Meeting the Challenges of Integrating Renewable Energy into Competitive Electricity Industries

The AGO, REEEP and REIL wish to acknowledge that this report includes findings from the Integration of Renewables into Electricity Grids Experts Workshop hosted by the IEA in November 2006. This report does not however necessarily reflect the position of the IEA. *The opinions and views offered by Commissioner Kelly are her own and not necessarily those of the United States, the Federal Energy Regulatory Commission, individual Commissioners or members of the Commission staff. Executive summary Background Growing concerns about energy security and climate change have heightened interest in harnessing renewable energy resources as a response to these critical issues. Electricity generated using these resources will in the most part be delivered to the point of use via large scale transmission and distribution systems. Consequently, the successful integration of renewable energy generation into large power systems has become fundamental to successfully addressing climate change and energy security concerns. This report arises from an IEA workshop held in Paris on 20 November 2006 to consider the challenges of integrating renewable energy resources into electricity industries. The integration of renewable energy resources cannot be solved in isolation from the other challenges facing modern electricity industries. For example, price and technical performance are critical issues as well as energy security, environmental sustainability and end-use efficiency. Moreover, many countries are undertaking processes of electricity industry restructuring, which involve disaggregation of formerly vertically integrated monopoly supply utilities and the introduction of competition and enhanced end-user participation. The terms " deregulation " and " liberalisation " suggest that rules are being removed. However, successful electricity industry restructuring requires the careful crafting of a set of institutions and rules that constitute an integrated decision-making framework that retains some centralised decision-making while decentralising other decision-making through purpose-designed markets and other commercial processes that create a competitive environment. Moreover, electricity industry restructuring processes should now be specifically designed and implemented to accommodate high levels of renewable energy penetration. More broadly, these issues translate into sustainability challenges for the stationary energy sector and specifically the electricity industry to contribute to: • Societal sustainability, through good industry governance processes that deliver reliable, affordable and sustainable electrical energy and in the process foster social cohesion and consensus and provide a benchmark for other sectors of the economy • Economic sustainability by delivering economic efficiency, particularly dynamic efficiency in achieving rapid, effective and efficient innovation in the electricity industry • Environmental sustainability, achieved …