Technology-neutral Capacity Mechanisms for a Secure Energy Future
The project TeKaVe – (“Technology-neutral Capacity Mechanisms for a Secure Energy Future”) addresses the question of whether the market system in Austria in its current form (energy-only market) is capable of simultaneously maintaining a secure energy supply system and achieving Austria's decarbonization targets.
In recent years, the electricity market has been subject to significant fluctuations and market interventions, which can sometimes have a considerable impact on security of supply. In addition, high shares of renewable energy sources (RES), triggered by support mechanisms, have led to highly volatile generation and increasing demand for flexibility, as well as additional generation technologies and storage capacities. Furthermore, the crisis in Ukraine has triggered an unprecedented rise in prices since mid-2021. However, additional price volatility, an uncertain geopolitical situation, and short-term market interventions do not create long-term planning security. It can be assumed that, in addition to the further expansion of RE to achieve decarbonization targets, the energy-only market will not offer sufficient incentives for new investments in the future.
Several different capacity mechanisms (CM), such as centralized or decentralized capacity markets or strategic reserves, are already in place in many European countries. Other innovative options have also been proposed (such as capacity subscriptions). Future-oriented measures require the participation of all suppliers, controllable generation, storage, demand response, and renewable energy. These must be considered when designing capacity mechanisms of any kind.
The core question of the project was examined from both a regulatory and economic perspective. An innovative modeling approach combining investment optimization and agent-based market modeling was used for the economic analysis. This made it possible to compare the CM designs and examine the influence of other factors such as market primes, energy crisis electricity contribution, CO2 pricing, and flexibility measures.
The innovation of this project lies in the fact that the capacity mechanisms were examined for their suitability in the Austrian context, considering technology neutrality, climate neutrality, and security of supply. From a regulatory perspective, the need for adaptation, alternative solutions to the CMs, and the need for harmonization at the European level were examined. On this basis, the modeled approach could be tested in a proof-of-concept in a follow-up R&D project.
The project TeKaVe made a valuable contribution overall to the design of a secure electricity supply system in Austria, considering renewable energy targets, and to improving incentive models for flexible technologies, demand response, and renewable energy sources.
Role of AIT
AIT was leading the project and was responsible for the qualitative and quantitative analysis of potential capacity mechanisms in Austria. Recommendations were derived using an innovative market model, which combines investment and trading decisions of risk averse actors with conventional electricity market modelling. This allowed for a comparison of different market designs and an examination of the influence of other factors such as Marktprämie, Energiekrisenbeitrag-Strom, CO2 prices, and flexibility instruments.
Funding
This project was implemented under the call “Energy.Free.Space” des Federal Ministry for Agriculture and Forestry,Climate and Environmental Protection, Regions and Water Management (BMLUK). The project was carried out on behalf of the BMLUK by the Austrian Research Promotion Agency (FFG). (https://projekte.ffg.at/projekt/4805444, only german)
