IEEE Power & Energy Magazine - January/February 2017 - 62

and decisions by market participants but also due to intrinsic
nonlinear behavior), flexibility will undoubtably be key.
In this article, we address the influence of policy and
regulation on the efficient behavior of energy markets
and illustrate the extent to which implementation of some
well-intended, but possibly conflicting, policy choices may
result in inadequate or unexpected performance within
the overall energy system. We further highlight the importance of flexibility and stress that more flexibility will
be required in nonideal markets to avoid unanticipated
side effects.
It is not our goal here to comment on or evaluate the legitimacy of certain strategic policy objectives in themselves; we
accept these as the prerogative of policy makers. Rather, we
focus on how these strategic objectives are translated into concrete implementation targets. The strong push for investments
in certain intermittent renewables impacts the performance of
other instruments (e.g., those aimed at CO2 emission reduction) or electricity wholesale markets. By moving too rapidly
(and, in so doing, ignoring system interactions), a variety of
simple, well-intended (local) targets may counteract or even
oppose each other with the result that, while some individual
targets may be reached, the larger strategic objective will be
compromised (or even missed) or only reached at an unnecessarily high cost.
We illustrate these issues using some typical examples
drawn mainly from Europe, although interesting system
interaction scenarios in the United States and China are
also mentioned. We next identify several possible attractive
avenues for fostering flexibility through robust policies and
markets with the goal of mitigating the current situation and
allowing for-and even promoting-better system integration in the future. Finally, we suggest some challenges, open
questions, and research issues for policy and regulation.

The State of Play:
The Need for Flexibility and Analysis
European Policy Measures
and Their Consequences
An example of European energy policies with substantial
side effects are the so-called 20-20-20 targets. The European
Energy and Climate Change Package of 2008 was based on
three main pillars, or targets, to be reached by 2020:
✔✔ 20% of overall consumed end energy to be from RES,
with a subtarget for the transportation sector of 10%,
mainly from biofuels
✔✔ 20% reduction of GHGs compared to 1990
✔✔ 20% more efficient energy consumption compared to
a (then undefined) benchmark evolution.
Of these targets, the first two are mandatory; the last was
implemented through a variety of individual binding "directives," including, among others, one for combined heat and
power (CHP) and one for energy use in dwellings; but the
overall target for the European Union (EU) was not compul62

ieee power & energy magazine

sory. Before addressing the interaction effects among them,
some comments on each of these targets are in order.
Renewable Energy Policy

The 20% RES requirement for the overall EU is distributed
across member states (or, more simply, "countries"). After
much effort on the part of the EU's administration services
to devise a partitioning based on the "potential" to "produce"
energy from RES, it turned out to be impossible to reach a
consensus; thus, a purely administrative partitioning was
determined, not at all related to "potential." Starting from the
existing volume of RES in 2005 and taking into account a
slight "bonus" for early starters, the overall gap of 11 percentage points for the entire EU was filled by allocating half of
that to each member state (i.e., each country had to increase
its RES contribution by 5.5% of its end energy). The second
5.5 percentage points were redistributed across countries
based on gross domestic product (GDP) per capita, so that the
richer countries carried the heaviest burden. As a result, some
countries with substantial potential have a relatively small
target, while (relatively rich) countries with almost no potential face a very challenging target. Note that the EU Commission documents refer to a "fair" and "effective" distribution;
that it be "efficient" is not mentioned.
The three EU decision-making bodies (the Commission,
the Council, and the Parliament) could reach no agreement
on a mandatory European-wide renewables certificate trading system, by which green certificates would be exchangeable per country. Instead, every country was allowed to set
up its own individual support scheme, resulting in local certificate systems in some countries (or even in parts of countries), feed-in tariffs, investment support, and tax breaks.
A number of cooperation mechanisms (statistical transfers, joint projects, and joint support schemes) made it possible to both offer flexibility and meet part of a member state's
target through the deployment of renewables in another member state. However, all countries opted for their own targets.
Statistical transfers may be used to "balance the books" at
the end in 2020, such that a country not meeting its target by
domestic production can buy a transfer from another country
with a surplus. However, in the absence of a real market at the
moment and uncertainty as to whether countries will meet
their own targets, the use of these transfers is not actually
stimulated and, therefore, remains uncertain.
The overall renewables target refers to a fractional
requirement of 20% of overall end-energy consumption; the
subtarget within the transportation sector is a minimum of
10%. Given the limited options for deploying renewables in
the heating and cooling and transportation sectors, the electricity sector will need to compensate and so faces a much
higher target. Moreover, low-carbon options often involve
electrification, e.g., in the cases of electric vehicles and heat
pumps. Together, the policy targets as laid out in the National Renewables Energy Actions Plans lead to an overall
requirement for the electricity system of 33-34%, or about
january/february 2017



