Fundamentals of Electricity Markets

Transcription

1 Fundamentals of Electricity Markets. An overview Pierre Pinson Technical University of Denmark. DTU Electrical Engineering - Centre for Electric Power and Energy mail: ppin@dtu.dk - webpage: (prio to) 29 January Renewables in Electricity Markets 1

2 Learning objectives Through this lecture, additional readings and video links, it is aimed for the students to be able to: 1 Have an overview of historical developments of electricity markets 2 Describe the various players and types of market organization 3 Describe the actual markets and their purpose 4 Discuss the new challenges with renewable energy in electricity markets Renewables in Electricity Markets 2

3 The 2nd of January 2015 [source: Ingeniøren, 16 January 2015, article online] Those interested may analyse what happened from Nord Pool map and data Renewables in Electricity Markets 3

4 The 2nd of September 2015 Looking at the Power right now page of Energinet on a given day... On 2nd of September 2015, for the whole day, the power from central power stations was 0 MW! Renewables in Electricity Markets 4

5 Outline 1 Historical perspective 2 Players and roles 3 Different types of market organization 4 The actual markets and their purpose 5 Open questions with renewables in electricity markets Renewables in Electricity Markets 5

6 1 Historical perspective Renewables in Electricity Markets 6

7 A historical perspective 1980s First ideas for liberalization of the electricity sector, and introduction of electricity market concepts in Chile (the Chicago boys ) 1990 UK privatizes the electricity supplied industry (Margaret Thatcher) - to be followed by other Commonwealth member countries 1991 Beginning of deregulation in Scandinavia... (to be further detailed) 1996 Deregulation in California California electricity crisis! In short: shortage of electricity supply, rise in prices, multiple blackouts, state of emergency, bankruptcies, investigation on Enron s role [More on the California electricity crisis: Sweeney JS (2002). The California electricity crisis: Lessons for the future. The Bridge 32(2):23 31 (pdf) Schwartz P (2012). California Energy Crisis. Energy, Society, and the Environment, Cal Poly, US (video mins) Friedman LS (2009). The long and the short of it: Californias electricity crisis. International Journal of Public Policy 4(1-2):4 31 (pdf, for those really motivated!) ] Renewables in Electricity Markets 7

8 Closer to us... A history of Nord Pool 1991 Deregulation of the Norwegian electricity market 1996 Norwegian-Swedish exchange called Nord Pool 1998 Finland and Western Denmark step in 2000 Eastern Denmark s turn to join 2002 Nord Pool Spot established as a new and separate entity 2009 Market coupling between Scandinavia and Germany 2009 Negative price floor accepted 2013 All Baltic countries have joined Nord Pool (Estonia-2010, Lithuania-2012, Latvia-2013) [More on the history of Nord Pool: NASDAQ OMX - Our history] Renewables in Electricity Markets 8

9 By the way - what is deregulation? REGULATED Prices are all determined by the regulatory/government bodies: DEREGULATED Prices are determined by invisible hand of the market energy prices transmission and distribution prices Vertically integrated structure Cannot choose supplier Horizontal restructuring Competition among a set of suppliers [More on deregulation of electricity markets: Karan MB, Kazdagli H (2011). The development of energy markets in Europe. In: Financial Aspects in Energy (Dorsman et al. eds.), Springer (pdf) Joskow PL (2008). Lessons learned from electricity market liberalization. The Energy Journal 29(2):9-42 (pdf) Joskow PL et al. (2006). Regulation and deregulation of energy sectors. MIT video collection (video - 1h) ] Renewables in Electricity Markets 9

10 2 Players and their role Renewables in Electricity Markets 10

11 Who are we talking about? Can you list all the actors... involved in power system operations? and that interact with the electricity market? [For the case of Denmark, a description of the actors is available at: Renewables in Electricity Markets 11

12 Who are we talking about? Those who operate the power grid(s): TSO - Transmission System Operator The TSO operates the transmission assets and is responsible for the power balance on the transmission system. For the example case of Denmark, it is Energinet.dk Disco: Distribution company / Distribution System Operator (DSO) The DSO operates the distribution grid, and often additionally acts as a retailer. Examples in Denmark include, e.g., DONG Energy, Syd Energi, SEAS-NV, etc Renewables in Electricity Markets 12

13 Who are we talking about? Those who sell and buy: Genco - Generating company The Genco owns production assets (from single generator to a portfolio), whose generation is offered through the electricity market. Ex: DONG Energy, Vattenfall, etc. Retailer The Retailer buys electricity en gros from the wholesale electricity market, to then be sold to the end-consumers. Ex: DONG Energy, El-forbundet, etc. Consumers (large and small) Those eventually use the electricity for any purpose (from watching TV to heating to industrial production processes). There is a difference between small and large consumers, since the latter ones may be allowed to directly participate in the wholesale electricity market. [To be noted: DONG Energy is what we call an Electric Utility] Renewables in Electricity Markets 13

14 Who are we talking about? Those who rule and operate the game : Regulator The regulator is responsible for the market design and its specific rules. It also monitors the market in order to spot misbehavior in electricity markets (collusion, abuse of market power, etc.). Exs: The Danish Energy Regulatory Authority DERA, CRE in France, Ofgem in the UK, etc. The Market Operator The Market Operator organizes and operates the market place. This may include the definition of bid products and bid forms, set up and maintenance of the trading platform, daily matching of supply and demand offers, etc. Ex: Nord Pool, APX, EEX, PowerNext, etc Renewables in Electricity Markets 14

