Scarcity Situations and Challenges to Power System Adequacy

There are two dimensions to security of supply: the first is related to investment cycles and thus medium and long-term system adequacy, and the second to real-time operations and sufficient operational reserves and technical resilience. Both are affected by flexibility of supply and demand and by the level of interconnections between Member States.

Four main timeframes are therefore relevant to manage scarcity situations:

from minutes up to a week ahead (system operation), from a week ahead up to one year ahead (operational planning), from one to five years ahead (generation planning – decommissioning/peak power plants, DSR development), and from five to 10 years ahead (generation planning) and up to 15 years ahead (grid planning, investment cycles).

In the two shorter timeframes, scarcity is managed through measures and solutions found in wellfunctioning markets and coordinated TSO actions in simultaneous scarcity situations and emergency situations.

Well-designed markets are essential to address scarcities in all time frames. Prices that reflect scarcities should provide the right signals for market parties to contribute to system adequacy (i.e., capacity, flexibility and system services). Furthermore, price volatility is expected to increase with larger penetration of fluctuating renewable energy sources and will activate consumer flexibility and peak capacity. Better reflection of the actual costs of the power system in the prices will allow the emergence of new business models and services, which would in turn decrease the occurrence of extreme load spikes and bring overall cost and security of supply benefits to European consumers. In addition, the market needs to provide corresponding risk-hedging products and instruments to manage financial risks for market participants and to incentivise them to contribute to resolving scarcity situations.

Long-term scarcity is addressed by system operators and market participants by planning midand longer term investment decisions. Infrastructures are a prerequisite to well-functioning electricity markets. To meet the challenge of balancing supply and demand on a continuous basis, adequate investments are required in transmission and generation infrastructure in the long run. Market design will play a key role in delivering appropriate price signals to enable such investments in the long run.1

  1. For further details, refer to the ENTSO-E Vision paper “Markets and Innovation deliver the Energy Union”.