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - January/February 2017

IEEE Power & Energy Magazine - January/February 2017 - Cover1
IEEE Power & Energy Magazine - January/February 2017 - Cover2
IEEE Power & Energy Magazine - January/February 2017 - 1
IEEE Power & Energy Magazine - January/February 2017 - 2
IEEE Power & Energy Magazine - January/February 2017 - 3
IEEE Power & Energy Magazine - January/February 2017 - 4
IEEE Power & Energy Magazine - January/February 2017 - 5
IEEE Power & Energy Magazine - January/February 2017 - 6
IEEE Power & Energy Magazine - January/February 2017 - 7
IEEE Power & Energy Magazine - January/February 2017 - 8
IEEE Power & Energy Magazine - January/February 2017 - 9
IEEE Power & Energy Magazine - January/February 2017 - 10
IEEE Power & Energy Magazine - January/February 2017 - 11
IEEE Power & Energy Magazine - January/February 2017 - 12
IEEE Power & Energy Magazine - January/February 2017 - 13
IEEE Power & Energy Magazine - January/February 2017 - 14
IEEE Power & Energy Magazine - January/February 2017 - 15
IEEE Power & Energy Magazine - January/February 2017 - 16
IEEE Power & Energy Magazine - January/February 2017 - 17
IEEE Power & Energy Magazine - January/February 2017 - 18
IEEE Power & Energy Magazine - January/February 2017 - 19
IEEE Power & Energy Magazine - January/February 2017 - 20
IEEE Power & Energy Magazine - January/February 2017 - 21
IEEE Power & Energy Magazine - January/February 2017 - 22
IEEE Power & Energy Magazine - January/February 2017 - 23
IEEE Power & Energy Magazine - January/February 2017 - 24
IEEE Power & Energy Magazine - January/February 2017 - 25
IEEE Power & Energy Magazine - January/February 2017 - 26
IEEE Power & Energy Magazine - January/February 2017 - 27
IEEE Power & Energy Magazine - January/February 2017 - 28
IEEE Power & Energy Magazine - January/February 2017 - 29
IEEE Power & Energy Magazine - January/February 2017 - 30
IEEE Power & Energy Magazine - January/February 2017 - 31
IEEE Power & Energy Magazine - January/February 2017 - 32
IEEE Power & Energy Magazine - January/February 2017 - 33
IEEE Power & Energy Magazine - January/February 2017 - 34
IEEE Power & Energy Magazine - January/February 2017 - 35
IEEE Power & Energy Magazine - January/February 2017 - 36
IEEE Power & Energy Magazine - January/February 2017 - 37
IEEE Power & Energy Magazine - January/February 2017 - 38
IEEE Power & Energy Magazine - January/February 2017 - 39
IEEE Power & Energy Magazine - January/February 2017 - 40
IEEE Power & Energy Magazine - January/February 2017 - 41
IEEE Power & Energy Magazine - January/February 2017 - 42
IEEE Power & Energy Magazine - January/February 2017 - 43
IEEE Power & Energy Magazine - January/February 2017 - 44
IEEE Power & Energy Magazine - January/February 2017 - 45
IEEE Power & Energy Magazine - January/February 2017 - 46
IEEE Power & Energy Magazine - January/February 2017 - 47
IEEE Power & Energy Magazine - January/February 2017 - 48
IEEE Power & Energy Magazine - January/February 2017 - 49
IEEE Power & Energy Magazine - January/February 2017 - 50
IEEE Power & Energy Magazine - January/February 2017 - 51
IEEE Power & Energy Magazine - January/February 2017 - 52
IEEE Power & Energy Magazine - January/February 2017 - 53
IEEE Power & Energy Magazine - January/February 2017 - 54
IEEE Power & Energy Magazine - January/February 2017 - 55
IEEE Power & Energy Magazine - January/February 2017 - 56
IEEE Power & Energy Magazine - January/February 2017 - 57
IEEE Power & Energy Magazine - January/February 2017 - 58
IEEE Power & Energy Magazine - January/February 2017 - 59
IEEE Power & Energy Magazine - January/February 2017 - 60
IEEE Power & Energy Magazine - January/February 2017 - 61
IEEE Power & Energy Magazine - January/February 2017 - 62
IEEE Power & Energy Magazine - January/February 2017 - 63
IEEE Power & Energy Magazine - January/February 2017 - 64
IEEE Power & Energy Magazine - January/February 2017 - 65
IEEE Power & Energy Magazine - January/February 2017 - 66
IEEE Power & Energy Magazine - January/February 2017 - 67
