European Electricity Market Modelling: Studies on Grid Investment and Impacts of Renewable Energy Resources

In order to mitigate greenhouse gas emissions and be less fossil-fuel dependent, European countries have been increasing the use of energy from Renewable Energy Sources (RES), following ambitious targets defined by the European Commission and by national efforts. Consequences emerge in terms of grid investment and in the energy market price. The objectives of the thesis are to assess the impacts of large-scale integration of RES on the European power system on the increased transmission capacity requirement and the changes in market prices. The thesis also tries to identify best alternatives for investment in transmission interconnection capacity. In order to achieve the above objectives, the following were carried out in the thesis. Firstly, a base case scenario (2015) is defined by collecting most recent data on the existing loads, generation and interconnection capacities, as well as production costs for the different countries and different generation technologies. Secondly, future scenarios were defined for 2030 and 2050 considering the EU targets for generation capacity and future load forecast. Then, an electricity market model was developed based on a DC Optimal Power Flow (OPF). The model has been used to analyze the European market for future scenarios and interconnection transmission capacities between various countries. A Cost-Benefit Analysis (CBA) method is applied to identify critical paths (most congested power lines) and rank the best investment alternatives in transmission capacity reinforcements between the European Network of Transmission System Operators for Electricity (ENTSO-E) member countries. The benefits are defined by the avoided congestions costs, and the costs are the annualized investment costs. To see if the investment is profitable, a cost-to-benefit index is used. Simulations start with the base case scenario and proceeds to the future scenarios. Alternatives for transmission capacity expansion for the future scenarios have been evaluated and the future development of Locational Marginal Price (LMP) considering the different vision scenarios have been analyzed. Reinforcement connections in transmission capacity were proposed for many countries depending on the future horizon year. In 2030, proposed reinforcement interconnections include Norway-Netherlands, Austria-Italy and Switzerland-Germany, of 5784 MW, 4000 MW and 3540 MW respectfully. For 2050, the number of proposed reinforcement interconnections is higher due to the significant increase of the share of RES in the generation mix. Yearly investment costs for transmission capacity of the ENTSO-E system varies from €4 up to €11 billion of dollars, for 2030 and 2050 alternatives respectfully. Countries highly dependent on fossil-fuels in the generation mix such as Netherlands, Belgium and United Kingdom present the higher electricity price most of the scenarios analyzed, reaching average prices of €90/MWh or higher. Since demand for electricity is expected to increase for the future (i.e. due the increase of use of electric vehicles and heat pumps), grid reinforcement is expected, also because of the high penetration of solar and wind power in the Net Generating Capacity (NGC) system. Due to low running costs of RES, LMPs are in most cases affected in the sense of bringing electricity prices down when a large time horizon is considered. In some scenarios, depending on economic situations assumptions, the running cost of II the RES is considered to be higher than that of conventional hydro and nuclear, in some countries