On 3 February 2023, EUREC Secretary General wrote to DG ENER on Electricity Market Design:
At an online meeting of the Clean Energy Industry Forum (Renewables) on 2 February, the European Commission asked me in the chat if I agreed “2-way CfD would in principle work for non-dispatchable RES?”. A two-sided CFD (‘Contract for difference’) feels like a feed-in tariff to an installation owner: the owner is remunerated at a flat rate per unit electricity produced. In the meeting, I’d condemned them. This question prompted me to think harder.
Reversing the direction of innovation
They might ‘work’, at least I would agree that that model is better suited to non-dispatchable RES than it is to, say, concentrated solar power, where the only thing that gives that technology a business case in Europe is that it is relatively easy to add a 3-4 hours high-temperature heat storage to it and supply electricity at a time of high demand and high price in the evening hours. But even for wind and photovoltaics it would still send technology development in the opposite direction to the one it’s been trying to go in for the last 10 years.
A couple of things I’d expect to see less of under 2-sided CFDs are
- East-west-oriented PV panels instead of south-facing
- Hybridisation of non-dispatchable renewables (with each other, dispatchable capacity or storage) dimensioned to maximise use of a grid connection line
I realise my objection is on largely philosophical grounds. Two-sided CFDs (once called feed-in tariffs) served the RES industry well up until the early 2010s, so I concede that they did ‘work’. But hasn’t their time passed? I liked Commissioner Cañete’s (2014-2019) line of 5-6 years ago that “Renewables had to be fit for the market and the market fit for renewables.” It encouraged RES generators to at least think about the value of the electricity they produce, not just its cost of production. A return to CFDs for PV and wind would contravene a tenet of EU lawmaking, which is to “internalise external costs”: non-dispatchable RES generators would be sent the signal that balancing supply and demand is not their responsibility.
I don’t doubt that both the current electricity market design and a market dominated by CFDs will create demand for technology or services that can adapt or shift demand, but in the latter case, the RES plant owner won’t be seen to own those solutions because they will be supplied from a different market. That perception could allow a narrative to be constructed that sporadic influxes of electricity from non-dispatchable RES are a nuisance that the ‘real heroes’ (methane or biomethane-driven gas peakers, demand-response, batteries, dispatchable-RES) have to mitigate. This is unhelpful in a decade when 100s of GW of PV and wind must be installed.
My other objections are practical:
- The overhead and disruption of pivoting to a new market design, when, if RES are deployed at the pace envisaged in Repower EU, the energy price crisis should be under control as the end of the decade approaches and as the need for gas is reduced. What happens then – we pivot back in a few years?
- Other possibilities to recover money from the sector are available, like taxing profits if they are excessive and redistributing that money to those most in need (although expect investment in RES to chill and projects to face a hike in capital costs if you go down that route) .