Power system flexibility May 2019 Status of Power System Transation 2019 Accelerating the transation of power systemsStatus of Power System Transation 2019 Power System Flexibility Abstract PAGE | 1 Abstract As power systems around the world trans, power system flexibility has become a global priority. A range of operational, policy and investment-based interventions are available to render modern systems more flexible, thereby facilitating cleaner, and more reliable, more resilient, and more affordable energy. This report identifies challenges and opportunities to unlock system flexibility and accelerate power system transation PST efforts. It provides an overview of the policy, regulatory and market instruments which can be implemented in different power sector contexts to mitigate these challenges. Importantly, all power system assets, including variable renewable energy, can provide flexibility services, if enabled by proper policy, market and regulatory frameworks. These assets include power plants, electricity networks, energy storage and distributed energy resources. A wealth of known strategies, approaches and instruments can be readily applied and adapted to power systems. These include modifications to energy strategies; legal frameworks; policies and programmes; regulatory frameworks; market rules; system operation protocols; and connection codes. Moving forward, updating system flexibility policies to match the pace of technological development can help to accelerate global PST, while ensuring that all classes of power system assets are able to receive fair remuneration for the flexibility services they are capable of providing. IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility cutive summary PAGE | 2 cutive summary Power systems around the world are undergoing significant change, driven particularly by the increasing availability of low-cost variable renewable energy VRE, the deployment of distributed energy resources DER, advances in digitalisation and growing opportunities for electrification. These changes can be managed in the process of power system transation PST. Status of Power System Transation 2019 identifies challenges and opportunities to unlock system flexibility and accelerate PST. A wealth of known strategies, approaches and instruments to support power system flexibility can be readily applied and adapted to power systems. There are several categories of power system assets that can be utilised to provide flexibility. Conventional power plants are currently the predominant source of system flexibility in modern power systems, and many strategies are available to further “flexibilise” these resources. VRE sources, such as wind and solar photovoltaic power plants, are emerging as a flexibility resource, with several countries recently introducing market res and regulations that activate VRE flexibility. Electricity networks remain a critical enabler of system flexibility, and a range of policy and regulatory instruments are available to de-risk new network investments and promote more “system-friendly” deployment of VRE. Energy storage, particularly battery energy storage systems BESS, are becoming a cost-competitive flexibility provider. Modifications to policy, market and regulatory frameworks ensure BESS can participate in the power system to provide flexibility services. DER offer significant flexibility potential, but may require market and regulatory res to provide valuable system flexibility services. There is an established and quickly growing body of knowledge on the successful management of modern power systems in transition. There is a substantial amount of knowledge, experience and expertise that has been accrued on PST over the past decade. A wealth of measures to support power system flexibility can be readily applied and adapted to power systems, these include modifications to energy strategies; legal frameworks; policies and programmes; regulatory frameworks; market rules; system operation protocols; and connection codes. All power system assets can provide flexibility services if enabled by proper policy, market and regulatory frameworks. Even VRE resources are emerging as a flexibility resource. Several countries e.g. Australia, Ireland, Spain and the United States have introduced market res and regulations that activate VRE flexibility. In the United States, innovative flexibility retrofit investments have been demonstrated in existing conventional power plants, such as hybridisation with BESS. Moving forward, efforts to modify connection codes and market rules will be key for all assets – including power plants, electricity networks, DER and energy storage – to receive fair remuneration for their flexibility services. Electricity networks remain a critical enabler of system flexibility. Various policy and regulatory instruments can de-risk new network investments in support of system flexibility, and promote more “system-friendly” deployment of VRE. In the United Kingdom, a “cap-and- floor” regulatory regime mitigates investment risk in merchant interconnection projects by IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility cutive summary PAGE | 3 protecting investor in years with low market revenue in exchange for capping revenues in high revenue years. Recent analysis of the Chinese power system in 2035 by the International Energy Agency IEA shows that increasing co-ordination to make better use of existing regional interconnections could yield significant economic and environmental benefits. In India, a solar parks strategy helps to mitigate grid connection risks for developers while fostering a more system-friendly deployment of solar photovoltaics PV. Battery energy storage systems are becoming a cost-competitive flexibility provider. Modifications to policy, market and regulatory frameworks can accelerate BESS deployment and ensure these resources can participate in the power system to provide flexibility services. Further regulatory innovations can help to unlock the multiple value streams of energy storage. Australia, the United Kingdom, the United States and the European Union’s Electricity Directives offer useful examples of regulatory innovations. Distributed energy resources offer significant flexibility potential but may require market and regulatory res. Proactive policy making and innovative regulations can be introduced to enable DER aggregators and streamline enrolment of DER to provide valuable flexibility services. Innovative approaches to enable DER aggregation are emerging, as demonstrated with virtual power plants in Italy and Finland. In Germany, a market-based approach to utilise DER to provide localised flexibility services is being tested to relieve network congestion. In Singapore, the utilisation of DER to provide flexibility services has been enabled through retail market liberalisation. IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility Introduction PAGE | 4 Introduction Power systems around the world are undergoing significant change, driven particularly by the increasing availability of variable renewable energy VRE, the deployment of distributed energy resources DER, advances in digitalisation and growing opportunities for electrification. These changes can be managed in