To the Attention of ACER and CEER Secretariats
Enabling Renewables, Reducing Emissions, Facilitating Market Integration and Securing Energy
Supply
The tackling climate change and securing a sustainable energy supply to Europe is urgent and will
require a substantial decarbonisation of the economy. The EU goals of interconnecting the European
energy markets and achieving a decentralized, low carbon energy system with a substantial increase
in the share of renewables in the energy mix is an essential part of meeting the goals. However, the
large-scale integration of renewable energy sources creates substantial challenges for the electricity
sector, and also has direct consequences for the European gas market.
Achieving the aforementioned goals and simultaneously securing stability of the electricity system is
one of the key challenges for the European energy market. The inherently intermittent character of
renewable energy sources, such as wind and solar, will require large-scale investments in suitable
back-up generation in order to balance the power grid.
The challenge resulting from the desired changes in the capacity mix – reducing the coal dependency
while increasing wind and other low carbon base load power production – requires new solutions for
grid stability due to much greater variability of day/night load and generation and the inability of the
thermal capacity in the new energy system to regulate and balance.
It is essential that a more systematic approach to grid stability as opposed to solving local
operational problems on an ad-hoc basis. Essentially what is needed is a clear vision of how the
future low-carbon energy system can be sustainably and efficiently balanced. While grid
strengthening will be required, the supergrid is often promoted as a solution but it does not produce
any power or do the balancing itself; it only transmits power to and from various locations. Recent
research1 has shown that a shaving of peaks over long interconnection distances is not a good
solution. The optimal solution for balancing a power system consist of

Demand Response up to the limit that it makes economical sense (smart grid/homes)

Hydro power ( if available, where available)
1
“The
challenges of intermittency in North West European power markets – The impacts when wind and solar deployment reach their
target levels”, Pöyry March 2011.

Smart Power Generation inside load pockets and in grid nodes

Strengthening the grid where applicable.
Major savings can be achieved in grid investments by locating high efficiency, low carbon
balancing reserves inside the load pockets and covering the consumption peaks and grid balancing
with them.
Optimising the European gas and electricity markets for grid balancing
There are currently two major obstacles impeding the widespread commercial use of dynamic power
plants to balance the system:

The structure of the electricity markets: Current electricity markets are based on the trading of
energy, and the available income for balancing plants is not adequate to justify investments on
new capacity. There is a need for capacity markets that reward balancing plants also for the
multitasking capabilities even when the plants are not running, but are on stand-by, waiting for
the next task.

The structure of the gas markets: In Europe the pricing structure of gas is unfavourable for nonbase load users, making investments in peaking power plants unfeasible. Currently the gas
customers typically must commit to a certain steady gas capacity, which the plants needs to pay
a relatively high capacity fee for. The pricing structure should allow gas usage on a more
irregular basis (i.e. when the need arises), which is the case with balancing plants.
The EU (ACER and ENTSO-e, ENTSO-g) can help facilitate the increased use of dynamic power
plants as a grid stabilising backup generation by:
1. Developing a clear vision and strategy for flexible power needed by the decentralised low carbon
energy system of the future. The European Commission needs to conduct a study to examine the
technical requirements for balancing this new system, and ascertaining the optimal solution
from both an economic and environmental perspective within the given reliability requirements
/ framework.
2. Market regulators (ACER, ENTSO-E, ENTSO-G) need to apply clear rules for access, and the
functioning of the energy market is fair and open to all generation types. Furthermore, the
Network Codes currently under development should not discriminate against any technology
capable of supporting the system but encourage their use.
3. While promoting the investments for more renewables, the market structures and the necessary
technical norms that enable private sector investments into dynamic power plants need to be
developed simultaneously.
4. Developing the gas market so that it is capable of efficiently and reliably delivering variable
amounts of gas to power plants at reasonable prices.
5. Ensuring that European initiatives to open up gas markets and facilitate cross-border trade via
ACER (Agency for the Cooperation of Energy Regulators) EASEE-gas (the European Association
for the Streamlining of Energy Exchange-gas), CEN (European Committee for Standardization)
and ENTSO-G (European Network of Transmission System Operators for Gas) sufficiently take
into account all quality aspects of natural gas as requested by power plant manufacturers.