Regulating Power Market (RPM) Review Study

Transcription

1 Regulating Power Market (RPM) Review Study High-level Summary Bonn / Oosterbeek

2 PURPOSE AND SCOPE OF STUDY ANALYSIS OF CURRENT RPM DESIGN REGARDING ATTRACTIVENESS AND EFFICIENCY ANALYSIS OF CHALLENGES OF FUTURE RPM DESIGN OPTIONS IMPROVEMENT OPTIONS Design framework for system balancing The current Nordic RPM Attractiveness of the RPM Quantitative Analysis Exchange options with neighbouring systems Settlement period Common Market Interface Impact of FRR-A on RPM Potential RPM Improvements Evaluation of RPM improvement options Improvements regarding use of RPM for balancing and congestion management RPM Review Report Chapter Summary

3 Summary of findings RPM adequacy Qualitative part Observation Qualitative framework provided to be used in further assessment on long term adequacy Conclusion Recommendation to use the framework for the assessment on long term adequacy Quantitative part Observation Positive RPM participation incentive, although relatively small in Norway and Sweden Incentive to avoid harmful imbalance, although relatively small in Norway and Sweden For 2012 indications were found of RPM volume shortages, to be investigated and validated Conclusion Not conclusive for whole RPM as DK data was not provided and results need to be validated with the TSOs. Recommendation Recommendation to complete quantitative analysis with missing data. Recommendation to investigate and validate the results RPM Review Report Chapter Summary

4 Summary of findings Recommended RPM product improvements Project group agreed on the following options should be implemented Resting time mark Lower bid size Harmonization of minimum duration of bid activation to set prices Electronic activation instruction Consultant view in addition Publish imbalance forecasts Timing of implementation needs to be further investigated. Other options should be further investigated: Check the need Check the contribution RPM Review Report Chapter Summary

5 Summary of findings Increase efficiency (lower costs) by Exchange standard product with neighbouring markets. Based on same time period and according to minimum NCEB characteristics Seems feasible with Poland and the Baltics Seems feasible in one way with the Netherlands. due to pricing issues Not feasible yet with Germany due to lack of TSO mandate Recommendation to proof feasibility with a pilot project (ENTSO-E pilot) Product definition Operational concept including conversion tool Pricing Explore feasibility of demand side response outside RPM To avoid transaction costs and further increase attractiveness to support system balance Consultant view in addition Implementing imbalance netting also on DC cables. Pilot project on DC recommended to proof feasibility first RPM Review Report Chapter Summary

6 PURPOSE AND SCOPE OF STUDY ANALYSIS OF CURRENT RPM DESIGN REGARDING ATTRACTIVENESS AND EFFICIENCY ANALYSIS OF CHALLENGES OF FUTURE RPM DESIGN OPTIONS IMPROVEMENT OPTIONS Design framework for system balancing The current Nordic RPM Attractiveness of the RPM Quantitative Analysis Exchange options with neighbouring systems Settlement period Common Market Interface Impact of FRR-A on RPM Potential RPM Improvements Evaluation of RPM improvement options Improvements regarding use of RPM for balancing and congestion management RPM Review Report Chapter Summary

7 DESIGN FRAMEWORK FOR SYSTEM BALANCING System balancing covers the TSO processes to maintain frequency. Apart from the technical processes to maintain the frequency and the specifications of these reserves, the market design around these processes as well as the reference framework for this market design are significantly taking influence on the result of the balancing process. Design Framework Nordic RPM covers the need for FRR-M reserves for all TSOs in the Nordic integrated power system. The Nordic power system consists of the Nordic synchronous power system and the Western-Danish subsystem, which is connected to the UCTE synchronous power system. Design Criteria For this study, the efficiency objective is to minimize the total costs for the TSOs of procuring and activating RPM reserves by meeting the following sub conditions: quality targets for system balancing, network security and congestion management, and sharing reserves from the RPM. In general, consistence and robustness of a balancing market design will increase the attractive of a market place. Following criteria needs to be fulfilled to have natural market incentives to be balanced: Imbalance energy should on average be more expensive than wholesale market energy Control energy should on average be more expensive than wholesale market energy Control energy should on average not be more expensive than imbalance energy RPM Review Report Chapter Summary

