Turkish Liberalized Electricity Market’s Challenge in Renewable Energy

Turkish economy has an impressive annual growth rate but this is challenged by the dependence on imported energy (by over 70 %) as growing economy means increasing energy demand and consequently negative impacts on current account deficit. In order to have an idea about the size of the problem, consider that total energy demand in 2010 was over 110 Mtoe and this amount is expected to double in the next 10 years. Therefore, country’s energy (supply) policy focuses on increasing domestic production.

With regard to increasing domestic production, It is fair to say that better utilization of renewable energy is “the hottest” topic among all the options as in other countries and the government has a special concern on increasing the share of renewable energy in electricity supply. In parallel with this interest, two laws have been enacted in 2005 and 2010 and aggressive goals have been set for 2023.
  • Increasing share of renewable energy resources to at least 30 % in total generation
  • Complete utilization of  technical and economical hydroelectric potential 
  • Increasing installed capacity of wind energy to 20 GW
  • Commissioning all of geothermal potential
  • Utilization of other renewables such as solar and biomass
In order to reach these targets, many incentive mechanisms have been developed including the latest feed-in-tariff (FIT) valid for 10 years after commissioning of the power plant (also additional FIT for utilizing domestically manufactured equipments), free land from treasury, 85 % discount for grid connection and usage fees, etc. As a result of such incentives and opportunities in the liberalized market, installed renewable energy capacity has grown rapidly as seen below. This is definitely the success of promotive renewable policy. 

Figure 1: Development of renewable installed capacity

However, integration of higher amount of renewable has created significant problems as follows: Turkish electricity market is liberalized and mainly based on bilateral contracts (among participants) which are complemented by the pool. This market mechanism is operating on two sub-market basis, namely day-ahead and real-time markets. In other words, next day’s demand is balanced in the day-ahead and generators are informed about their generation schedule for the next day. In the real-time (following day), inevitable imbalance in the system caused by changing consumption or generation pattern is balanced. As some of the new renewable power plants (especially wind and run-of-the-river type hydro power plants) are having imbalance problems in the real-time, they cannot meet their day-ahead commitments. Due to these imbalances (missing or excess generation) the system becomes very difficult to manage and generators are penalized (by the marginal cost of the imbalance in financial settlement). 

The problem is quite complex unfortunately. For example, there are many new run-of-the river type hydro power plants (HPPs) that are cascaded. As these plants don’t have sufficient reservoirs, electricity generation of the ones in the downstream heavily depend on how much water is released from the plants in the upstream. Therefore, there are cases in which water released from a plant located at the source can reach the plant at the end with a long lag resulting in a big uncertainty on electricity generation schedules. On the other hand, electricity generations in the wind farms are determined by the wind speed which cannot be known exactly in the day-ahead due to changing weather conditions. Moreover, as solar power plants (they are also intermittent sources like wind plants) are introduced to the system, the amount of imbalance will be much higher. In other words, if renewable capacity development continues as in Figure 1, which is definitely desirable, there will be undesirable problems like increasing imbalance problems for the operator and penalties for plant owners.

Some solution alternatives can be proposed for this problem. One of them is allowing renewable power plants to be exempt from the day-ahead market. Thus, electricity generated in these plants will be delivered to the system in the real-time and no imbalance will occur. Apparently, this solution addresses the imbalance penalty problem of the plant owners and aims integrating more renewable energy to the system. However, it undermines technical and financial cost of the exemption. Consider that the imbalance is positive, meaning there is more renewable energy in the system than expected. Since electricity demand and supply must be in balance all the time, system operator will have to dispatch off some other power plants and these plants will lose revenue unexpectedly. Naturally, this will lower the electricity prices in the market but form a negative signal for new thermal power plant investments. In the end, the system will be unbalanced in terms of installed capacity portfolio. If the imbalance balance is negative meaning there is less renewable energy in the system than expected, then system operator will have to dispatch on some other power plants having higher generation costs, and this will put an extra burden on the electricity price. In both cases, renewable energy generators are supported at the expense of either other generators or consumers in an unsustainable way.

Second option is forcing the problematic renewable generators to form balanced portfolio groups and act together in order to minimize their total disturbing effect on the system. For instance, fossil fired generators or HPPs with reservoirs can be in the same group with run-of-the-river type HPPs, wind or solar power plants and act together in order to be in balance all the time while enjoying the benefits of the market environment. In particular, cascaded HPPs can be forced to act as a single generation source. As they are located on the same river, this can provide an efficient source management and water can be utilized in electricity generation to the utmost extent. However, power plants that can balance themselves or are located in the upstream of a river will not be eager to be in such groups. Evidently, they will prefer to generate electricity at peak hours independently in order to make more revenues. 

Third alternative is developing a new market mechanism, namely intra-day market. This mechanism is based on providing a market place for the participants enabling them to manage their imbalance before the real-time. For a specific hour in the day, say 4 pm, market participants can be allowed to trade electricity until 2 pm. Thus, if a generator notices that an imbalance is likely to occur in a couple of hours, this imbalance can be managed by selling the extra or buying the deficit energy without being penalized. Moreover, the demand side can also participate in the trade and this increases the efficiency of the balancing in terms of system management and economic cost. It is fair to say that last option seems much better as it can serve for renewable power plants’ inevitable imbalance problem, utilizing demand side response and deepening the market structure at the same time. More importantly, this is a completely market oriented solution that can help make the market mechanism self-sufficient.

Hiç yorum yok:

Yorum Gönder