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Climate Policy Initiative Analysis Finds European Power Market Improvements are Important for Wind Power Expansion

February 2, 2011

BERLIN, GERMANY — A new study led by Climate Policy Initiative (CPI) shows that the current EU power market design does not effectively support European member states’ plan to connect 200GW of wind and solar power to the transmission system by 2020.  Specifically, the current power market:

  • does not use improvements in wind forecasts during the day to optimize European system dispatch, which would save costs and emissions;
  • does not make effective use of network transmission capacity, thus increasing costs and risking delays for the connection of renewable energy generation; and
  • does not create transparent signals about system constraints to inform transmission network investment decisions.

A review of various market systems across European countries and the USA revealed that nodal pricing systems (also know as locational marginal pricing), were the most effective in addressing these issues.

In a simulation study, the consortium compared the current European power market design against nodal pricing and found that adopting this best practice increases EU power transfers by up to 34% and provides operational savings from improved congestion management of €0.8 to €2.0 billion.

The CPI-led Smart Power Market project, supporting the EU Project Re-Shaping, involved participants from Ecofys, University of Cologne, University of Cambridge, University of Durham, Universidad Pontificia Comillas, and Dresden University.  It includes four papers:

  • Europe’s Challenge:  A Smart Power Market at the Centre of a Smart Grid;
  • Congestion Management in European Power Networks;
  • Balancing and Intraday Market Design:  Options for Wind Integration; and
  • Renewables Energy Integration:  Quantifying the Value of Market Design.

“Decarbonizing the EU power system involves more than investment in generation and grid,” said Karsten Neuhoff, director of CPI Berlin.  “As our analysis indicates, a smart power market makes more effective use of existing grids, provides information to guide new investment, and creates flexibility for integration of more wind and solar energy.”

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Climate Policy Initiative (CPI) is a policy effectiveness analysis and advisory organization.  Its mission is to assess, diagnose, and support nations’ efforts to achieve low-carbon growth.  An independent, not-for-profit organization with long-term support from George Soros, CPI is headquartered in San Francisco with regional offices in Berlin, Beijing, Rio de Janeiro, and Venice.