IEEE Power & Energy Magazine - January/February 2017 - 68
IEEE Power & Energy Magazine - January/February 2017 - 69
IEEE Power & Energy Magazine - January/February 2017 - 70
IEEE Power & Energy Magazine - January/February 2017 - 71
IEEE Power & Energy Magazine - January/February 2017 - 72
IEEE Power & Energy Magazine - January/February 2017 - 73
IEEE Power & Energy Magazine - January/February 2017 - 74
IEEE Power & Energy Magazine - January/February 2017 - 75
IEEE Power & Energy Magazine - January/February 2017 - 76
IEEE Power & Energy Magazine - January/February 2017 - 77
IEEE Power & Energy Magazine - January/February 2017 - 78
IEEE Power & Energy Magazine - January/February 2017 - 79
IEEE Power & Energy Magazine - January/February 2017 - 80
IEEE Power & Energy Magazine - January/February 2017 - 81
IEEE Power & Energy Magazine - January/February 2017 - 82
IEEE Power & Energy Magazine - January/February 2017 - 83
IEEE Power & Energy Magazine - January/February 2017 - 84
IEEE Power & Energy Magazine - January/February 2017 - 85
IEEE Power & Energy Magazine - January/February 2017 - 86
IEEE Power & Energy Magazine - January/February 2017 - 87
IEEE Power & Energy Magazine - January/February 2017 - 88
IEEE Power & Energy Magazine - January/February 2017 - 89
IEEE Power & Energy Magazine - January/February 2017 - 90
IEEE Power & Energy Magazine - January/February 2017 - 91
IEEE Power & Energy Magazine - January/February 2017 - 92
IEEE Power & Energy Magazine - January/February 2017 - Cover3
IEEE Power & Energy Magazine - January/February 2017 - Cover4
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091020
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070820
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050620
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030420
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010220
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111219
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091019
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070819
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050619
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030419
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010219
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111218
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091018
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070818
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050618
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030418
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010218
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111217
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091017
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070817
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050617
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030417
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010217
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111216
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091016
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070816
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050616
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030416
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010216
https://www.nxtbook.com/nxtbooks/ieee/powerenergy_010216
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111215
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091015
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070815
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050615
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030415
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010215
https://www.nxtbook.com/nxtbooks/pes/powerenergy_111214
https://www.nxtbook.com/nxtbooks/pes/powerenergy_091014
https://www.nxtbook.com/nxtbooks/pes/powerenergy_070814
https://www.nxtbook.com/nxtbooks/pes/powerenergy_050614
https://www.nxtbook.com/nxtbooks/pes/powerenergy_030414
https://www.nxtbook.com/nxtbooks/pes/powerenergy_010214
https://www.nxtbookmedia.com