Modeling European wholesale electricity markets
We investigate European electricity markets using self-developed, computer-based models. In the course of decarbonization, more and more end-use sectors are using electricity. Our electricity market models therefore allow the modular integration of these sectors into the models. With the integrated energy system model DIMENSION developed by EWI, the optimal short- and long-term supply costs for electricity, heat, and synthetic fuels can be determined across all sectors in the European overall system. Political, regulatory, and technological framework conditions are taken into account. Likewise, the interaction with the future hydrogen system is explicitly considered by representing hydrogen storage, import infrastructure, and electrolyzers.
On the basis of fundamental electricity market modeling, we also create electricity price scenarios. The time series have either an hourly or a quarter-hourly structure.
The power grid is a key component for the energy transition. The transmission grid transports electricity over long distances, for example from wind power plants in the North Sea toward the south. The distribution grid integrates decentralized installations such as photovoltaics. However, the production of electricity from renewable energy depends on its location and on the weather. EWI uses its model SPIDER to calculate the influence of limited transmission capacities on the electricity system. The model is based on a high-resolution DC load flow calculation of the German transmission grid as well as on node-level data on electricity demand, generation capacities, and the availability of renewable energy. A central component is the determination of redispatch volumes.
Limited grid connection capacities are playing an increasingly important role in investment decisions. In addition, changes in the support scheme design incentivize the overbuilding of grid connections. Investments in renewable energy installations are influenced by the associated grid expansion costs, differentiated by three grid area classes. The model MELI can represent the European electricity system with particular attention to local grid characteristics. It can show system effects resulting from different connection configurations of PV, wind, and storage (co-location) and from different grid connection sizes.
Renewable Energy and Energy Meteorology
Climate change is altering the generation options of conventional power plants: due to the dry summers of recent years, rivers carried less but above-average warm water. Thermal and nuclear power plants in parts of Europe had to reduce their output because cooling water from rivers was only available to a limited extent. On the demand side, higher temperatures change electricity demand: less heating in winter, but more cooling in summer. The established load profiles can shift as a result. We research the transition from carbon-based energy consumption toward renewable energy. Together with the Hans-Ertel Centre for Weather Research, we estimate the amount of renewable energy resources under changing climatic conditions. In addition, the two partners investigate the availability of solar and wind power on various temporal and spatial scales.
Asset valuation and investment decisions
For operators and investors of energy assets, it is becoming increasingly complex to decide which assets to invest in and how they should be deployed. This is due, on the one hand, to the fact that generation fluctuates at almost all grid levels. On the other hand, heat pumps and electric vehicles are increasing electricity demand. Business models from the “old energy world,” which promised reliable returns for a long time, are no longer future-proof.
Companies must value their assets correctly in order to plan strategically and make decisions – regardless of the system level or the size of the assets. In this way, companies can also develop risk-based, forward-looking maintenance strategies or make decisions about repowering, i.e., the continued operation of old installations. For asset valuation, we use the model EASE, with which marketing decisions across various revenue streams can be optimized. Different scenarios and regulatory framework conditions, for example on the balancing energy market, can be taken into account.
Some business models, particularly those of storage facilities, aim to generate revenues through arbitrage transactions on the day-ahead and intraday markets. Project developers and storage operators must estimate how high revenues could be in different scenarios. To this end, DAISY models intraday trading on a fundamental basis, drawing on electricity prices, renewable feed-in, and power plant dispatch from day-ahead trading as well as forecast errors for renewable energy and demand. The model optimizes the deployment of flexibility technologies in order to compensate for forecast errors and to minimize the costs of balancing these errors. It also takes into account the influence of intraday storage operation on the prices themselves.
Modeling distribution grids
The ramp-up of electric vehicles and heat pumps leads to an increase in peak load and raises the risk of congestion in the distribution grids. To avoid critical grid situations and to circumvent costly grid expansions, there are numerous options, for example dynamic grid fees or intervention rights for distribution system operators. We investigate how adjustments to electricity tariffs or to grid regulation affect the load flows in the distribution grid as well as the electricity procurement costs of various actors.
Collaboration with EWI’s other research areas
Together with the team of the Regulation research area, we investigate market design questions in the electricity sector, among other things through the use of quantitative models. Using EWI’s own model DIMENSION, we can, for example, model the effects of national and European climate policy on the energy system. Various bidding zone configurations in the context of European flow-based market coupling can be investigated using EWI’s own model SPIDER.
Together with the team from the Energy Commodities research area, we investigate, among other things, the provision of hydrogen for the future electricity system and the optimal co-location of hydrogen power plants, electrolyzers, and renewable energy.
Within the Integrated Electricity Market Design research program, EWI – funded by the Gesellschaft zur Förderung des EWI e.V. – addresses comprehensive questions on the efficient design of the energy transition. Since the expansion of renewable energy and power grids requires high investments, we investigate how a suitable market design can optimize investment and operating decisions.
