Chapter 1.

Chapter 1.

The economy is largely built on a reliable supply of cheap electricity. A challenge is to keep the supply system stable and affordable with the rapid expansion of intermittent renewable energy sources. The new system cannot just be built on top of the old one. To make the integration successful and to ensure prosperity in the future, new technical solutions and market conditions are needed. Business as usual is not an option for the power sector.


Electricity is all around us. Without electricity, communications, industrial activities and services come to a halt. Households suffer badly when the power supply stops. Thanks to electricity, life in hot regions is bearable. Agricultural products can be treated and stored for extended periods of time with electrical chilling. Soon, electric vehicles will be common on the roads. Before long, electricity will be the major energy carrier for energy consumers.

Electricity production is still mostly based on fossil fuels. Because of the emissions that these fuels produce during combustion, legislators and society in general are demanding more renewable energy sources. However, the advent of renewable energy based on, for example, solar radiation and wind is creating challenges in maintaining the delicate balance between electricity production and demand. Power plants charged with the balancing task have to adapt their output faster and more frequently than before. Errors in forecasting electricity production from renewable sources add up to errors in demand prediction. Consequently, more reserve capacity, with a much more responsive character than in the past, is needed. Traditional steam-based power plants lack this flexibility. However, agile generating techniques exist that have the ability to assist in accommodating vast amounts of renewable electricity sources and help, in so doing, reducing use of fossil fuels.

According to the media, energy storage, smart grids, huge transcontinental power transmission lines and demand side management can solve the issues arising from the intermittency of renewable electricity sources. Such news should be judged with great care. It would be convenient to have affordable storage systems playing a major role in balancing electricity supply with demand. Storing electrical energy directly as electricity is not yet possible in practice. Energy has to be stored chemically as in fuel and in batteries, or mechanically as in flywheels, compressed air and raised water-reservoir levels. Heat from concentrated solar power systems can be temporarily stored in molten salts for steam generation at a later point in time.

The challenge is to find economic storage systems that have the right properties to serve the balancing of electricity generation and demand. The required storage properties depend on the type of balancing required. Flywheels might help for short-term frequency regulation in time spans of a few seconds, while batteries can help to cover unbalances up to an hour and pumped hydro can take care of smoothing in 24-hour intervals. However, no storage systems exist yet that can substitute the use of fuels such as natural gas and coal in covering, for example, seasonal lacks in power output from renewable sources, such as those occurring with solar PV output during the darker seasons. High winds can occur in continent-wide areas, so smoothing wind turbine output with long transmission lines is not an effective option. Using excess electricity during the peak output periods of solar panels and wind turbines for water heating and chilling is a better option. Smart appliances and smart meters in households appear to offer only very limited possibilities for balancing the supply of electricity with the demand.

Figure 1.1.There is a direct relationship between the amount of electrical energy used (kWh) and wealth levels, as expressed in gross domestic product based on purchasing power parity (PPP).
1. How to secure the electricity supply in a changing world-image-1.1
Figure 1.1.There is a direct relationship between the amount of electrical energy used (kWh) and
wealth levels, as expressed in gross domestic product based on purchasing power parity (PPP).

The use of electrical energy is directly linked with economic value, as can be seen in figure 1.1 In contrast to common belief, the domestic use of electricity in households is, on a global average, less than a quarter of the total electricity use. The large remaining portion is consumed by industrial users and by commercial users to create economic value. Electricity is, therefore, primarily a value creator.

A number of conclusions can be drawn from the relationship between gross domestic product and electricity use as shown in figure 1.1 Simply said, if the power supply in Africa would increase by a factor of five, the economy might potentially also grow by a factor of five and much poverty would disappear. In addition, if North America would lower the intensity of electricity used in its economy to the European level, electricity consumption might be lowered by some 20% without losing any wealth. The use of more efficient appliances, better building insulation, and a largescale introduction of LED lighting are expected to contribute to reduced electricity use in the USA. In Europe, by contrast, the replacing of gas-fuelled heating with electric heat pumps and the advent of electric vehicles might lead to some increase in electricity use. China appears to closely follow the global trend line between electricity use and GDP. The Middle East is clearly an outlier: cheap fuel, hot climate, and relatively low industrial output result in low GDP creation per unit of electric energy. Nevertheless, although economic boundary conditions differ from country to country, electricity use and economic welfare are closely related.

Despite its excellent value to society, electricity has to be affordable. High electricity prices can be a reason for energy-intensive industries to move to a country with lower prices. Distinguishing between the cost, price and value of an economic commodity such as electrical energy, helps in better understanding the mechanisms leading to affordability.

The basic costs of electricity consist of the cost of the capital investment for the generating unit, the cost of electricity transportation and distribution facilities, the cost of fuel and the cost for operation and maintenance. The price customers pay for electrical energy normally contains at least these basic costs, with profit margins and government imposed taxes added. The ultimate economic value for the customer per kilowatt-hour delivered should naturally be higher than the price that the customer pays.

A domestic consumer generally pays more per kWh than an industrial user. This is partly because of higher distribution and retail costs, but also because profit margins and levies are generally higher in the case of private customers. For an aluminium smelter, the value, price, and cost of electricity are basically close together since energy costs heavily determine the end-product costs. For a scientist, banker, or family member using a desktop computer, the cost, price and especially the value of electricity can be factors different. Computers raise productivity so much that the price of the electricity to run them is almost irrelevant for the user. In households, a 2 kW vacuum cleaner has the same power as 40 people using dustpans and brushes. One hour of vacuum cleaning might cost 0.50 € for the electricity, but hiring 40 cleaning people instead might cost at least 500 € in wealthy economies.

Figure 1.2.
An example of where electricity substantially increases productivity. Factor 40 higher productivity with electricity.

1. How to secure the electricity supply in a changing world-image-1.2
1. How to secure the electricity supply in a changing world-image-1.3
Figure 1.3.
The cost, price and value of electricity compared

The social costs of electricity can cause the real costs to be higher than the sum of the costs for capital, fuel and operations plus maintenance. Such social costs include, among other things, the value of the environmental damage caused as a result of pollution from the fuel production and from the emissions. Subsidies for mining jobs also have to be included in the social costs. Politicians might claim the creation of a substantial number of jobs connected with the introduction of renewable energy, but such jobs can also be seen, at least partly, as social costs as long as subsidies dominate the market for renewables. Ultimately, the integral economic value of a product such as electricity should at least exceed all the costs of making that product. If the cost of electricity exceeds its value, using electricity will be a luxury and a burden on the economy, without creating wealth.

1. How to secure the electricity supply in a changing world-image-1.4
Figure 1.4.
The densely populated and polluted environments were created in the new industrial cities during the Industrial
Revolution (1760–1840).

Nevertheless, the acceptability of neglecting social costs depends to a large extent on the actual wealth level of the particular country. When people are starving, items such as food and water are urgently needed, and in such cases some connected environmental damage is just taken for granted. The industrial revolution in the 18th and 19th centuries had destructive effects on the environment, but the resulting increase in the level of prosperity ultimately released money for repairs and improvements. Enforcing the same environmental standards globally for electricity production, regardless of whether it is in emerging economies or in the affluent areas of the world is, therefore, not fair if the associated costs are high.

While many people use power as a synonym for electrical energy, this book will distinguish between power and energy. It is scientifically incorrect to state that a machine or a power plant can produce power, since power is the capacity to deliver energy. A car can have an engine with a maximum power capacity of 125 kW (kilowatts), but as long as the engine is not running, no energy is sent to the wheels. Driving the car for one hour at full power means that the engine delivers an amount of energy equalling 125 kW ∙ 1 h = 125 kWh (kilowatt-hours). An electric power station of 360 MW (megawatts) constantly running at full output during 4380 hours, equalling half a year, produces 360 ∙ 4380 = 1576800 MWh (megawatt- hours), or almost 1.6 TWh (terawatt-hours) of electrical energy.

High reliability in supplying quality electricity is obviously important to energy consumers, who generally require that their need for electric energy is fulfilled at any time. Failure to supply electricity will at least be a nuisance, and generally also results in financial losses. Users in commercial and industrial environments expect a power supply system reliability of at least 99.99%, meaning that the supply fails on average in total only 53 minutes per year. For applications where a constant availability of electricity is crucial, uninterruptable power supply systems and backup generators are common practice. For some applications, such as data centres and hospital operating theatres, a supply reliability of over 99.999% is required.

A reliable supply of electricity also requires that the voltage and frequency are maintained within narrow limits. In addition, the delivered voltage should be clean and not excessively superseded by harmonic or random distortions, i.e. voltage variations with a frequency other than the basic frequency of 50 Hz or 60 Hz. Distortions are caused by control electronics and by lighting systems such as LEDs. If the voltage deviates too much in value and shape from the standards, the performance of the users’ equipment will be detrimentally affected, and the equipment might even be damaged. Quality electricity means high supply reliability of the proper voltage.

Figure 1.5.
A clean 50 Hz sine wave and a sine wave distorted with harmonics.
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Figure 1.5.
A clean 50 Hz sine wave and a sine wave distorted with harmonics.

The electricity supply should also be sustainable. The burden imposed on the environment should be acceptable, while natural resources have to be used as efficiently as possible. Technologies are available nowadays to achieve very low emissions of pollutants, including nitrogen oxides (NOX) and sulphur oxides (SOX). Both have negative impact on air quality, and cause acidification of water basins and soil.

As an example of emission reductions, the power sector in the USA was responsible for 6.2 Mtonnes of NOX in 1995, but for only 2.2 Mtonnes in 2009, thanks to exhaust gas cleaning and cleaner fuels. Yet, total fossil fuel consumption in the USA, meaning oil, gas and coal together, was roughly the same in 2009 as it was in 1995.

Figure 1.6.
The substantial decline in average concentrations of NOX and SO2 in the USA’s ambient air (source EPA).
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Figure 1.6.
The substantial decline
in average
concentrations of NOX
and SO2 in the USA’s
ambient air (source

Another issue is global warming. Globally, the power sector is responsible for roughly a quarter of anthropogenic CO2 emissions. The European Union aims to reduce greenhouse gas emissions by some 85% from the 1990 levels by the year 2050. The power sector should be emitting zero greenhouse gases by that time. To achieve this, a reduction in energy consumption, the large-scale introduction of renewable energy sources, and carbon capture and sequestration (CCS) for fossil fuel applications are seen as being the major measures. In this context, it is important to know that power plants are long-term investments with a technical life exceeding 40 years. The EU policy means that newly built power plants that are not prepared for CCS might face early retirement.

However, an excessively abrupt weaning from fossil fuel usage in order to bring down CO2 emissions will disrupt the economy. The reason behind this is that per unit of delivered energy most renewable energy sources are more expensive than fossil fuels. Furthermore, energy sources based on wind, solar radiation, tidal flows, and wave energy are by nature variable in output.

The International Energy Agency (IEA) has estimated that just 3.7 %, or 0.8 PWh, of the total global electrical energy demand was derived from renewable sources in 2010, excluding hydropower. A large part of this is based on biomass, primarily wood. Wood is often used in existing coal-fired power plants via co-firing or supplementary firing. Burning wood in power stations is heavily subsidized in some countries, but the positive effect on reducing greenhouse gas emissions is questionable. Estimates are that forestry activities and the transportation costs involved might already result in 200 g/kWh in CO2 emissions, i.e. almost the same amount of CO2 that a natural-gas-fired cogeneration plant emits. If hydropower is included in the renewables, some 19.7 % of electricity is currently erived from renewable sources.

The effort required to increase the amount of renewable energy is huge. Inevitably, fossil-based power plants will still be needed for many decades. In any case, fully abstaining from the use of fossil fuels is difficult, since these energy sources can easily be stored in large quantities. In particular, natural gas can serve as a versatile, cheap and relatively low-carbon backup battery for balancing the intermittent electricity supply coming from wind, solar radiation and tidal-flow generators. Nevertheless, fossil fuel resources are ultimately finite. Expectations are that the global demand for electrical energy will almost double over the coming 20 years. Therefore, maximum fuel efficiency is required and any wasting and flaring of fuels should be avoided. The goal should ultimately be to achieve a gradual shift to affordable renewable energy sources with mature equipment having sufficient warranties from reliable manufacturers.


Electricity demand has always shown variability. Short-term variations in demand occur because electricity consumers switch their appliances on and off at random. The net effect of this on demand is small and conventional generators can adapt their output accordingly. Moreover, there are daily patterns caused by typical societal behaviour, where people go to work or school in the morning and return home in the evening, and finally go to bed. These daily patterns are affected by the seasons, since in the colder regions more lighting and heat are required in the wintertime. In hot regions, air conditioning is needed in the summer.

In many areas, seasonal patterns can clearly be distinguished. Figure 1.7 has 17.520 data points to illustrate how the power demand varies in the north-western part of Germany during a full year. Each weekend, there is a sharp drop in demand. The variability in output of fuel-based power plants is much higher even than the variability in demand shown in figure 1.7 This is because of the intermittent output of a substantial amount of renewable electricity sources in the system. It is notable that at the end of the year, when the labour force stops work for the Christmas holidays, the demand is very low. During this holiday period, strong winds were prevalent over Germany, resulting in excess electricity that had to be exported to neighbouring countries for a negative fee of up to 200 €/MWh.

Figure 1.7.
An example of the dynamic pattern in the electricity demand in the Tennet region of Germany (data from Tennet).
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Figure 1.7.
An example of the dynamic pattern in the electricity demand in the Tennet region of
Germany (data fromTennet).
Electricity generators based on renewable energy sources such as wind, sunshine and tidal flows are generally granted unrestricted feed-in into the electricity grid. Their output however depends heavily on the weather and the time of day.
Moreover, their output is never fully predictable and is sometimes even close to zero. Figure 1.8 illustrates the variability in output of wind turbines and solar PV panels in the German 50Hertz TSO (Transmission System Operator) region during week 26, 2012. Early on Monday, wind turbines generated almost all the power that was needed. On Thursday morning at 8 am, however, the output from wind and solar sources was so low that 10.4 GW had to be derived from other sources.

Figure 1.8.
Wind and solar -based power output, and the remaining supply from other sources in the German 50Hertz TSO region, week 26, 2012 (cumulative curve, the black arrows give the extremes for ‘others’).
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Figure 1.8.
Wind and solar -based power output, and the remaining supply from other sources in the German 50Hertz TSO region, week 26, 2012 (cumulative curve, the black arrows give the extremes for ‘others’).

Since electricity transmission and distribution grids have virtually no energy storage capacity, the production and consumption of electricity have to be precisely matched. If the driving power for the generators exceeds the electricity consumption + system losses, the generators will increase their speed and, simultaneously, the frequency in the system will go up. Alternatively, if demand is higher than supply, the frequency will drop. For the system to operate properly, and for many sensitive applications, the frequency has to remain within narrow limits. Therefore, generators are equipped with controllers that can correct their output depending upon the deviation from the desired system frequency. Variation in power plant output is therefore necessary, but it is not economic to run a power plant consisting of a single generating unit in a wide load range. Technical restrictions also limit a single generator from having a wide output range. At low loads, the fuel efficiency is low while the maintenance costs per kWh are high.Therefore, generators are switched off if their load is below a certain threshold.Conversely, if the generators that are online cannot meet an increase in demand, additional generators have to be switched on.

With much intermittent renewable capacity in the system, the balancing task of the fuel-based and hydro-based generators is rapidly increasing. When the sun sets, the output from photo-voltaic cells (PV) drops to zero, while electricity demand generally increases. This results in the dispatchable generating capacity having to ramp up its output significantly. Figure 1.9 gives an example of the rapidly changing output from all the wind turbines in the German Amprion TSO region during the 24 hours of April 28, 2012. This illustrates a typical example of the passage of a depression. Two substantial increases in the wind-power output of up to 1 GW per hour were observed. The large decline in wind-power output, from 1.8 GW to 0.6 GW, in the time span from 11 am to 12 am required a large amount of fast backing-up by power plants. Even worse situations occur when the wind reaches gale force and wind turbines have to be stopped in order to avoid physical damage. Because of this, backup power plants have to be increasingly flexible.

Figure 1.9.
Large differences in power output from wind turbines in the German Amprion TSO region on April 28, 2012.
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Figure 1.9.
Large differences in power output from wind turbines in the German Amprion TSO region on April 28, 2012.

Transmission system operators (TSOs) try to introduce Demand Side Management (DSM) for balancing. Sometimes, it is called Demand System Response. Typical electric appliances, such as refrigerators and air-conditioners, can be switched off for a while. The use of washing machines and laundry dryers can often be postponed to when the general demand for electricity is dropping. This requires smart appliances that respond to a signal from the grid operator. Variable pricing of electricity might also help, and for this smart meters with a momentary tariff indicator are needed.