8 THE CURRENT NORDIC REGULATION POWER MARKET Although the Nordic RPM market is largely harmonised, the product definition, the selection procedure, the pricing rules and the TSOs procedure of activation show some deviations. The following summarizes the harmonized framework details Harmonized RPM Activation Single buyer auction General selection is based on price order Product resolution 1hour Marginal pricing rules Own hourly market price DK FI SE NO Pre-contracting All 4 TSOs have pre-contracting capacities, while rules and procedures are deviating Pre-contracting only for upward regulation TSOs put the resources on the RPM Sharing of capacities via NOIS list Activation Procedure Activation time is 15min after instruction Full level delivery at specific set-time Activation is done less than 45min before next hour of operation and for one hour Congestion Management Usage RPM bids used for this type of purposes do not set the market price of RPM Bids are paid based on pay-as-bid Ex-post, when setting the price for RPM and settling with providers, the TSOs have the discretion to choose which of the bids activated during an hour were activated for congestion management and which for normal regulation RPM Review Report Chapter Summary

9 THE CURRENT NORDIC REGULATION POWER MARKET The following summarizes the difference in the framework details Differences DK FI SE NO Product Definition Allow BRPs to pool units within the ELSPOT bidding areas with out any specification on the location of the unit Request for faster activation is possible Allow BRPs to pool units within the ELSPOT bidding areas but BRPs need to specific the location of the unit Flexibility activation time Request for faster activation is possible Minimum bid size below 10MW, in SE 4 which is 5MW Request for faster activation is possible Allowance of demand side to specify a certain resting time Allow BRPs to pool units within the ELSPOT bidding areas but BRPs need to specific the location of the unit Bid Selection Treatment of commercial and noncommercial bids equally Commercial bids are activated before the units that are precontracted or owned by the TSOs Bid selection is not dependent only on the lowest price but the bid activation time and/or bid size plays a role Commercial bids are activated before the units that are precontracted or owned by the TSOs Treatment of commercial and noncommercial bids equally Bid selection is not dependent only on the lowest price but the bid activation time and/or bid size plays a role Fast activation (< 5 min) bids with large volumes to bring frequency back to nominal value is possible RPM Review Report Chapter Summary

10 THE CURRENT NORDIC REGULATION POWER MARKET The following summarizes the difference in the framework details Differences DK FI SE NO Pricing Minimum activation duration 10min Minimum activation duration 1min Separate pricing for activated precontracted units Minimum activation duration 1min Separate pricing for activated precontracted units Minimum activation duration 10min Requirement Only BRP can be active on the RPM BRP and also BSP can be active on the RPM (to help smaller players to participate) BSP needs agreement called balance power market agreement Only BRP can be active on the RPM Only BRP can be active on the RPM Activation Electronic communication to all BRPs Manually activation processes typically via phone Manually activation processes typically via phone Manually activation processes typically via phone RPM Review Report Chapter Summary

11 ATTRACTIVENESS OF THE RPM In case of an active RPM players with no investment costs and willingness to take part in the RPM, the capacity payment are necessary to ensure adequacy if 1. players are risk averse, 2. transaction costs to bid are high, and 3. there is idle but needed capacity. However even with the fulfilment of these conditions its not possible to deduct that capacity payments are necessary, since Players may have a vested interest in bidding into the RPM to decrease the imbalance price and thus reduce their imbalance risk. According to the TSO/BRP interviews, conditions 1 and 3 seem to be already fulfilled for the Nordic RPM. Hence, a key variable to decide on the need for capacity payments is the level of transaction costs. If the transaction costs for bidding into the RPM are high then capacity payments are necessary if we ignore the incentive of players to lower the imbalance price. RPM Review Report Chapter Summary

