Decarbonization of Electricity Systems in Europe Market Design Challenges

Driven by climate change concerns, Europe has taken significant initiatives toward the decarbonization of its energy system. The European Commission (EC) has set targets for 2030 to achieve at least 40% reduction in greenhouse gas emissions with respect to the 1990 baseline level and cover at least 32% of the total energy consumption in the European Union (EU) through renewable energy sources, predominantly wind and solar generation. However, these technologies are inherently characterized by high variability, limited predictability and controllability, and lack of inertia, significantly increasing the balancing requirements of the system with respect to historical levels. The flexibility burden is currently carried by flexible fossil-fueled conventional generators (mainly gas), which are required to produce significantly less energy (as low operating cost and CO2-free renewable and nuclear generation are prioritized in the merit order) and operate part loaded with frequent startup and shut-down cycles, with devastating effects on their cost efficiency.

Automated summary

Europe has taken significant steps towards decarbonizing its energy system in response to climate change concerns, setting targets for 2030 to reduce greenhouse gas emissions and increase renewable energy consumption. The variability of wind and solar technologies poses challenges for system flexibility, which is currently supported by flexible fossil-fueled generators, impacting their cost efficiency.