CROCODILE – Cross-border Coordination of Offshore Grids under Different Designs for Day-Ahead and Ancillary Service Markets

Achieving the clean energy targets will require massive amounts of offshore wind generation, and the installed offshore wind power in the North Sea region is expected to grow tenfold by 2050. For the integration of such massive amounts, offshore wind energy hubs will be established such as the Princess Elizabeth Island in Belgium, also bundling transmission infrastructure and creating hybrid interconnectors. For the efficient integration of interconnectors and offshore generation assets in the European internal market, several market design options are put forward. These options include the design and integration of offshore bidding zones and their coexistence with long-term market instruments that wind developers (and consumers) can rely on for risk hedging and stabilization of revenues/costs, such as Power Purchase Agreements (PPAs) and Contracts for Difference (CfDs), among others.

However, the uncertainties related to the implementation of the particular market design creates risks for long-term investments in offshore wind farms and in the electrification of the demand side (at industry, businesses, and residential levels) due to price uncertainty. Furthermore, the transmission access guarantee as proposed by the European Commission for the reform of the EU Electricity Market Design1 and other emerging wind integration initiatives such as within the EU offshore renewable energy integration strategy brings a number of uncertainties with respect to price expectations, price collapse issues, impacts of congestions, the potential redistribution of congestion rents, and cross-border cost allocation for different stakeholders ultimately slowing the pace of offshore wind development. Such uncertainty extends to consumers, suppliers and participating renewable energy communities posing questions regarding adequate pricing mechanisms that renewable energy communities or general suppliers (engaged in long-term power purchasing commitments) can provide to their consumers to engage their stable participation while at the same time still enabling them and incentivizing them to leverage their flexibility.

These challenges would then also have a direct impact on consumers and citizen participation in offshore wind developments and the translation of the sizable offshore wind energy benefits also to the consumers/citizens. Furthermore, the particular choice of the market design also affects reserve allocation for guaranteeing the stable operation of the system, especially in the presence of an offshore grid where the cross-border exchange of ancillary services will be an important feature. At the same time, the existence of a meshed offshore grid ultimately requires operational coordination among different TSOs in sync with the different energy and service markets.

The aim of CROCODILE is to provide methodologies and recommendations for de-risking long-term offshore infrastructure investments by analyzing the impact of the market design and implementation choices on wind generation capacity developers/operators, system operators, balancing responsible parties, balancing service providers and ultimately electricity consumers. CROCODILE tackles the de-risking challenge by focusing on three main pillars:

1. Investigating market designs for efficient integration and cross-border coordination of hybrid offshore assets.
2. Analyzing the effect of market design and implementation choices with respect to citizen participation and flexibility provision potential.
3. Investigating the effect of market design and implementation choices on the stability of the grid and with respect to balancing needs, potential curtailment, and reserve needs.