Thanks to their zero marginal cost and priority for injection, intermittent renewable energies (EnRi) enjoy the greatest possible freedom to produce according to the whims of the weather, without concern for grid imperatives. The questioning of this privilege last January by the Entso-e report has been postponed until next spring, due to the tensions one imagines between the interests involved. But whatever the content of the current revisions, it seems that the golden age of the free injection of renewable energies into the market must irrevocably bow to the European imperatives of a network that has been restructured for them.
A contested regulator
The European Union’s Agency for the Cooperation of Energy Regulators (ACER) is tasked with ensuring the greatest possible integration of the energy market, in particular by overseeing the application of European regulations.
However, transporting surpluses from renewable energies compromises the functioning of the electricity market by causing structural bottlenecks in its networks as soon as the wind blows, notably between the production of wind turbines in northern Germany and their consumption by German industry in the south. These bottlenecks result in clandestine MWh, or loop flows, which then bypass them via the networks of neighboring countries, without even requesting their use, since their commercial transaction does not leave the same bidding zone. The cost of developing networks to transport these surpluses, which is becoming increasingly unbearable for consumers, is no longer enough to prevent gridlock from growing in parallel with the increase in installed intermittent power. The perverse effects of this have been described in the article “Focus on loop flows” [1], which shows in particular the growing backlog of German grids, despite the 460 billion euros earmarked between 2014 and 2045 for their reinforcement. Covering the cost of these “illegal” MWh is at the heart of a legal battle in which transmission system operators, notably France’s RTE and Germany’s Bundesnertzagentur, have had the decision of regulator ACER [2] condemned by the European Court of Justice, for its authoritarian implementation of a method of settling these costs, even though they had proved incapable of proposing a consensual alternative themselves.
“Crap” consequences for neighbors
It’s important to understand that the random injection of these renewable energies, which spill over onto the grids of their neighbors, ruins the very principle of the electricity market by reducing their capacity to import, and at the same time driving up national prices. An analysis of the French peak on April 4, 2022, with MWh at €3,000 [3], details the mechanism. Fed up with the repetition of this phenomenon, Sweden and Norway have just thrown in the towel, announcing their intention to disconnect from this system described as “absolutely shitty” [4]. On December 16, Sweden’s Energy Minister Ebba Busch took her recriminations against Germany to a new level, arguing that Germany was no longer content to prevent its neighbors from financing their nuclear revival, but would refuse to accept the undesirable effects of its intermittent energies by not agreeing to finance the consequences on its grid and, at the same time, would refuse to comply with European regulations by opposing the need to split its market into 2 distinct bidding zones, according to his remarks reported by Euractiv [5]. This would change the situation, however, by forcing it to reserve the cost of transport between each of them.
The European regulation
Indeed, Article 14 of REGULATION (EU) 2019/943 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of June 5, 2019 [6], requires bidding zones to be reviewed every 3 years to prevent structural congestion from remaining within the same bidding zone. However, congestion on the German grid between the production of wind turbines in northern Germany and their consumption by industry in the south clearly seems to violate this requirement, despite the hundreds of billions invested in the German grid [1]. And this situation is leading to unscheduled clandestine MWh loop flows that are destabilizing the entire European system.
Entso-e’s outlook
The European grid operator Entso-e has carried out numerous simulations in his bidding zones review [7], which is proving unavoidable insofar as European regulations, unlike Directives, are binding at national level and directly applicable as soon as they are published. During its online working session on November 5, 2024 [8], Entso-e published a number of proposals worth examining.
Germany is at the heart of the simulations and of the expected effects of splitting its market into 2 distinct zones, but also of the effects of dividing it into 3, 4 or even 5 zones. It turns out that most European configurations would result in a significant reduction in REi production, which would then be capped (p. 30), alongside an increase in gas and coal production and, counter-intuitively, a reduction in nuclear power. This capping of renewable energies would mainly concern German onshore wind power.
The volume to be capped differs according to the type of climate year (CY09 = climate year 2009 …), as shown in the illustration below.
