Fit for 70% RES? The role of the electricity market in a high-renewables energy system in 2030

To meet the raised ambition of the EU 2030 climate targets, including a 55% reduction in emissions, the European Commission estimates that the share of renewable energy in the electricity mix will need to double from today’s share to approximately 55-60%. In more ambitious decarbonisation scenarios the share of renewable electricity may even reach 70% in 2030. We set out in this paper our vision for how the electricity market can adapt to help deliver a high renewable energy share, which will need to include a significant amount of intermittent (variable) renewable sources such as wind and solar.

Europex strongly believes in the merits of continued market development based on the current zonal wholesale market model. A high renewable system raises several challenges, including uncertainty about wholesale price developments and increased real-time balancing needs of the power system caused by several factors, including the intermittent nature of most renewable sources which also have low to zero marginal variable cost. A clear and predictable framework for power sector investments is also necessary. We believe that to meet these challenges, a 2030 energy system must be characterised by undistorted and freely forming price signals from the energy market, efficient use of within-zone and cross-zonal transmission to balance supply and demand locally and regionally as well as increased use of storage and flexibility on the demand side. Indeed, these measures are necessary if rapid decarbonisation is to be achieved to deliver security of supply at an acceptable cost to the consumer, while integrating high shares of RES and meeting the needs of an increasingly decentralised energy system.

The reforms in the Clean Energy Package provide a good foundation for the further development of the electricity market up to 2030 and beyond. Commitment is needed to refine the existing tools at hand, which include well-functioning short-term coupled physical markets, emissions markets, long term financial and physical hedging markets, as well as complimentary (bilateral) contracts such as Power Purchase Agreements (PPAs) and Guarantees of Origin (GOs).

We highlight below what we believe will be the core building blocks of the electricity market in 2030, identifying also where further progress is needed.