Staff report

Mott MacDonald was commissioned by the International Energy Agency’s RETD* (Renewable Energy Technology
Deployment) agreement to investigate how the circumstances applying to different jurisdictions would influence
the challenge of integration. The investigation, whose findings are aimed primarily at policy makers, is published under the name ‘*Re-integration’. It was based on interviews with system operators and policymakers and addressed three questions:

¦ What are typical country specific factors that determine the choice of integration measures?
¦ Different countries may have different preferences in terms of integration. Based on case studies, what can be concluded about
which options are applicable and effective in which context?
¦ What general lessons might be drawn by countries with similar underlying characteristics?

Integration policies aim to create the conditions under which system costs due to VRE are reduced or enable the system to accommodate higher levels of VRE penetration. Integration policies are not about directly increasing deployment through support policies, though this should be an indirect result. The focus is on measures that can change the market conditions to give rise to short term changes in operations and long term changes in infrastructure.
The study found that there is no single valid approach, and policy makers will need to tailor their policy interventions to suit their
country specific factors, although many VRE integration policies have the additional benefit of promoting efficient markets.

VRE technologies are fundamentally different from conventional technologies – they are variable, uncertain, non-synchronous,
location specific, modular and they exhibit zero fuel cost. These attributes present a number of challenges to system operators.
Mott MacDonald identified four main challenges for policy makers:

¦ Ensuring VRE is deployed in a way that makes the most of VRE generation while reducing its negative system impacts.
¦ Introducing market arrangements and operational practices which make the most of the current installed flexibility.
¦ Creating an incentive environment that encourages investment in the required amount of flexibility, where flexibility comes from
generation, storage and demand side response.
¦ Making the most of scarce grid resources (in terms of capabilityto transport electricity from producers to load centres efficiently).

Not all the challenges are felt equally across all jurisdictions, due to their different characteristics. Characteristics such as the size
and portfolio of VRE, geographical distribution of VRE, type and level of interconnection and the access to flexibility determine the
nature of the challenge. Additionally, the regulatory arrangements (for example, the use of markets, separation of utility functions) will
influence the types of measures which can be implemented.

One clear overall conclusion is that context is very important in shaping the choice of measures, and that this influence can be seen
through four key characteristics, namely level of interconnection, internal flexibility, the size and nature of the VRE portfolio, and the
spatial pattern of the VRE (Figure 1). The first two dimensions relate to the characteristics of the system itself and so define the foundation, with the VRE size and spatial aspects sitting on top, as characteristics of the VRE deployed. The report illustrates the importance of context in a table that shows the significance of integration measures under the influence of 35 different system factors.
Jurisdictions with higher levels of VRE penetration as measured by VRE’s share of instantaneous load will tend to require a wider range of interventions. And in systems where wind or solar is predominant the different challenges will call for different responses.
The influence of the spatial context is more straightforward.
Other than building new network capacity, grid bottlenecks can be addressed by a combination of mechanisms which put a scarcity
price on constraints and so shift dispatch in a way that optimises the use of limited grid capacity. This could include new operational
measures like dynamic line rating (DLR) and flexible security standards (holding less capacity aside under certain conditions), both of which make the most of interconnection capacity. In the longer run, the Locational Marginal Pricing (LMP) prices will provide
evidence of the value of new grid capacity and/or VRE deployment.
Jurisdictions with higher levels of interconnection tend to use interconnectors as a key measure for integrating VRE through accessing a much larger market. This allows access to other systems’ inertial response and flexible resources as well as the pooling of VRE output (so reducing the variability of overall VRE). A small system with a high VRE share such as Denmark’s can therefore "piggyback" on a larger system, if this does not itself have a high VRE share.
In contrast, synchronously independent systems (such as Hokkaido, Great Britain and ERCOT) are developing additional system services in order to remunerate providers of inertia and fast frequency response to ensure system stability at high levels of VRE.
Systems with a large amount of flexibility have a comparatively easy task accommodating high levels of VRE. These jurisdictions
tend to focus on ensuring that there are appropriate incentives for flexible resources and that sophisticated forecasting and scheduling/despatch algorithms are applied so as to reduce reserve and balancing costs.
Jurisdictions that lack adequate access to internal flexibility may suffer problems even at low VRE penetration levels which may lead
to VRE being curtailed – as has happened in Ontario, where there is large tranche of inflexible baseload nuclear and inflexible hydro.

Size of the VRE portfolio
Systems which experience high spot shares of VRE in total generation tend to face greater challenges in terms of ramping and
inertia and frequency response. Commonly applied measures are the application of sophisticated forecasting/despatch techniques,
and incentives for provision of flexibility and rules/incentives to encourage system friendly VRE deployment. Where there are
preferential offtake arrangements negative pricing may be required to deter some discretionary generation and/or encourage uptake
via exports, demand side management and charging storage. The alternative is curtailment, which can be direct of indirect.
More generally, it is apparent that as the level of VRE penetration increases to high levels, the VRE is required to perform more like
conventional generation (for example, by offering system services). The mix of VRE matters too, although different jurisdictions response varies depending on the broader context (level of interconnection and access to internal flexible resources).
Jurisdictions with high solar shares are beginning to experience (or are forecasting) high ramping requirements especially in the
evenings (when PV output falls and evening load rises). At the same time a number of jurisdictions (Germany, Spain and Ontario) are also experiencing reverse power flows during peak solar hours in parts of their distribution networks which are being addressed
by updating control systems and temporary operational changes.
Several jurisdictions (ERCOT, CAISO, Hokkaido and Germany) are supporting pilot projects for deployment of electricity storage
installed at or close to PV sites. Some US jurisdictions (most notably California) and Germany are seeing an emerging consumer led
demand for batteries and smart controls for PV.

