Foreword to the Special Issue on "High Shares of Renewable Energy Sources and Electricity Market Reform".

• Author: Bollino, Carlo Andrea

This special issue is dedicated to the widespread belief that the supply of electricity from high shares of renewable energy sources (RES) is incompatible with the current design of electricity markets. The dispatch of power supply is typically based on a merit order of supply capacity that is based on increasing marginal cost of the generation units available. However, the very low or even zero short-term marginal cost of RES does not provide a sufficient signal to the market for timely investment, and may lead to a missing money problem of generation units already in use.

Various authors in different parts of Europe and North America have contributed both applied theoretical and empirical papers to this special issue, covering a range of subject matters relevant to the issue of "high shares of renewable energy sources and electricity market reform". These are expected to provide timely and relevant guidance to policy-makers in developing new functional designs for the electricity markets in transition worldwide. The empirical studies from original research provide important lessons learned and new insights from studying recent market data. In doing so, they corroborate or challenge some of the political positions and recommendations currently under discussion especially in those countries with particularly ambitious targets to swiftly raise the share of RES. The topic of this special issue is crucial for energy companies as well, because there is a strong need to maintain, or restore, efficient and profitable market conditions. These are paramount for profitable investment and successful business operations of fuel suppliers and generators alike. The general conclusion of this Special Issue is that the relation between current market design and the growing share of RES is complex and challenging, thus deserving careful analysis.

Due to the limited number of contributions, it is quite obvious that a special issue like the present one cannot cover all relevant topics. Some studies focus on the market design and the growing need for (low-cost) flexibility options to tackle intermittency and supply-demand balancing, while others focus on the policy issues and on the investment decision making in the context of policy changes and the missing money problem caused by increasing amounts of electricity from renewables in the wholesale market. Nevertheless, they do cover a wide spectrum of issues, which are briefly summarized in the following.

Richard Green, Danny Pudjianto, Iain Staffell and Goran Strbac investigate the market design for long-distance trade in renewable electricity and cross-border compensation using an engineering-economic model of the European power system. The authors argue that while financial transmission rights (FTRs) may raise the confidence of companies investing abroad that the power can actually be delivered to their customers, their use to generate revenues for transmission capacity expansion could produce perverse incentives to under-invest and put an upward pressure on prices. The results from the model-based analysis are quite intriguing: the authors find that in the case of coordinated policy the expanded trade of renewable electricity would lead to a marked reduction in system costs of 5% in 2030 (or some [euro]15 bn per annum), despite of the need for and costs of extra transmission capacity, peak-power...