Climate Policy Initiative Analysis Finds European Power Market Improvements Are Important for Wind Power Expansion

Alternative nodal pricing system can result in savings of at least euro 0.8 to euro 2.0 billion for system operation

BERLIN, February 2, 2011 - A new study led by Climate Policy Initiative (CPI) shows that the current
EU power market design does not effectively support European member states'
plan to connect 200GW of wind and solar power to the transmission system by
2020. Specifically, the current power market:

    -- does not use improvements in wind forecasts during the day to optimize
       European system dispatch, to save costs and emissions;
    -- does not make effective use of network transmission capacity, thus
       increasing costs and risking delays for the connection of renewable
       energy generation; and
    -- does not create transparent signals about system constraints to inform
       transmission network investment decisions.

A review of various market systems across European countries and the USA
revealed that nodal pricing systems (also known as locational marginal
pricing), were the most effective in addressing these issues.

In a simulation study, the consortium compared the current European power
market design against nodal pricing and found that adopting this best
practice increases EU power transfers by up to 34% and provides operational
savings from improved congestion management of euro 0.8 to euro 2.0 billion.

The CPI-led Smart Power Market project, supporting the EU Project
Re-Shaping, involved participants from Ecofys, University of Cologne,
University of Cambridge, University of Durham, Universidad Pontificia
Comillas, and Dresden University. It includes four papers:

    -- Europe's Challenge: A Smart Power Market at the Centre of a Smart
       Grid;
    -- Congestion Management in European Power Networks;
    -- Balancing and Intraday Market Design: Options for Wind Integration;
       and
    -- Renewables Energy Integration: Quantifying the Value of Market Design.

"Decarbonizing the EU power system involves more than investment in
generation and grid," said Karsten Neuhoff, director of CPI Berlin. "As our
analysis indicates, a smart power market makes more effective use of existing
grids, provides information to guide new investment, and creates flexibility
for integration of more wind and solar energy."

About CPI

Climate Policy Initiative (CPI), www.climatepolicyinitiative.org,
is a policy effectiveness analysis and advisory organization. Its mission is
to assess, diagnose and support nations' efforts to achieve low-carbon
growth. An independent, not-for-profit organization with long-term support
from George Soros, CPI's headquarters are in San Francisco and regional
offices are in Berlin, Beijing, Rio de Janeiro, and Venice.

Ruby Barcklay, +493089789489, ruby at climatepolicyinitiative.org