Should grid integration be a concern for policy makers in countries with low wind and solar deployment?

Electricity generation from solar PV and wind, also known as variable renewable electricity (VRE), has expanded rapidly, having reached double-digit shares in some countries. However, the share of VRE in the vast majority of countries is relatively low (under 10%) and is expected to remain so until 2024. Because many countries are just beginning to launch VRE deployment, this section focuses on the early stages. It aims to clarify the central challenges to launching solar and wind deployment and to share best practices to address and manage these obstacles successfully. At the beginning of the deployment process, wind and solar integration challenges are often not as serious as anticipated.

Electricity generation from VRE differs in several ways from dispatchable conventional power generation (e.g. from thermal generators and hydropower plants). Most importantly, VRE output fluctuates over time because of the variability of wind and sunlight availability. For this reason, power system flexibility – the ability to effectively respond to fluctuations in supply or demand – becomes increasingly important to integrate rising VRE shares.

In addition to increasing VRE shares, however, numerous other structural and institutional factors also influence system flexibility. Therefore, using only the VRE share as an indicator of additional system requirements should be just the first step in identifying and developing specific integration strategies. A complementary approach uses phases to categorise the different stages of impact that VRE deployment has on the power system. While experience has shown that the sequence of these impacts is relatively consistent across power systems, the VRE share at which they become a challenge depends on each power system’s flexibility.

The IEA’s phase framework categorises VRE integration into six stages. Phase 1 is the earliest stage, at which VRE deployment has no immediate impact on power system operations, while in Phase 2 the system is able to cope with minor operational changes through existing system resources. Phases 3 through 6 imply that: 1) VRE determines the operating pattern of the whole power system; 2) additional investments in flexibility are needed; 3) there are structural surpluses of VRE generation that lead to curtailment; and 4) the seasonal and inter-year structural imbalances in energy supply require sectoral coupling.

In 2018, almost all assessed countries with a VRE share of less than 10% fell into Phase 1 or 2. In 2024, the VRE level is expected to still be below 10% in close to 100 countries. However, assessing VRE shares at an aggregated national level to determine integration into a country’s power system may be misleading, as local VRE shares can vary considerably. For example, VRE shares in some Chinese provinces and Indian and US states are higher than in the national system overall. Even though only handful of countries will be in Phase 4 by 2024, global policy focus has been mostly on actions and approaches that concern only the higher phases.

For countries at early VRE deployment stages (Phases 1 and 2), there may be no immediate integration concerns if the power system’s ability to cope with demand uncertainty is greater than the flexibility needed to accommodate small shares of VRE. However, in power systems with relatively weak and small grids, or with ambitious VRE deployment targets, it is still very beneficial to proactively initiate reforms of different parts of the institutional framework, even at early deployment stages. Figure 5.6 depicts the different areas for policy intervention and the variety of stakeholders involved in enabling power system transformation on the institutional side, a process that usually takes considerable time.

At the initial stages of VRE deployment (Phases 1 and 2), several options can facilitate the integration of renewables. Actions such as developing technical codes and adjusting regulations can help prevent integration challenges arising from greater VRE deployment. For example, governments can use connection codes or support mechanisms that require new VRE installations to use remote monitoring and control mechanisms. Similarly, connection codes can include provisions for active network management or VRE zoning to optimise the use of existing electricity networks. In some cases, market reforms that enable VRE participation in ancillary services may be useful to supplement VRE income and facilitate its integration into the power system.

Although actions in Phases 1 and 2 appear to be business-as-usual measures, they are in fact taking full advantage of a window of opportunity to accelerate system transformation. Targeting options with longer lead times (such as planning exercises) or legal frameworks to prepare institutions for wider system transformation can be done early on to prepare for medium- to long-term scaled-up deployment. Such measures may include evaluating market design and assessing future system needs to help policy makers identify areas with market or regulatory reform opportunities, as well as to raise confidence in projects with long lead times.

System integration can already be embedded in VRE support policies during the initial phases of VRE deployment. Historically, VRE deployment policies have focused on removing risks to stimulate rapid development, but as VRE becomes increasingly cost-competitive, policy makers could consider more advanced deployment policies that encourage system integration to prepare the electricity system for subsequent phases. These can include:

• Increasing market exposure by shifting to direct marketing schemes that allow VRE operators to sell electricity to the wholesale market rather than having system operators as off-takers. This would avoid some of the challenges posed by fixed FITs with assured offtake from incumbent utilities or system operators, wherein VRE generators operate independently from real-time system conditions.
• Increasing market revenue exposure by introducing floating premiums based on technology-specific average market values. The use of average market value can further support system integration through implicit locational incentives, spurring the strategic construction of VRE installations at locations where output is more likely to provide value to the system.
• Offering VRE support payments according to equivalent full-load hours rather than on a per-year basis. This provides an incentive for VRE operators to curtail output at times of negative wholesale prices and may be enhanced by enabling VRE participation in ancillary services.
• Supporting grid integration through site pre-selection and proactive network planning to reduce time lags between project construction and grid connection.
• Requiring the installation of remote monitoring and control equipment as a precondition to participate in auctions and support schemes, which can limit variability impacts on the grid. This is particularly important for programmes targeting rapid VRE capacity expansion.