Geographical aspects
Where deployment of VRE is concentrated geographically and away from the main load centres this can present a challenge in terms of network congestion. In Texas, ERCOT has replaced a zonal market arrangement with a nodal one that more clearly identifies the physical transmission constraints through the more granular pricing.
This allows a more efficient dispatch and provides more refined incentives for transmission owners and generators’ investment.
ERCOT has also implemented Competitive Renewable Energy Zones (CREZ), to channel new investment into preferred areas, which has eased the transmission challenge.

Underlying trends
In addition to these contextual drivers the study identified a number of trends in the ways measures are applied that relate to wider
technology and market development:

¦ Grid code requirements for VRE are tending to get stricter and in the future could require synthetic inertia, active power and
frequency response and high wind ride through capabilities.
¦ Dispatch is tending to become more sophisticated – jurisdictions are shortening gate closure and/or dispatch intervals, increasing
price caps and introducing negative pricing in markets. This trend is probably driven by "learning on the job" and the need to
accommodate an increased level of renewables.
¦ VRE generators are becoming more exposed to market forces by moving towards market premium as opposed to FiT incentive
schemes, requiring VRE dispatch, exposure to imbalance risk and reducing compensation for curtailment. This should lead to more
system friendly VRE deployment and economic operation of the power system.

Lessons in two categories can be drawn from this study: general lessons and lessons for jurisdictions with particular characteristics.
General lessons:
¦ The deployment patterns/mix of technologies should be considered at an early stage of VRE deployment in order to mitigate congestion/ reduce swings in net load. Successful measures include differentiated financial support, planning (such as the introduction of planning zones seen in Texas) and using connection rules/charges for different technologies.
¦ Build in grid code measures sooner rather than later.
¦ Move to near real time re-dispatch supported by sophisticated forecasts of VRE output and load. This allows a more efficient
scheduling of capacity and reduces the need for operating reserve.
¦ Learn from others but do one’s own studies to assess impacts.
¦ Co-operate with other jurisdictions. This can take a number of dimensions. Exploiting the opportunities to trade energy, reserve
and balancing services to the fullest extent is likely to be one of the best ways of integrating VRE where a jurisdiction has
interconnector access to other jurisdictions. Cross jurisdiction co-operation is clearly essential for new interconnector capacity, and
here mechanisms for benefit sharing and consenting would help in deploying such assets. Lastly, co-operation on industry codes.
Lessons by characteristics:
¦ Well-connected countries should focus on interconnector rules and market harmonisation – successful in Germany and Denmark.
Keeping the fullest interconnector capacity available and applying strict rules for capacity allocation followed by coupling of day ahead
and intraday markets and SO-to-SO co-operation on balancing.
¦ Jurisdictions experiencing chronic grid bottlenecks should consider operational measures such as dynamic line rating and
market arrangements which explicitly incorporate the spatial dimension in pricing. A full nodal market, (such as has been
established in ERCOT), is the most economically efficient.
¦ Systems with weak interconnections and/or asynchronous links will face greater challenges, and should consider special system
services for inertia and fast frequency response, dynamic reactive power and emergency response to frequency drops (through DSR
and storage) to ensure adequate flexibility and system resilience.
¦ Systems with low internal flexibility and weak interconnections will face caps on VRE deployment (before curtailment is required)
unless they address these constraints.
¦ Systems lacking significant flexibility (due to high shares of nuclear or inflexible coal/gas/hydro plant) may be forced to choose between curtailing VRE or their "inflexible" dispatchable plant even at fairly low VRE shares, as has been demonstrated in Ontario. Exploiting existing demand side response and squeezing the most out of existing interconnectors should be first priorities; beyond this, these systems will need to expand storage (demonstrated in Alberta and Hokkaido), DSR and interconnector capacity.

Further study
There are numerous measures which policy makers can take but this report restricts itself to those that can be grouped under the frame conditions that cover market and operational rules, and therefore does not cover policy measures relating to reducing barriers to
deployment of VRE and flexible resources, such as consenting and planning and financial support for investments and technology
development. These would have significant value in developing measures in a way that identifies the key agents for implementation.
This survey also revealed the lack of information on the costs and benefits of measures for integrating variable renewables. This is not
entirely surprising given that many of the interventions have a wide remit and there are many different agents for implementation. The
direct costs of most interventions are small, so the main uncertainty relates to the benefit, as this is very difficult to determine. This is an area which deserves more review and analysis.
A further area to explore in further studies of measures for integrating VRE is the extent to which there is a need for some
kind of "system architect" for ensuring that a properly integrated approach is applied to VRE integration.

*IEA-RETD Agreement operates under the legal framework of the International Energy Agency. Its eight members are Canada, Denmark, France, Germany, Ireland, Japan, Norway and the United Kingdom. The full Re-integration Report can be downloaded from