Redispatch and congestion management : future-proofing the European power market

In early 2024, the European Commission proposed a 90% emissions reduction target for the year 2040 in reference to the year 1990. Achieving this target largely relies on the deployment of distributed renewable generation. Currently the deployment of renewable capacity is mostly focusing on resource-rich areas with the highest capacity factors, not taking into account the grid topology. This can lead to a mismatch in the system, as those areas where renewable generation is focused do not necessarily align with where demand is located. The need to transmit the generated electricity inside a given zone could therefore regularly exceed the available grid capacity. Our results suggest that this uncoordinated deployment will massively increase the need for redispatch - adjusting generator schedules after the market has cleared to achieve a physically feasible dispatch - as grids will be more and more constrained and incapable to fully transmit all available renewable electricity. In this way, up to 310 TWh of renewable generation could be curtailed due to limitations in the grid in 2040 in a business-as-usual grid expansion scenario, The need for redispatch could be further worsened by an inefficient operation and siting of electrolysers. To address these issues at a time when renewable deployment is being scaled up substantially across the EU, we propose to introduce further incentives for system-friendly investment and operation. To this aim, existing out-of-the market mechanisms, such as auctions for energy infrastructure should be adjusted to incorporate a locational component. As the system will balance out only gradually over time, short-term price signals should be improved as well. By implementing bidding zone splits that reflect structural congestion at the border of a bidding zone, operational incentives can reflect better supply and demand available in the grid. It should further be assessed whether far-reaching alignment with the physical reality could be necessary to operate a climate-neutral power market. In this case, a more structural reform should be considered that substantially increases the spatial granularity of the wholesale market price signal at once.