Applying “Beyond Capacity Market” Thinking to Energiewende Reliability Challenges
At the heart of the challenge for the Energiewende will be to continuously balance consumer demand with fluctuating electricity production from variable renewable resources, such as wind and solar. This will require flexibility on both the supply side and the demand side. New thinking about market design and investment incentives for flexible capabilities, not just firm capacity, is needed to address this challenge. In particular, the power system will need resources capable of rapidly changing output or flexing demand frequently and continuously throughout the year around the energy availability from rising shares of variable renewable resources.
RAP’s beyond capacity markets concepts address these new challenges, and our market design solutions are gaining momentum in Germany. The Beyond Capacity Markets concept paper (in English) lays out the fundamental reliability challenges for a system with an increasing mix of variable renewables and includes a list of key design criteria with which to evaluate market design proposals. RAP adapted and translated this paper into German under the title, Über Kapazitätsmarkte Hinaus Denken. This publication was featured in ENERGIEWIRTSCHAFTLICHE TAGESFRAGEN (62. Jg. (2012) Heft 11) and was also selected by Agora Energiewende as the lead article in their Kapazitätsmarkt oder strategische Reserve: Was ist der nächste Schritt?, which provides an overview of the capacity mechanisms being proposed in Germany to ensure system reliability for the Energiewende.
A subsequent discussion paper on potential market design options for What Lies Beyond Capacity Markets? lays out two approaches to creating market value for the flexible capabilities required in the future. Both approaches are designed to motivate investment and minimize the cost of ensuring system reliability. In addition, an integral component of RAP’s “beyond capacity market” work in Germany is to communicate international practices and lessons learned for tapping system flexibility from demand response and applying them to Germany’s specific regulatory and market context.
Energy efficiency will play a critical role in the Energiewende and must be valued in market design proposals. In What Role Does Energy Efficiency Play in ‘Beyond Capacity Market’ Thinking?, RAP principal Meg Gottstein identifies two efficiency requirements, specifically, (1) an efficient market will need to be sized efficiently, in addition to being designed to trade efficiently, and (2) all qualifying demand-side resources, including end-use efficiency, should participate in competitive “capabilities markets” on equal footing with other reliability resources.
Because of RAP’s recognized global expertise and independent status, the German press regularly invites RAP to provide editorial comment on key Energiewende market design and related policy issues. For example, Energie and Management invited RAP senior associate Andreas Jahn to write a featured editorial on the lack of flexibility observed in Germany’s current system during recent periods of negative energy prices (Available only in German).
Visit the Making Germany’s “Energiewende” (Energy Transition) a Reality page to learn more about our work in support of the Energiewende. Other Energiewende topics of interest include:
