Design Elements for Implicit Intraday Auctions

© EPEX SPOT – All rights reserved – Strictly confidential 1

Design Elements for

Implicit Intraday

AuctionsThe Future of Power Markets

Dr. Philippe Vassilopoulos, EPEX SPOT

04/10/2016


Ways of trading power on European Wholesale markets

Derivatives Market

- Forwards/Options/

Structured Products

- Financial and physical

fulfillment

Power

commercialization

Wholesale Market

Organized Market:

Exchange

Balancing

Other system services

(e.g. primary reserves,

restoration reserves)

Ancillary Services

Over-The-Counter

(OTC)

Derivatives Market

- Futures/Options

- Mainly financial

fulfillment

Spot Market

- Physical fulfillment

Spot MarketIntraday Market

Continuous trading

Day-Ahead market

- Auction


RES development has boosted need to balance on the Intraday market

Source: Statkraft

Solar and Wind Installed Capacity in Germany


The German IDM liquidity has been boostedby iRES penetration

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

MW

h

INTRADAY VOLUMES DE LOCAL INTRADAY VOLUMES DE XB


Balancing needs exacerbated by forecasterrors

Source: 50 Hertz, EPEX SPOT

• Generation ramps handled with

quarters

• Forecast deviations :

Wind/solar forecasts can vary

significantly from Day-ahead

forecast to last Intraday Forecast

Day-ahead PV forecast inaccuracy and Intraday price impact

Generation

Ramps

Forecast

Deviations

Day-ahead forecast

Intraday forecastReal Feed-in

Generation

Hourly products

profile

15mn products profile


The wholesale energy trading process

Hourly Day-Ahead

auction

coupled EU-wide

EPEX SPOT

15-Minute

Auction (DE)

15:0012:00

EPEX SPOT continuous

hourly Intraday

30 Min before

delivery

16:00

EPEX SPOT continuous

15-Min Intraday

14:30

Hourly

optimization

15-min

optimization

Start of

Intraday Nominations

Continuous

Hourly & quarterly rebalancing

TRADING

PROCESS

AIM


The market depth of the auctions shows participants willingness to offer flexibility


European power exchange as a component of security of supply during the solar eclipse

464,37

178,42

-50,12

-29,26

-164,48

€/M

Wh

500

400

300

200

100

0

-100

-200

Q1 Q9 Q17 Q25 Q33 Q41 Q49 Q57Q65 Q73 Q81 Q89

INTRADAY PRICES

H1

€/M

Wh60

50

40

30

20

10

0H5 H10 H15 H20 H24

49.41

31.04

DAY-AHEAD PRICES

SOLAR FORECAST

Source: EPEX SPOT, TSOs


Intraday auctions as a complement to continuous trading for a flexible target model

• A short-term price signal to reward flexibility

• A question of liquidity: Concentrating liquidity during times of varying market conditions can help ALL market players!

• The power exchange can facilitate trading/Valuing of flexibility: Decreased lead-time, 15mn products, local DE Auction

• Some pros/cons of Intraday auctions Vs Continuous

- Liquidity (15mn auction ≈10-15GWh/day)

- Uniform pricing Vs Pay As Bid

- Continuous Vs Discrete

- Transmission capacity pricing

- Problem complexity (15/30/60mn+Block products, Smart blocks, multi-part bids)

- Level-playing field : no arms race

- Reliability

• Regulations have an important role to play

• Flexible regulatory framework

• Target model needs to be flexible enough to accommodate the evolution in market conditions Source: EPEX SPOT


• Some of the highlights of the HHDAM auction

held everyday at 3:30pm UK time:

- Inc. liquidity & participation

- Low market concentration (HHI index)

- Relatively high market Depth

• Blocks would allow participants to put greater

volumes of to the auction

HHDAM Auction Results in GB very encouraging since launch

0

5

10

15

20

25

0

1000

2000

3000

4000

5000

6000

7000

8000

févr

.-15

mar

s-15

avr.-

15

mai

-15

juin

-15

juil.

-15

août

-15

sept

.-15

oct.-

15

nov.

-15

déc.

-15

janv

.-16

févr

.-16

mar

s-16

avr.-

16

MW

h

Average Daily Participation (rhs) Average Daily Volume (lhs)

0,0

500,0

1 000,0

1 500,0

2 000,0

2 500,0

3 000,0

3 500,0

4 000,0

- Highly Concentrated

- Moderate Concentration

- Unconcentrated

Accepted

Quantity

Submitted

QuantityRatio

mean 424 3,013 14%

min - 21 0%

25% 158 2,166 6%

50% 323 2,919 11%

75% 580 3,753 19%

max 3,356 9,356 99%


The rationale for implicit Intraday auctions

• Auctions allow to increase marketcomplexity level in a discrete process thatis based on a powerful algorithm (not instantaneous)

• Optimization can be achieved at the Day-ahead stage but rebalancing is stillneeded with continuous trading

• Allows pricing capacity more easily

• Allows integrating network constraints

• Success of 15 auction confirms marketinterest for optimization products Intraday.

• Empirical evidence suggests MPsbehavior different between continuousand auctions

• Active/liquid markets are a prerequiste

• Legal framework not that clear on thistopic and prone to free-riding problems.

Complex products

Transmission capacitypricing

Integration of network constraints

No arms race (Time/speed)

Robust price reference

Liquidity

Reliability


Some design options for implicit cross-border Intraday auctions (not exhaustive)

Borders concerned by

the Auction

Trading system

Timing Frequency

Rules &

Regulations

Market clearing

Stepwise Vs

Linear

ProductsAlgorithm

Day-ahead Intraday

Local Cross-border

XB capacity allocation

Max-Min pricesOBK open/close

#Price/Quantity

pairs

Bid typesObjective

functionBlind/visible

auction

15/30/60mn,

Blocks, ComplexSecond-auction

Clearing

arrangements

Areas

Uniform/Pay-as-

bid

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Documents

Design Elements for Implicit Intraday Auctions