This reduction would affect Germany’s import balance by an annual average of an additional 9 TWh compared to the status quo (SQ p 42), which would have to be purchased in Italy, the Czech Republic and Austria, instead of the current Nordic countries.
Following ACER’s decision of November 24, 2020 [9] on the methodology and assumptions to be used in the process of revising bidding zones in order to comply with Article 14 of the European Regulation, Entso-e held a public consultation [10] between July 19 and September 4, 2024. Not surprisingly, the European Wind Energy Association WindEurope [11] voiced its objections to the new zones, noting that they would create a great deal of uncertainty for new wind power projects.
Cutting up the French market
France has the lowest market in the EU, with an average price of €41.86/MWh (p36). It would retain this advantage in any scenario. But it is not spared from grid congestion caused by renewable energies, and its market would experience a price difference between the 3 zones suggested in this review. The southeastern part would then see its price pulled up to the benefit of the northeastern third, as shown in the illustration below.
According to Euractiv [12], the decision to split the French and German markets should have been taken on January 27, but has been postponed due to Entso-e’s postponement of the publication of its report until next spring. And the conflict already declared with the Nordic countries, which now wish to reduce their connections with the rest of Europe, is also said to be acute with the Central European countries, which, again according to Euractiv, are greatly affected by the operation of the German network. Tensions are running high between the various grid operators to reach an agreement, which has already been postponed several times beyond the autumn 2022 deadline. In fact, unanimous agreement by the national governments will still be required to ratify any reform of the bidding zones. But Germany’s opposition cannot be expected to penalize its neighbors indefinitely.
According to Montel News [13], Marcus Bokermann, the new president of the European Federation of Energy Traders (EFET) [14] fears that splitting up the bidding zones would have a disastrous effect on the development of renewable energies, and would also, in his view, deal a heavy blow to market liquidity and German trading volumes.
But this revision seems difficult to circumvent, at the risk of compromising the entire European electricity system for violating the EU regulation that imposes it. Indeed, ACER warned in July 2024 [15] that, despite the investments made in the networks by the various states, “The EU power grid is increasingly congested (corrective measures such as redispatching increased by 14.5% in 2023). The cost of managing this congestion in 2023 was €4 billion.”
The end of an era
Whatever the bidding zones review conclusions, it seems that the good old days of injecting wind surpluses without worrying about neighboring grids, which they clog up, or their markets, which they alternately make boom or bust, are over. And that the time of their clipping according to the needs of the electrical system would be about to replace it, thus compromising the myth of an abundance of wind that would allow everyone to make the most of their wind production as soon as the wind is willing to blow.
Wind generation is the main cause of the current impasse, due to its considerable and brutal variations, which can occur at any time of the day or year. Its development today seems to have reached a point that compromises the objectives for which the market was created, i.e. a fall in prices and their convergence throughout Europe, thanks to the competition made possible by the availability of networks. The need to revise it to avoid the opposite result represents a glass ceiling that calls into question the promise of wind power development.
A compensation system will be needed to make up for the loss of income for “capped” operators, but it’s the whole renewable energies model and its opportunities that need to be rethought.
1 http://lemontchampot.blogspot.com/2024/07/focus-sur-les-loop-flows.html
3 https://www.economiematin.fr/news-marche-electricite-derive-monde-prix-analyse-riou
6 https://eur-lex.europa.eu/legal-content/FR/TXT/HTML/?uri=CELEX:32019R0943
7 https://www.entsoe.eu/network_codes/bzr/#alternative-bz-configurations-to-be-investigated
9 https://eepublicdownloads.entsoe.eu/clean-documents/cep/ACER_Decision_%2B_Annexes.pdf
10 https://consultations.entsoe.eu/markets/public-consultation-on-bidding-zone-review/
Further reading
The EU Continues Its Unscientific, Anti-Innovation Policymaking
Technology has a role to play in CO₂ mitigation Tilly Undi (Interview)
Nuclear power takes off (Part 2): the ongoing evolution of reactors
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