Wind of change: The process of market integration and ... · PDF fileWind of change: The process of market integration and congestion management e-control Workshop on Market Design

Wind of change: The process of market integration and congestion management

e-control Workshop on Market Design of the Future,

Karsten Neuhoff

Wien, 29.3.2012

1 Dimensions to consider in power market design

2 Time to trade and joint products

3 Access and flexiblity for use of scarce transmission

4 The draft proposal by ENTSO-E from 23.3.2012

Wind of change: The process of market integration

and congestion management

Karsten Neuhoff, 29.3.2012

e-control workshop - Market Design of the Future

2

Is the power market design open for all technologies?

its all about time

•Align auction time frames with forecast quality

•Joint auction for linked energy products

and space

•Market-based allocation of scarce transmission

(financial transmission contracts to compensate/hedge)

•Unlock flexibility of network with nodal pricing

and obviously system security

•ISO to host information and responsibility

1



3

The time to trade2

Präsentation in Brüssel, 10. Juni, 2010, http://www.climatepolicyinitiative.org/news_berlin.html, von Ignacio de la Fuente, Red Eléctrica de España

0

5

10

15

20

25

30

35

40

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46

Stunden vor Produktion

Du

rsch

sch

nittlic

he

r

Pro

gn

ose

feh

ler

(%)

2005

2006

2007

2008



4

The value of adjusting dispatch to improved forecasting



Source: Müsgens, F. and Neuhoff, K., 2006, Modelling Dynamic

Constraints in Electricity Markets and the Costs of Uncertain Wind

Output, Cambridge EPRG Working Paper, 05/14.

Combining products2

Dispatch

adjusted

during day

Balancing

requirements /

provision

adjusted during

day

Flexible use of

individual

power stations

International

integration of

intraday &

balancing

markets

Integration

of demand

side

response

services

Effective

monitoring of

market power

possible

UK SystemN/A

German

system N/A

Nordpool

Spanish

system N/A

Nodal

pricing

system

Based on: Borggrefe and Neuhoff 2010: Balancing and Intraday Market Design – Options for wind integrationKarsten Neuhoff, 29.3.2012


6

Issuing multiple property rights3

10 ° W

0 °

10° E 20

° E

30° E

40 ° N

50 ° N

•Transmission not allocated within market – TSO have to buy back capacity

-> inefficient, costly and creates opportunities for gaming.



7

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

10 ° W

0 ° 10° E

20° E

30° E

40 ° N

50 ° N

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 borders3



8

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

10 ° W

0 ° 10° E

20° E

30° E

40 ° N

50 ° N

10 28 46 64 82 100

Max wind

Suitable zones incongested network can change hour by hour

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

And zones with similar price change with wind output3

How small do they have to be to be stable?



9

Constraining flexibility3

0

10000

20000

30000

40000

50000

no WIND min WIND mean WIND max WIND

MW ofinternational

transmission

MADRID

Nodal

0

10000

20000

30000

40000

50000

no WIND min WIND mean WIND max WINDMW of international

transmission

DRESDEN

Nodal

Annual savings 0.8-2 billion Euros from better system operationKarsten Neuhoff, 29.3.2012


10

Efficiency improvement with shift to nodal pricing



3

Source: Erin T. Mansur and Matthew W. White, “Market Organization and Efficiency in Electricity Markets,” March 31, 2009, Figure 2,pg 50, discussion draft,

(erhältlich unter http://bpp.wharton.upenn.edu/mawhite/ ). (basierend auf Präsentation von Andy Ott, PJM)

Studienergebnisse:

• Bilateraler Handel konnte nur 40% der Effizienzgewinne des LMP-basierten Marktes erreichen• Inkrementeller Nutzen der LMP Markt Integration = $180 Mio. jährlich, Barwert über 20 Jahre ist $1.5 Mrd.

AEP / Dayton / ComEd Integration in den

PJM Markt

Evaluation of congestion-management approaches3

(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, NewberyKarsten Neuhoff, 29.3.2012


Is the power market design open for all technologies?

its all about time

•Align auction time frames with forecast quality

•Joint auction for linked energy products

and space

•Market-based allocation of scarce transmission

(financial transmission contracts to compensate/hedge)

•Unlock flexibility of network with nodal pricing

and obviously system security

•ISO to host information and responsibility

1-3



13

The European process of advancing market design



•The European process of advancing market design

•The draft proposal by ENTSO-E from 23.3.2012

4

How far have we progressed towards implementation?



“.. no later than 12 months after the

entry into force …. all System

Operators of each Capacity

Calculation Region shall produce a

common methodology …”

“Each System Operator shall submit

the methodology to their National

Regulatory Authority for approval.”

“Within 4 months … National

Regulatory Authorities shall accept or

reject the proposal”

“… require the use of either a Flow-

Based (FB) method or an

Available Transfer Capacity (ATC)

method for capacity calculation at

each zone border for a

given timeframe

4

Source: Grid code proposal (ENTSO-E) Source: Framework guidelines (ACER)

Objective formulated



….

Both methods shall be described in

the CACM Network Code(s).

...

The process to develop in detail and

implement the pan-European target

model, including the process to

develop the rules for matching and

accepting bids in the shared order

book, shall be led by ENTSO-E,

include the participation of PXs and

the consultation of market parties and

be subject to NRAs approval. In

particular, NRAs require a good

understanding of the options and

associated costs and benefits for each

significant step in the implementation

of the approved intraday roadmap.

