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Covid-19 reveals critical flaw in European power systems – lack of flexibility

Rory McCarthy, Principal Analyst, and Victor Laurent, Senior Product Manager for Power at Wood Mackenzie Genscape, look at the flexibility challenges facing European power markets, laid bare by Covid-19

What tables and charts are inside this report?

  • Flexible resource outlook for Europe’s big five power markets

  • GB system total balancing costs and Balancing System Use of System
  • Balancing mechanism system spot price min/max and average, 2020 to May
  • And many more 

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By Rory McCarthy, Principal Analyst, and Victor Laurent, Senior Product Manager for Power at Wood Mackenzie Genscape

Coronavirus had a sudden and dramatic negative impact on power demand, which fell by 20% in the UK during the lockdown period with similar drops across Europe. Coronavirus power demand destruction has given us a glimpse into the future when variable renewable energy (VRE: wind and solar) makes up a higher proportion of power supply. At current levels, the power system lacks the flexibility to support this variability: the bigger the share of VRE in a system, the greater the challenge.

Will Covid-19 be a wake-up call to get Europe on track for its new flexibility feet build-out?

We look at the flexibility challenges faced in the UK and Germany in these unprecedented times. The UK, because as an island it lacks interconnection and needs flexibility before its European mainland counterparts. And Germany, a key power and flexibility hub for Europe with the highest share of VRE generation. Read on to find out why flexibility is critical to balancing power systems like these.

Flexible resource outlook for Europe’s big five power markets

Markets have been built on the assumption that at current levels of renewables, particularly VRE, there is enough system flexibility. The policy focus has been to deploy low-cost wind and solar. Little attention is paid to grid stability or ensuring dispatchable renewable power. There is also a glut of incumbent capacity, from coal to pump storage that can provide various levels of flexibility. These are sunk investments, which can be challenging to displace.

Power system flexibility is essential as our power networks transition to renewables. VRE levels are increasing to meet net zero emission targets, which threatens grid stability. Wood Mackenzie expects the power system flexibility asset mix in Europe’s big five markets (Germany, France, Italy, Spain and UK [GB]) to grow from 122 GW in 2020 to 205 GW by 2030 and 265 GW by 2040. This is made up of gas peakers, pump storage, interconnectors and energy storage. Energy storage is set to become the winning asset in annual deployment growth terms.

However, the market framework is still not clear for this growth. New market services will be needed to bolster the investment case for a new flexibility fleet build-out.

Record levels of renewable penetration, even before lockdown

In the UK (GB power market) the system operator has been pushed to its limits. Even before the lockdown took hold, the GB power market broke renewable penetration records. In the first three months of the year a record 47% of electricity was provided from renewables, up from 36% in first three months of 2019. This was mainly due to large wind resource availability. As we can see from the chart below, balancing costs throughout this period were relatively low.

It is easy to assume that winter months, when demand peaks, would result in more challenges and higher costs to the system operator. On the contrary, the grid can be at its most stable at these times. Supported by the large mass of synchronous turbines such as nuclear and gas, the grid is strong.

Balancing costs ramped up as lockdown commenced
As we can see from the chart below showing system operation balancing costs, the challenges really take hold when high VRE generation coincides with ...