Renewable Energy Integration: Quantifying the Value of Market Design

Karsten Neuhoff, David Newbery, Christian von Hirschhausen, Benjamin Hobbs, Christoph Weber,

Janusz Bialek, Frieder Borggrefe, Julian Barquin, Christian Nabe, Chris Dent, Francisco M. Echavarren, Rodney Boyd, Thilo Grau, Friedrich Kunz, George

Papaefthymiou, Hannes Weigt

34th IAEE International Conference, Stockholm, June 20 2011

2Karsten Neuhoff

Projected installation of new generation capacity

0

100

200

300

400

500

600

700

2010 2015 2020 2025 2030

Geothermal electricitySolar thermal electricityPhotovoltaicsTide & waveWind offshoreWind onshoreBiowasteBiogasSolid biomassHydro large-scaleHydro small-scale

GW

inst

alle

d ca

paci

ty

Source: EMPLOY-RES Studie

Current Landscape

3

Cross-border Physical Flows – 28 March 2011, 09:00-10:00 (source: www.etso-vista.org)

• Naturally evolved into 29 separated, individual regions with 38 TSOs - 300,000km transmission lines

• Mosaic means TSOs charged with security in their region only…

4Karsten Neuhoff

Based on: Borggrefe and Neuhoff 2010: Balancing and Intraday Market Design – Options for wind integration

CHP (Heat Driven)3%

Coal Power Plant19%

Combined Cycle Gas Turbine (CCGT)

12%

Gas-fired Steam Turbine6%

Hydro Power Plant (Reservoir)4%

Lignite Power Plant15%

Nuclear Power Plant27%

Oil-fired Power Plant7%

Open Cycle Gas Turbine (OCGT)2%

Pumped Hydro Power Plant5%

Generation technologies mix used in the models.

0 0.5 1 1.5 2 2.5 3 3.5 4

x 104

0

50

100

150

200

250

Wind power (MW)

Sam

ples

MAX

MEAN

MIN

Distribution of the aggregate wind in-feed for the 2008 (H) TradeWind scenario and the respective snapshots.

Comparison of selected actual market prices for power products for Wednesday 16 January 2008 (bars) and simulated prices

Nodal Prices: Voltage Levels >= 220kV - No wind

10 E

10 28 46 64 82 100

No wind

Source: Model results from the Intelligent Energy Europe project Re-shaping

Zones for zonal pricing do not match national borders

Nodal Prices: Voltage Levels >= 220kV - Max wind

10 E

10 28 46 64 82 100

Max windSuitable zones incongested network can change hour by hour

And zones with similar price change with wind output

Source: Model results from the Intelligent Energy Europe project Re-shaping

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 10

50

100

150

200

250

300

350

400

Branch Loadings

Voltage Levels >= 220kV - Max windN

umbe

r of b

ranc

hes

Distribution of branch loads (as a fraction of capacity) for the analysed high wind scenario

Congested Lines are within and between EU CountriesLine Loadings: Voltage Levels >= 220kV - Max wind

10 E 20

E

• Transmission not allocated within market – TSO have to buy back capacity-> inefficient, costly and creates opportunities for gaming.

• TSO not informed about state of the European power system– make very conservative use of transmission lines– lack of information exchange main cause for black-outs

Respecting loop flows ...

Karsten Neuhoff 11

Flows through the Belgian Grid on July 14, 1999

0

1000

2000

3000

4000

1 3 5 7 9 11 13 15 17 19 21 23

Hour

Pow

er (M

W)

Unidentified flowsExpected flows

Source: P. Bonnard, 2003 IEEE Trans. Distr. Conf

Calculating Transfer capacity

Definition+ Net transfer capacity (NTC)+ Transmission Reliability Margin (TRM)= Total Transfer capacity (TTC)Calculation of TTCHow much G increase in A can meet D increase in B, while keeping G,D fixed for other countries(i) scaling G (ii) scaling G<= G (iii) merit order

EU-wide volume weighted prices from DRESDEN model.

Results: Nodal Pricing Study• We compared a nodal design to two zonal pricing approaches – with

Madrid Comillas and Dresden Technical Universities.

no WIND min WIND mean WIND max WIND0

10,000

20,000

30,000

40,000

50,000

Model: Comillias University, Madrid NodalMW

of i

nter

natio

nal

tran

smiss

ion

no WIND min WIND mean WIND max WIND0

10,000

20,000

30,000

40,000

50,000

Model: Technical University of Dresden NodalMW

of i

nter

natio

nal

tran

smiss

ion

www.pjm.com

AEP / Dayton / ComEd Integration into the PJM Market

Change in Transmission Interconnector flows

Source: Erin T. Mansur and Matthew W. White, “Market Organization and Efficiency in Electricity Markets,” March 31, 2009, Figure 2,pg 50, discussion draft, (available at http://bpp.wharton.upenn.edu/mawhite/ ). (based on presentation by Andy Ott, PJM)

Key Study Conclusions:

• Bilateral Trading could only achieve 40% of the efficiency gains of LMP-based market

• Incremental benefit of LMP Market Integration = $180 Million annually, Net Present Value over 20 yrs is $1.5 Billion

Savings - €0.8 - 2 billion per annum

(i) Integration with domestic

congestion management

(ii) Joint allocation of international transmission

rights

(iii) Integration with day ahead energy market

(iv) Integration with intraday/

balancing market

(v) Transparency of congestion management

Bilateral transmission rights auction

No No No No No

Joint multi-country auction of NTC rights

No Yes No No No

Multi-region day-ahead market coupling (zonal pricing)

No (only at zonal level) Possible Yes No No

Nodal pricing Yes Yes Yes Possible Yes

Source: Congestion Management in European Power Networks: Criteria to Assess the Available Options, Neuhoff, Hobbs, Newbery

Multiple dimensions of congestion management