15 3 Different types of market organization Please also read D. Kirschen, G. Strbac (2004). Fundamentals of Power System Economics, Chapter Renewables in Electricity Markets 15

16 Organization: Monopoly [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics] Renewables in Electricity Markets 16

17 Organization: Purchasing agent [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics] Renewables in Electricity Markets 17

18 Organization: Wholesale market [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics] Renewables in Electricity Markets 18

19 Organization: Retail market [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics] Renewables in Electricity Markets 19

20 4 The actual markets and their purpose Renewables in Electricity Markets 20

21 Electricity as a special commodity Why is electricity so special? 1 There must always be a balance between generation and consumption 2 Transportation and distribution is performed on a power network, with its specific physical rules 3 Storage is uneconomical (as of today) 4 A large part of the electric demand is of must-serve nature (residential, hospitals, etc.) 5 The final consumers cannot really differentiate the origin of the product (as well as its quality and nature) Renewables in Electricity Markets 21

22 The European picture [source: www. etrmsystems. com ] Renewables in Electricity Markets 22

23 Exciting time: The Internal Energy Market Grid operators and power exchanges from 14 EU Member States plus Norway inaugurated on 4 February 2014 a pilot project for joint electricity trading, so-called day-ahead market coupling Overall objectives: harmonize European electricity markets and strengthen competition improve liquidity, transparency and efficiency in the power markets across Europe social welfare optimization In practice: flow-based coupling of day-ahead markets standardization of (also new) products for intra-day markets and new matching algorithms target model for balancing? co-existence with new intra-day solutions? Renewables in Electricity Markets 23

24 The importance of the network This is a simplified grid for the first synchronous zone of the European Transmission Network (app lines only)... The real one has more than lines! Renewables in Electricity Markets 24

25 The importance of FLOWS on the network [courtesy of Tue V. Jensen, DTU Elektro] The same grid with power flowing as a function of renewable energy generation and electric power consumption, in a future renewable-based power system Renewables in Electricity Markets 25

26 Different types of markets Capacity: for the system operator to ensure that sufficient generation capacity is present for reliable system operation in future years and at competitive prices Capacity Energy: central place for the optimal Markets Ancillary ervices scheduling and settlement of energy exchanges Ancillary service: any type of service that supports power system operations, directly bought by the system operator, e.g. Energy Primary reserves Secondary reserves Tertiary reserves (also called manual) Black-start capability, short-circuit power, reactive reserves and voltage control Most of our focus will be on energy and ancillary services! Renewables in Electricity Markets 26

27 Energy markets and their purpose Futures markets: financial contracts with time horizon up to six years - used for price hedging and risk management. Ex: Nasdaq OMX Commodities for Scandinavia Futures Day-ahead: seen today as the central instrument for everyday matching of electricity supplies and offers. Ex: Nord Pool Elspot for Scandinavia Day-ahead Balancing Intra-day: continuous trading platform, between day-ahead and balancing, allowing to correct original schedules (e.g., in case of plant outages or changes in wind power generation). Intra-day Ex: Nord Pool Elbas for Scandinavia Balancing: close to real-time operation, for the system operator to ensure power system balance. Ex: Energinet.dk in Denmark Renewables in Electricity Markets 27

28 Parallel between energy and ancillary services Renewables in Electricity Markets 28

29 5 Open questions with renewables in electricity markets Renewables in Electricity Markets 29

30 Renewables providing system services in a market environment Should renewables (and demand) pay for the power fluctuations they induce? What is an optimal market design (and offering strategies) if renewables are to provide system services? Renewables in Electricity Markets 30

31 Reveal the true cost of uncertainty The narrative fallacy: Do we really believe we can offer renewables deterministically with lead times of hours ahead? Why not adapting market designs to reveal and accommodate the true cost of renewables uncertainty? Renewables in Electricity Markets 31

32 A few important questions Can we continuously integrate more renewable energy generation into such electricity markets? Are they fundamental changes to consider? How can we (i.e., engineers, scientists, young and motivated people) contribute to that? Renewables in Electricity Markets 32

33 Thanks for your attention! - Contact: ppin@dtu.dk - web: pierrepinson.com Renewables in Electricity Markets 33

34 For you to do... Over the first 2 weeks of the course (i.e., before 15th of February) Readings (related to Lecture 0): D. Kirschen, G. Strbac (2004). Fundamentals of Power System Economics, Chapter 1: Introduction J.M. Morales et al. (2014). Integrating Renewables in Electricity Markets, Chapter 1: Introduction R. Schleicher-Tappeser (2012) How renewables will change electricity markets in the next five years. Energy Policy 48: (pdf) Readings also related to Lecture 1: D. Kirschen, G. Strbac (2004). Fundamentals of Power System Economics, Chapter 2: Basic concepts from economics (especially for those who did not attend Energy Economics, Markets and Policies) D.R. Biggar, M.R. Hesamzadeh (2014). The Economics of Electricity Markets, Chapter 4: Efficient short-term operation of an electricity industry with no network constraints (pdf) T. Boomsma, P. Meibom, N. Juul (20??). Mathematical programming models for energy system analysis: An introduction. From Modelling and Analysis fo Energy Systems using Operations Research Renewables in Electricity Markets 34