۱- Introduction

۲- Current market structures: the merit order effect in theory and practice

۳- Methods

۴- Results

۵- Conclusions

References

Abstract

The transition to a 100% renewable energy system based on variable renewable energy raises technical but also institutional questions. The smart energy system concept integrates variable renewable energy by addressing the technical challenges through the integration of different energy sectors, but integration of variable renewable energy also entails a change in the cost structures, especially related to electricity. The effect of this change in cost structures on market prices is investigated. This is done through simulation of a 100% renewable energy system that utilises a large degree of cross-sector integration but maintaining the current electricity market structure. The paper uses a 100% renewable energy system scenario for a 2050 Danish energy system. This is reflected in the use of wind energy as the primary renewable energy source. It is concluded that the current electricity market structure is not able to financially sustain the amounts of wind power necessary for the transition to a 100% renewable energy system. Since earlier research shows that neither electricity production costs nor the total system costs is higher for the renewable path than the fossil-based alternatives, the conclusion in this paper points towards a need for reshaping the institutional structure of electricity trade.

Introduction

The radical change of traditional fossil fuel-based energy systems to systems based on variable renewable energy sources involves both technical and institutional challenges. In the transition towards 100% renewable energy systems, one suggested pathway is the smart energy system (SES) [1–۴]. Smart energy systems rely on three main components: smart electricity grids, smart thermal grids, and smart gas grids [5]. These main components are all interconnected to achieve the most efficient solutions to the integration of variable renewable energy sources (VRES). Smart energy systems are founded on the idea of basing future energy systems on VRES [5]. This means that production of energy from wind turbines, photovoltaics, solar thermal, etc., is the main source of energy in the system [6]. This creates a large amount of VRES [7], especially in the form of electricity that has to be utilised in the energy system to supply demands that to a large extent might not timely align with the variable production. Smart energy systems utilise system integration [4,8], where the different energy sectors are interconnected in order to create flexibility between the energy supply and the energy demand in 100% renewable energy systems and to deliver energy as efficient as possible in the right time, quantity and quality [9]. To create these integrated energy systems, smart energy systems rely on several technologies to increase the utilisation of variable renewable energy systems. Smart energy systems utilise heat pumps to convert electricity to heat, both in individual heating and district heating. This allows for the use of efficient thermal storages that are more cost efficient than electricity storages [1,10]. It utilises power-to-gas technologies to convert electricity from wind and solar to synthetic gases and electrofuels [11,12] that can be used in power plants, combined heat and power plants, and the transportation sector [12]. These fuels are also easily stored in already available storage facilities, like oil tanks and gas grids [1]. The technical aspects of the SES are investigated in several papers. These can primarily be divided into two groups. The first group focuses on designing entire integrated energy systems. For example, for the European Union [12,13], countries such as Denmark [14,15], Ireland [16], Portugal [17], as well as cities and municipalities such as Copenhagen [18,19], Aalborg [20], and Sønderborg [18]. The second group of papers investigates specific aspects of the smart energy system. Examples are the benefit of flexible energy demand [2], the implementation of heat pumps [21], how Smart energy systems work in relation to electricity interconnection with other countries [22], the interplay between energy savings and integrated energy systems [23,24], utilising vehicle-to-grid technology [25], and the role of different type of energy storages [1,10].