4

Challange for secure sytem operation – timely information



•What impacts have intraday transactions on flows?

•How high are balancing requirements to back-up nominations?

•What re-dispatch will neighbors pursue?

5-1

TSO acquired reserve

Redispatch

€€€

Balancing

€€

Da

y a

he

ad

T-1

h G

ate

clo

sure

Re

al

tim

e

Many EU countries (not Spain)

Largely bilateral

trading

Intraday capacity assessment



5-1Many EU countries (not Spain)

T-1

h G

ate

clo

sure

Re

al

tim

e

Largely bilateral

trading

ISO – using nodal pricing

Financially

Firm

Participants / TSOs

submit updates

TSO acquired reserve

ISO ensures load following, synchronised reserve, and frequency response

Redispatch

‘$’

€€€

$ $ $ $

Balancing

Reoffer of bids by

demand/generation

$ ISO re-optimises – and makes adjustments

Settlement

€€

Da

y a

he

ad

Intraday capacity assessment



Requirements formulated in

Framework Guidelines

CACM Network Code(s) shall ensure:

•max flows/transmission capacity

reassessed sufficiently often within

the intraday time frame

•to take into account information

from possible outages, variable

generation(e.g. wind, solar) …

Grid code: GSK not even mentioned?

5-1

• shall make use of locational

information on relevant generation

and consumption units, through a

detailed common grid model

• use of locational information in the

grid model for the assessment of

system security at the allocation

stage (FB)

• Long-term capacity calculation

methodologies shall be fully

compatible with short term

capacity calculation

Market based intraday allocation



The CACM Network Code(s) shall

also envisage that, where there is

sufficient liquidity, regional

auctions may complement the

implicit continuous allocation

mechanism. Where implemented,

implicit auctions should have

adequate bidding deadlines to

provide the necessary flexibility to

the market and be coordinated with,

and linked to, the pan-European

target model.

Article 72

PRICING OF INTRADAY CAPACITY

1. Intraday Cross Zonal Capacity shall

be priced at Bidding Zone Border(s)

reflecting Market Congestion.

2. Where appropriate, the Intraday

capacity pricing shall be included

within the Continuous

Trading Matching Algorithm.

3. In order to reflect the actual

specific network and market situation,

the Intraday Cross Zonal Capacity

price shall be based on actual Orders

4. The methodology for pricing shall

be developed ….

5-2

Market-based intraday allocation



5-2Zone 1 Zone 2

p

D

p

D

p

D

p

D

Option 1: Large increase of wind forecast for zone 2

p

D

p

D

Option 2: Small increase of wind forecast for zone 2

(1) First come first serve:

Trader gets T at 0 price

Captures T value

(2) Fixed fee for T

How to determine price?

(3) Efficient T use could

require price =0

Demand

Demand+export

-import

Merit order curve1GW

Definitions of zones



Article 33

DETERMINATION OF BIDDING ZONES

Bidding Zones shall be defined in a manner which:

(a) promotes efficient congestion management and

secure network operation within and between Bidding

Zones;

(b) enhances Social Welfare;

(c) reflects structural congestion in the European

network;

(d) adequately takes into account adverse effects of

internal transactions on other Bidding Zones;

(e) is consistent for all Capacity Calculation Timeframes;

and

(f) ensures that each generation and load unit shall

belong to only one Bidding Zone for each Market Time

Period.

Article 34

CRITERIA TO DEFINE AND ASSESS THE EFFICIENCY OF

ALTERNATIVE BIDDING ZONE CONFIGURATIONS

1. Bidding Zones shall be sufficiently stable and robust

over time.

2. When Bidding Zone configuration is assessed, at least

the following criteria shall be considered:

(a) ensure operational security and security of supply;

(b) avoid extensive or inefficient corrective measures;

(c) the location and frequency of congestion, provided

that:

- Structural congestions influence the delimitation of

bidding zones; and

- .. ongoing investment may relieve existing congestions.

(d) effects of internal transactions on other zones;

(e) size of uncertainties in Cross Zonal Capacity

Calculation;

(f) market efficiency (economic surplus, firmness costs in

accordance with Article 93, market liquidity, competition,

correctness of price signals)

(g) impact on the operation/efficiency of balancing

mechanisms and imbalance settlement processes.

5-3

European Energy Provision

•secure•economical

•sustainable

Generation

Demand response

Objectives for European power system:

•economic•secure•sustainable

Generation

Demand

StorageStorageSm

art

con

tro

ls

Smar

t p

ow

er m

arke

tN

etw

ork

exp

ansi

on

Smartgrid

Pow

er e

lect

ron

ics

Net

wo

rk e

xpan

sio

n

Mar

ket

des

ign

SmartNetwork

Effective power market design necessary, not sufficient, to decarbonize power.

Is the current design open for renewables?

use grid across Europe

effectively to lower

costs and emissions

match physical reality

to ensure continuity

•for contracts

•for investments

•for innovation

create transparency

to decide on and

communicate

grid expansions

operate DC lines

to support

European market

shield RE projects

from grid delays

Conclusion6



Vielen Dank für Ihre Aufmerksamkeit.

DIW Berlin — Deutsches Institut

für Wirtschaftsforschung e.V.

Mohrenstraße 58, 10117 Berlin

www.diw.de

RedaktionKarsten Neuhoff

[email protected]

Documents

Wind of change: The process of market integration and ... · PDF fileWind of change: The process of market integration and congestion management e-control Workshop on Market Design