Decarbonization of Electricity Systems in Europe: Market Design Challenges

Driven by climate change concerns, Europe has taken significant initiatives towards the decarbonisation of its energy system, with the European Commission (EC) having set targets for 2030 to achieve at least 40% reduction in greenhouse gas emissions with respect to the 1990 baseline level and cover at least 32% of the total energy consumption in the European Union (EU) through renewable energy sources, predominantly wind and solar generation. However, these technologies are inherently characterized by high variability, limited predictability and controllability, and lack of inertia, significantly increasing the balancing requirements of the system with respect to historical levels. The flexibility burden is currently carried by flexible fossil-fuelled conventional generators (mainly gas), which are required to produce significantly less energy (as low-operating-cost and CO2-free renewable and nuclear generation is prioritised in the merit order) and operate part-loaded with frequent start-up and shut-down cycles, with devastating effects on their cost efficiency.