Issue Paper No. 5: Electricity markets and RES integration – Key challenges and possible solutions

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As the share of intermittent RES increases significantly, their deployment challenges the operation of power systems, and impacts the role played by electricity markets that have not been designed to handle the features of intermittent RES (variable output, low predictable output, location, development driven by support mechanisms).
In this paper we identify four key challenges for electricity market design in the context of RES integration. First, there is a need to ensure resources adequacy in the long-term. Second, it is crucial that the flexible resources required to cope with RES variability are in place and incentivised to operate flexibly. Third, electricity market design must ensure efficient expansion of the transmission and distribution network, as significant investments are needed to connect intermittent RES. Fourth, while the traditional organisation of power systems was based on a centralised operation of a set of large plants adjusting their production to follow load variations, system operation at the distribution level will be increasingly challenging with the development of distributed resources.
We also describe three toolboxes of market design elements that could contribute to solving the four main challenges: a revamped wholesale market design, additional coordination tools, and solutions based on the deployment of distributed resources. These three toolboxes are partial substitutes and complements, but a mix of these tools must be picked and implemented to address the key challenges of RES integration for electricity market design.