Impact of sector coupling on the market value of renewable energies – A model-based scenario analysis

Abstract

Abstract Decarbonizing the energy supply by substituting fossil fuels with renewable energy sources (RES) is a key task for the coming decades in order to achieve the EU s ambitious climate protection targets. Information about the possible development and marketability of RES in the electricity sector is essential for assessing future funding needs. However, rising shares of fluctuating RES generation in the energy system reduce the average market prices and increase price volatility. Balancing price variations requires a considerable degree of flexibility. Additional flexibility in the electricity market through closer interconnection between the electricity sector and other demand sectors makes it possible to keep the market values of RES closer to the general market price level, irrespective of their shares. Such sector coupling can thus contribute to a cost-efficient transition to a low-carbon energy system. This paper examines the impact of efficient sector coupling on the market values of RES in a European energy system with ambitious decarbonization. We analyze different scenarios by applying the Enertile model, which uses an integrated cost optimization approach with flexibility options due to sector coupling and provides a detailed future development of RES. In our analysis, we examine three flexibility options: smart charging of electric vehicles, decentralized heat pumps in buildings, and multivalent district heating grids. We show that the flexible use of electricity in district heating has a significant impact on market values, while the impact of both flexible electric vehicle charging and flexible heating with heat pumps is rather small. Short-term flexibility due to load shifting of the charging or heating process shows only a limited effect on market values. Fuel switching in district heating, however, offers the possibility to change the absolute demand for electricity in direct response to RES feed-in and drastically reduces the curtailment of RES.