Nevertheless, such demand management measures can only be part of the solution to keep the system stable. A huge number of appliances would have to be controlled to have any noticeable effect. As an example, using DSM to compensate for the 1.2 GW decrease in wind turbine output, as shown in Figure 1.9, requires switching off the equivalent of 450000 laundry dryers. A laundry dryer runs on average for some 100 hours per year. The probability that a laundry dryer is running at any particular time is, therefore, only 1%. To sum up, it is not expected that domestic electricity demand can be shifted by more than a few percent through the use of smart appliances and smart meters. Better DSM opportunities might be present with industrial users of electricity.

Figure 1.10.
The typical electric power of a laundry dryer is 2.7 kW.
1. How to secure the electricity supply in a changing world-image-1.10


In addition to the need for normal balancing, faults and failures can and do occur in electricity supply systems. These malfunctions are also called contingencies, and they affect the balance between supply and demand. A failing power plant results in an instantaneous loss of electricity supply. Immediately upon the occurrence of such a loss in generating capacity, the rotating inertia in the system helps to avoid an abrupt change in frequency. A consequent drop in frequency is unavoidable, but system operators allocate spare output from the generators that are online to compensate for the lost unit. This spare output is called primary reserve. After application of the primary reserves, additional generating capacity is rapidly activated to restore the frequency to the desired value so that the primary reserves are available again for the next contingency. This additional capacity is called secondary reserve. With a growing fraction of the power capacity derived from non-dispatchable generators in the system, it becomes increasingly difficult to have adequate backup capacity within the system. Having just a few large power plants online is very risky, since then the relative effect of one power plant failing on the dispatchable capacity is large. Modern contingency reserves have to consist of smaller agile power plants that are well distributed across the area to be served. Cogeneration units are an example of such distributed power plants. Cogeneration of heat and power (CHP) is an effective means of improving fuel efficiency and reducing greenhouse gas emissions. With an adequate number of such local generators in a system, these units can also be utilised for frequency control and balancing. Again, highly flexible power plants with fast ramping rates and short starting and stopping times will be needed for balancing electricity production and emand.

Faults in the transmission and distribution system cannot be avoided. Trees may fall on high voltage lines, and icy rain in combination with high winds can damage the wires. Excavations frequently cause damage to underground cables. Decentralized generation is beneficial in this respect, since it reduces the dependence on a few distant generators and long power lines. Because of their increased contribution to electric generating capacity, decentralized generators should also be able to comply with the grid codes set by transmission and distribution system operators for large power plants. Being able to ride through a short circuit is an example one of the new requirements for local generators.


When electricity was supplied only by fully integrated utilities, all costs in the system were supposed to be covered by the tariff charged to the customers. In such a system, any profit goes to the system owner, which is often the state, a province or a municipality. The system owners are also responsible for any financial losses. In some countries, electricity is even subsidised. Planning expansions to, and renewals of, the generation and distribution system is easy in such circumstances. For this reason some governments and politicians prefer a situation whereby the electricity supply is fully controlled by integrated utilities, with perhaps a few independent electricity producers feeding into the grid.

Figure 1.11.
An integrated power company producing and delivering electricity to end users.
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Figure 1.11.
An integrated power company producing and delivering electricity to end users.

However, the free-market thinking at the end of the twentieth century advocated economic liberalisation, with privatisation and deregulation in all segments of all markets. By having private investors take over the role of the public sector, productivity was supposed to increase and the costs to consumers would then be reduced.

Figure 1.12.
An unbundled power sector affected by many players.
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Figure 1.12.
An unbundled power sector affected by many players.

A power supply run by the public sector was, and often is, considered to be bureaucratic, ineffective and less customer friendly. Is this truly the case? That is the big question. Currently, the liberalised and unbundled power sector complains of permanent interference from policy makers with ever-changing rules and high subsidies for some types of generation, making it difficult to invest in new power plants. Yet, extensive lobbying continues simultaneously by the different stakeholders for getting preferential rules for their typical facility or technology. Constant changing of the rules creates difficulties for long-term investments.

