As auction programs mature and the shares of renewable energy increase, countries must integrate the energy procured into their power systems effectively and improve their markets.

As auction programs mature and the share of variable renewable energy (VRE) in power systems increases, many countries find that grid integration concerns become a real barrier to scaling up renewable energy. Policymakers’ objectives often evolve from low power generation costs to enhancing dispatchability and improving the value of renewable energy. This can be accomplished by delivering renewable energy when and where it is needed and reducing integration costs.

System Integration

The policies and procurement models favored in the last decade have spurred significant renewable energy adoption and helped reduce generation costs. While the growth in renewable energy technologies brings many benefits, it also brings system integration challenges and increased associated costs that may be recognized only after some generation capacity is commissioned. The uncertainty and variability of wind and solar generation can pose challenges for grid integration.

Policymakers often try to address these challenges by adding requirements related to grid integration, the timing of energy output, and the desired locations for renewables. Many policymakers identify specific geographic zones where they want renewable capacity, and in some cases, new transmission capacity is added to serve these zones. Countries such as Brazil, Kazakhstan, and Turkey have used more sophisticated auctions that specify the locations and capacity caps in small zones that fit the capabilities of the existing transmission grid.

Market Integration

Auctions that award pricing based on seasonality or time of use can help improve system integration. Energy delivered at times with higher demand receives a higher payment. In countries that use a single buyer rather than a wholesale market, demand is broken up in time blocks that receive higher payments. In countries with wholesale markets, an entity (market operator, distribution utility, etc.) makes additional payments for energy at a certain point in time.

The most common innovations used to integrate renewable energy into electricity markets are the feed-in premium (FIP) and contract for difference (CFD), which require that renewable generators sell directly into the country’s wholesale market. In addition, renewable energy generators are also allowed to participate in ancillary services and balancing markets. Since 2015, some bidders in FIP or CFD auctions have bid zero premium payment, making them full market participants and demonstrating efficient/mature markets with no public subsidy.


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A businessman in a suit and an engineer wearing electrical and climbing safety gear look at a tablet computer while surveying a beautiful agricultural landscape in Ukraine that is dotted with wind turbines.
As auction programs mature and the shares of renewable energy increase, countries must integrate the energy procured into their power systems effectively and improve their markets.
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