the process of power system transation PST. PST describes the processes that facilitate and manage changes in the power sector in response to these novel trends. It is a process of creating policy, market and regulatory environments, and establishing operational and planning practices that accelerate investment, innovation and the use of smart, efficient, resilient and environmentally sound technology options. PST is often a complex task for policy makers. This report summarises the findings of the Power System Flexibility PSF campaign launched at the 9 thClean Energy Ministerial CEM9 in Copenhagen in May 2018. The campaign seeks to build momentum among industry and governments to enhance power system flexibility. This report identifies challenges and opportunities to unlock system flexibility and accelerate PST, and provides an overview of the policy, regulatory and market instruments which can be implemented in different power sector contexts to mitigate these challenges. Power system flexibility has become a global priority Power system flexibility is defined as “the ability of a power system to reliably and cost- effectively manage the variability and uncertainty of demand and supply across all relevant timescales, from ensuring instantaneous stability of the power system to supporting long-term security of supply” IEA and 21CPP, 2018; IEA, 2019a. Flexibility is already an important characteristic of all power systems. A range of operational, policy and investment-based interventions are available to render modern systems more flexible, thereby facilitating cleaner, and more reliable, more resilient and more affordable energy. However, it is apparent that a greater focus on supporting power system flexibility is needed during PST, in order to promote and facilitate the transition to more affordable, clean, reliable and resilient power systems. Variable renewable energy is a key driver of system flexibility requirements The increasing prominence of VRE – and its associated “system integration” issues – is among the most important drivers of PST globally, and different levels of VRE penetration require an evolving approach to providing power system flexibility. The IEA has developed a phase categorisation to capture the evolving impacts that VRE may have on power systems, as well as related integration issues. The integration of VRE can be categorised into six different phases see IEA and 21CPP, 2018 for further details. This framework can be used to prioritise different measures to support system flexibility, identify relevant challenges and implement appropriate measures to support the system integration of VRE Figure 1. IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility Introduction PAGE | 5 Figure 1. Key characteristics and challenges in the different phases of system integration Source Adapted from IEA 2018a, World Energy Outlook 2018. A distinct set of system integration issues are experienced as VRE penetrations increase in power systems. Figure 2 presents annual VRE shares and corresponding system integration phases for select countries and regions. Presently, Phase 4 is the highest VRE integration phase that has been achieved in practice. A small number of countries and regions e.g. Denmark, Ireland and South Australia have reached Phase 4, but many other power systems are still in Phases 1 and 2 and have 5-10 shares of VRE in annual electricity production. However, the general direction of this transition is already clear higher phases of system integration are forthcoming for most countries, and reflected in the increased levels of VRE deployment and new national efforts to boost power system flexibility. Figure 2. Annual VRE share and corresponding system integration phase in selected countries/regions, 2018 Note China the People’s Republic of China. Source IEA forthcoming, Renewables 2019 Analysis and Forecasts to 2024. VRE is increasingly influencing power system operations around the world. 0 10 20 30 40 50 60 70 VRE of annual electricity generation Phase 1 - No relevant impact on system Phase 2 - Minor to moderate impact on system operation Phase 3 - VRE determines the operation pattern of the system Phase 4 - VRE makes up almost all generation in some periods IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility Introduction PAGE | 6 The share of VRE in many countries has grown over the past few years. In 2015, there were just over 30 countries with an annual generation share of VRE greater than 5; by 2018, this number had risen to nearly 50 countries. Shares of VRE in many countries and/or regions are expected to rise from 5-10 to 10-20 over the next five years; jurisdictions with shares of 20-40 are also expected to increase significantly as shown in Figure 3 IEA, 2018c. Figure 3. Number of countries within annual VRE penetration range, historical and projected Source Adapted from IEA 2018b, Renewables 2018 Analysis and Forecasts to 2023. As the number of countries with medium-to-high shares of VRE rises significantly, it is expected that power system flexibility will become a more prominent issue in coming years. 020406080100120 0 to 5 5 to 10 10 to 20 20 to 30 30 number of countries 2015 2018 2023 IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility Key findings PAGE | 7 Key findings 1. There is an established and quickly growing body of knowledge on the successful management of modern power systems in transition. A substantial amount of knowledge, experience and expertise has been accrued on PST over the past decade. Much of this knowledge has been documented in global reports, including in earlier 21CPP and IEA reports 21CPP, 2015; IEA and 21CPP, 2017, 2018. Many of the previously stated core messages to policy makers about supporting system flexibility still apply, including the importance of  Mitigating power system flexibility requirements through improved system operations and expanding the geographic footprint of power systems.  Co-ordinating and integrating planning rcises across power market segments and even economic sectors such as transportation and industry.  Developing rules for the evolution of power markets that enable and reward system flexibility.  Leading public engagement, particularly for new transmission projects with long lead- times. A wealth of strategies, approaches and instruments can be readily applied and adapted to power systems Figure 4. Layers of power system flexibility Source Adapted from IEA and 21CPP, 2018, Status of Power System Transation 2018 Advanced Power Plant Flexibility. A range of approaches and interventions to enhance power system flexibility are available at different levels of decision making. Policy, market and regulatory frameworks “How” Hardware and infrastructure “What” Institutions and actors “Who” Typical decision makers Categories of interventions Asset types Energy strategies Legal framew orks Policies and programmes Regulatory framew orks and decisions Pow er sector planning rcises Retail electricity pricing Power market rules and codes System operation protocols Connection codes Energy ministry Regulatory agency System operator , electric utility , standards body IEA. All rights reserved.Status of Power System Transation 2019 Power System Flexibility Key findings PAGE | 8 Ther