Power stations have a very long technical life, and transmission and distribution
lines last even longer. This is the reason that some countries, especially in Asia, have decided not to adopt the liberalised market model, which is generally dominated by short-term profit making and quarterly results. Moreover, in many countries with a liberalised electricity market, the government still derives much income by taxing energy use and by charging value added tax. The ultimate price of electricity to domestic consumers has, in general, not decreased as a result of the new open markets.

Grid frequency, voltage levels and reliability all have to be guaranteed, even in an open electricity market. Therefore, independent transmission system operators (TSOs) are charged with the control of frequency and voltage, and with setting rules for maintaining grid stability and supply reliability. TSOs estimate the power needs for the near future with elaborate prediction models, and use a market mechanism to ensure that sufficient generating capacity will be available. With the introduction of much intermittent generating capacity from renewables, the uncertainty in predicting the output required from non-renewable power plants is growing. As an example, the large changes in output from wind turbines as shown in Figure 1.9, were not predicted by the forecasting models, as can be seen from figure 1.13.

Figure 1.13.
An example of a large deviation between the predicted and the actual power output from wind turbines in the German Amprion TSO region, April 28, 2012.
1. How to secure the electricity supply in a changing world-image-1.13
Figure 1.13.
An example of a large deviation between the predicted and the actual power output from wind turbines in the German Amprion TSO region, April 28, 2012.

In the simplest open market approach, a power plant is remunerated only for the energy delivered. The producer that offers the cheapest electricity would be first in the merit order in a national or regional energy market. In this simple market model, the TSO requires electricity producers to include all relevant services, including backup for failing power plants and frequency control in their energy delivery offering.

    Figure 1.14.
    Examples of imbalances caused by electricity trading (data from KEMA report 74100846-ETD/SDA 12-00079, Swissgrid and TENNET.
    Graphic 1

    Graphic 2
    Graphic 3
    1. How to secure the electricity supply in a changing world-image-1.14
    Figure 1.14.
    Examples of imbalances caused by electricity trading (data from KEMA report 74100846-ETD/SDA 12-00079, Swissgrid and TENNET.

    In a more extended market model, power plants can be remunerated for the availability of reserve power and for their capability to achieve fast ramping up or down of their output. Even factors such as starting up reliability and supply reliability, might be worth rewarding. Manufacturers of energy storage technologies are aiming for financial compensation for the balancing capabilities of their products. Apart from pumped-hydro storage, most technologies for short and medium-term storage are still under development, and researchers are eager to promote their technologies to subsidy providers.

    Electricity supply markets generally operate by offering energy in fixed time spans, such as in hourly or even 15 minute intervals. This approach gives rise to periodic deviations in grid frequency. This is illustrated in figure 1. 14. Frequency stability has, therefore, decreased since the introduction of open electricity markets. Each time a trading time span ends, or begins, power plants increase or decrease their power output. This has to be compensated for by the frequency regulation capacity of the power plants, which was originally intended for occasional contingencies, such as the loss of a power plant. Sluggishly reacting power plants have difficulty in restoring the grid frequency to within its required range.

    In chapter 7, this book will show how a properly selected generating portfolio in an electricity supply system can improve system stability with reduced costs and higher reliability. With a proper approach, this stability can even be reached with a high proportion of intermittent renewable generation in the system. Much intermittent generation inevitably reduces the utilisation factor of the other power plants. The consequence of a low utilisation factor is higher specific capital costs (€/MWh) for fuel-based power plants. Low investment costs will, therefore, be a key element for new power generating capacity.

    The shift towards more renewable generation in the system will certainly reduce fossil fuel consumption. However, the consequent decrease in the utilisation factor of the other power plants will inevitably increase the capital costs per kWh produced. Moreover, fuel-based power plants will have to be far more flexible in the future, with frequent starts and stops and high ramping rates in output.


    A steady growth in electricity use, coinciding with concerns for sustainability, creates substantial challenges. Policy makers interfere increasingly with markets and use subsidies and levies to achieve their targets. Investors face uncertainty of profitability because of frequently changing boundary conditions. Dispatchers of power supply systems have to live with the challenges of variable outputs of renewable energy sources and the uncertainties from forecasting errors. To compensate for the unpredictability of the markets and to backup the intermittent output of renewables, a new level of flexibility is needed in power systems.