A market setup that is truly international
No one country can deliver the comprehensive and integrated solution that will realise the full potential of the North Sea. This is true for the technical build- out and, as it turns out, it is also true for how the energy market is set up.
The challenge
The electricity and hydrogen flowing from the North Sea will change energy markets in Northern Europe. Providing clarity on the market setup for energy hubs and future offshore wind farms is crucial to create the right investment climate for private and institutional investors.
The most efficient market is one where goods can flow unimpeded to where the supplier can demand the highest price. In the traditional setup, each wind farm is connected to its home country, where the offshore wind farms bid and dispatch electricity into their home markets and receive the electricity price of their home market. An offshore bidding zone is international. The wind farms are connected via a hub that matches onshore demand across countries with offshore electricity generation. Here, the price is determined by the flows of the electricity prices in connected bidding zones and better matches overall demand, rather than always sending electricity to the home market – even in times of low prices.
This thinking is confirmed by a closer analysis: An offshore market setup for offshore energy hubs is more beneficial than the traditional home market setup. The creation of offshore bidding zones is possible within current regulation.
The insight
The full benefits of the North Sea as a green power plant for wind energy will only emerge if nation states take a truly international approach. This means creating offshore bidding zones where power can be distributed both to the home market and to other hubs and on to other countries depending on demand. This setup is possible within current regulation.
The market regulation needs to be set now to make it possible to enable clear business cases and investment decisions. A delayed decision on the market setup could make future projects more expensive or even delay or hold off investments and development needed to reach the ambitious offshore wind targets.
Analysis by the North Sea Wind Power Hub consortium has also shown that current regulation makes it possible to establish new offshore bidding zones within a relatively short time period of 9 to 18 months. This is half the time compared to what usually applies today. It makes it much quicker to establish the market setup that will govern prices for new build-outs, and thus allow potential investors a clear picture of what business case will be possible before deciding to produce a bid.
This information is crucial for decision makers both in politics and in business.
More information
To efficiently integrate the increasing amount of offshore wind energy
