Decarbonization of Electricity Systems in Europe: Market Design Challenges

The Role of Local Citizen Energy Communities in the Road to Carbon-Neutral Power Systems: Outcomes from a Case Study in Portugal

“…These power plants may be compensated trough capacity mechanisms, increasing the power system costs, and the extra costs paid by consumers. Furthermore, wholesale price reduction can be an issue for a future non-discriminatory integration of VRE in EMs, and in the absence of feed-in tariffs or other incentives, insufficient changes in market designs (spot, balancing, and derivatives markets are essentially designed to conventional generation) or increases in CO 2 prices, may lead to situations where VRE is not attractive for profit-seeking investors [20,21].…”

“…The consumers' engagement in the energy sector has a key role to reduce all the extra costs they pay to satisfy their demand related to grid use and expansion, energy transportation, capacity mechanisms, CO 2 prices, renewable incentives and ancillary services costs. The current market mechanisms and prices do not incentive the active participation of consumers in electricity markets through demand response programs [4,12,21]. Fixed multi-rate time-of-use tariffs are proposed to consumers, inviting them to consume in cheaper hours [13].…”

“…Against this background, a future carbon-neutral society, but also reliable, and economically efficient will always depend on the capacity of consumers to follow and accept the sectoral electrification, providing the required flexibility that guarantees the security of supply of near 100% renewable penetration in power systems. Currently, the pricing mechanisms do not incentive the active participation of consumers through DR, but in the future, scarcity pricing can achieve significant values, incentivizing consumers to increase their flexibility, shifting their consumptions to periods with higher renewable penetration and/or lower prices [20,21].…”

“…Distributed generation, like solar PV, is expected to increase rapidly in the coming years, such as district heating, cooling and EVs penetration [8,[27][28][29]. CECs will play an important role in triggering all these electrification solutions, providing the required flexibility that can guarantee local carbon neutrality and energy sustainability at low prices, when comparing to nowadays [18,21]. The distribution system operator has a major role to play in facilitating the active participation of CECs in the society decarbonisation, accommodating new distributed generation and transitioning to a more flexible system where smart grid services, self-consumption, smart meters, the expansion of the EVs charging network, microgrid trades and peer-to-peer (P2P) markets will be required.…”

“…Against this background, close to real-time gate-closures, shorter market time units, hybrid technologies, CECs, sector coupling, allowing aggregated bids and new market products adapted to VRE and demand-side behaviours are future changes in the current market designs that can enable reliable, flexible, economically efficient and carbon-neutral power systems [4,18,[20][21][22][23]37]. Allowing aggregation between the same and different supply technologies and also with demand-side players in the market bids is one key rule that can reduce forecast errors as indicated in the literature [38][39][40][41].…”