. Guilherme, M.-G. Esther, G. Swantje, H. Stephen, H. Lars, Regulatory challenges and opportunities for collective renewable energy prosumers in the EU, Energy Policy 138 (2020) 111212. https://doi.org/10.1016/j.enpol.2019.111212.

C. Piselli, A. Fronzetti Colladon, L. Segneri, A.L. Pisello, Evaluating and improving social awareness of energy communities through semantic network analysis of online news, Renew. Sustain. Energy Rev. 167 (2022) 112792. https://doi.org/10.1016/j.rser.2022.112792.

S. Oluoch, P. Lal, A. Susaeta, N. Vedwan, Assessment of public awareness, acceptance and attitudes towards renewable energy in Kenya., Sci. African 9 (2020) e00512. https://doi.org/10.1016/j.sciaf.2020.e00512.

A.I. Almulhim, Understanding public awareness and attitudes toward renewable energy resources in Saudi Arabia, Renew. Energy 192 (2022) 572–582. https://doi.org/10.1016/j.renene.2022.04.122.

F. Ioannidis, K. Kosmidou, D. Papanastasiou, Public awareness of renewable energy sources and Circular Economy in Greece, Renew. Energy 206 (2023) 1086–1096. https://doi.org/10.1016/j.renene.2023.02.084.

I. Worighi, A. Maach, A. Hafid, O. Hegazy, J. Van Mierlo, Integrating renewable energy in smart grid system: Architecture, virtualization and analysis, Sustain. Energy, Grids Networks 18 (2019) 100226. https://doi.org/10.1016/j.segan.2019.100226.

K.M. Tan, T.S. Babu, V.K. Ramachandaramurthy, P. Kasinathan, S.G. Solanki, S.K. Raveendran, Empowering smart grid: A comprehensive review of energy storage technology and application with renewable energy integration, J. Energy Storage 39 (2021) 102591. https://doi.org/10.1016/j.est.2021.102591.

T. Weckesser, D.F. Dominković, E.M. V Blomgren, A. Schledorn, H. Madsen, Renewable Energy Communities: Optimal sizing and distribution grid impact of photo-voltaics and battery storage, Appl. Energy 301 (2021) 117408. https://doi.org/10.1016/j.apenergy.2021.117408.

B. Geng, X. Zhang, Y. Liang, H. Bao, Do favorable land price policy affect renewable energy industry? Evidence from photovoltaics, J. Clean. Prod. 119 (2016) 187–195. https://doi.org/10.1016/j.jclepro.2015.08.062.

M. Vyas, S. Chowdhury, A. Verma, V.K. Jain, Solar Photovoltaic Tree: Urban PV power plants to increase power to land occupancy ratio, Renew. Energy 190 (2022) 283–293. https://doi.org/10.1016/j.renene.2022.03.129.

H. Zhang, P. Xiong, S. Yang, J. Yu, Renewable energy utilization, green finance and agricultural land expansion in China, Resour. Policy 80 (2023) 103163. https://doi.org/10.1016/j.resourpol.2022.103163.

K. Yenneti, R. Day, O. Golubchikov, Spatial justice and the land politics of renewables: Dispossessing vulnerable communities through solar energy mega-projects, Geoforum 76 (2016) 90–99. https://doi.org/10.1016/j.geoforum.2016.09.004.

P. Devine-wright, Rethinking NIMBYism: The Role of Place Attachment and Place Identity in Explaining Place-protective Action, J. Community Appl. Soc. Psychol. 19 (2009) 426–441. https://doi.org/10.1002/casp.1004.

M.A. Petrova, From NIMBY to acceptance: Toward a novel framework — VESPA — For organizing and interpreting community concerns, Renew. Energy 86 (2016) 1280–1294. https://doi.org/10.1016/j.renene.2015.09.047.

K.J. Boyle, J. Boatwright, S. Brahma, W. Xu, NIMBY, not, in siting community wind farms, Resour. Energy Econ. 57 (2019) 85–100. https://doi.org/10.1016/j.reseneeco.2019.04.004.

D. van der Horst, NIMBY or not? Exploring the relevance of location and the politics of voiced opinions in renewable energy siting controversies, Energy Policy 35 (2007) 2705–2714. https://doi.org/10.1016/j.enpol.2006.12.012.

K.O. Adu-Kankam, L.M. Camarinha-Matos, Renewable energy communities or ecosystems: An analysis of selected cases, Heliyon 8 (2022) e12617. https://doi.org/10.1016/j.heliyon.2022.e12617.

T. Bauwens, T. Vaskelainen, K. Frenken, Conceptualising institutional complexity in the upscaling of community enterprises: Lessons from renewable energy and carsharing, Environ. Innov. Soc. Transitions 42 (2022) 138–151. https://doi.org/10.1016/j.eist.2021.12.007.

S.I. Vagropoulos, P.N. Biskas, A.G. Bakirtzis, Market-based TSO-DSO coordination for enhanced flexibility services provision, Electr. Power Syst. Res. 208 (2022) 107883. https://doi.org/10.1016/j.epsr.2022.107883.

S. Pearson, S. Wellnitz, P. Crespo del Granado, N. Hashemipour, The value of TSO-DSO coordination in re-dispatch with flexible decentralized energy sources: Insights for Germany in 2030, Appl. Energy 326 (2022) 119905. https://doi.org/10.1016/j.apenergy.2022.119905.

M. Khojasteh, P. Faria, F. Lezama, Z. Vale, A hierarchy model to use local resources by DSO and TSO in the balancing market, Energy 267 (2023) 126461. https://doi.org/10.1016/j.energy.2022.126461.

T. Jiang, C. Wu, R. Zhang, X. Li, F. Li, Risk-averse TSO-DSOs coordinated distributed dispatching considering renewable energy and demand response uncertainties, Appl. Energy 327 (2022) 120024. https://doi.org/10.1016/j.apenergy.2022.120024.

D. Newbery, M.G. Pollitt, R.A. Ritz, W. Strielkowski, Market design for a high-renewables European electricity system, Renew. Sustain. Energy Rev. 91 (2018) 695–707. https://doi.org/10.1016/j.rser.2018.04.025.

J. Osička, F. Černoch, European energy politics after Ukraine: The road ahead, Energy Res. Soc. Sci. 91 (2022) 102757. https://doi.org/10.1016/j.erss.2022.102757.

P.N. Biskas, D.I. Chatzigiannis, A.G. Bakirtzis, European Electricity Market Integration With Mixed Market Designs—Part I: Formulation, IEEE Trans. Power Syst. 29 (2014) 458–465. https://doi.org/10.1109/TPWRS.2013.2245923.

M. Beccarello, G. Di Foggia, Meeting decarbonization targets: Techno-economic insights from the Italian scenario, DeCarbon 2 (2023) 100022. https://doi.org/10.1016/j.decarb.2023.100022.