12 QUANTITATIVE ANALYSIS The quantitative analysis was intended to quantify attractiveness, efficiency and effectiveness of the Nordic RPM by the use of quantitative indicators. As a consequence of incomplete data and lack of time to investigate and validate results with the TSOs, the quantitative analysis is not complete and no definite conclusions can be made at this state. Due to this it is recommended to proceed the analyses and in particular to analyse on seasonal/quarterly base. Main observations Average imbalance as a fraction of available FRR-M capacity indicates that total volume of accessible RPM bids even on country level may not always be adequate from a system control perspective. Total unused but accessible bids in a group of bidding zones compared with the remaining imbalance of the bidding zone indicates shortages for some days in March RPM Review Report Chapter Summary

13 QUANTITATIVE ANALYSIS Main observations Average hourly market imbalance shows a shift in pattern over the observation period. This pattern differs per country. Hourly market imbalance Controller effectiveness analysis indicates a far from effective energy balance control. Note that if power balance control is perfect, energy balance control would also be perfect and all dots would occur on the X-axis. Controller effectiveness RPM Review Report Chapter Summary

14 QUANTITATIVE ANALYSIS Main observations Average RPM income is positive for all system imbalance situations. The participation in the Nordic RPM market for Nordic market participants with an average RPM income of 14 /MWh. Less attractive than participation of domestic participants in the Dutch or German RPM where the average RPM income has been between 45 and 60 /MWh respectively. Average RPM income for BSPs in NO, SE and FI (over the period ) RPM Review Report Chapter Summary

15 PURPOSE AND SCOPE OF STUDY ANALYSIS OF CURRENT RPM DESIGN REGARDING ATTRACTIVENESS AND EFFICIENCY ANALYSIS OF CHALLENGES OF FUTURE RPM DESIGN OPTIONS IMPROVEMENT OPTIONS Design framework for system balancing The current Nordic RPM Attractiveness of the RPM Quantitative Analysis Exchange options with neighbouring systems Settlement period Common Market Interface Impact of FRR-A on RPM Potential RPM Improvements Evaluation of RPM improvement options Improvements regarding use of RPM for balancing and congestion management RPM Review Report Chapter Summary

16 EXCHANGE OPTIONS WITH NEIGHBOURING SYSTEMS Based on the draft Network Code on Balancing and the Nordic situation the following observations are made: For the forming of a common merit order with any TSO, sufficient comfort must be reached on the level of a harmonized balancing market design. This involves the following prerequisites 1. a coordinated activation function for all the involved TSOs, and 2. a harmonisation of products to standard products including the pricing of bids, settlement of bid activation, the imbalance pricing and settlement. If any of these prerequisites are missing or not sufficiently fulfilled, two other options remain: 1. Imbalance netting: this imposes no conditions to harmonized market designs so this option should from this perspective be implemented on all external Nordic borders as soon as possible. Although the concept of netting within synchronous systems is well-known and applied today (IGCC as in Germany with NL and DK W), the concept of automatic imbalance netting between synchronous systems is not well-known. 2. TSO-TSO exchange of balancing products: This is linked to mainly four challenges: TSO mandate to exchange and control product delivery; product standardisation; pricing of exchanged products and imbalance pricing. On top of this, for exchange of reserve capacities cross-border transmission capacity access must be pre-agreed during contracting. We consider here any activation of exchange based on the integration of a foreign bid ladder with the RPM on the Nordic side and integration of the RPM with the foreign bid ladder on the foreign side as a mirrored common merit order. In this mirroring, foreign bids would not be visible if cross-border capacity is not available or if the bid is already activated on any side. RPM Review Report Chapter Summary

17 SETTLEMENT PERIOD As a 15 min settlement period is under review for Nordic power system, the identified options were evaluated regarding the impact on it. Option Resting time mark Block bids Lower bid size Impact of 15 min settlement period potentially increases need for this option potentially increases need for this option may add more very small bids Imbalance price should reflect system scarcity (min less deviation between momentary and average scarcity duration of activation to set price) Minimum contractual duration time (guaranteed payment according to assumed minimum activation chance of getting fully activated during whole period increases duration) 15 min bids becomes feasible with 15 min settlement period Minimum physical duration of activation (additional price condition on bid: minimum income from activation) Gate closure closer to real-time Real-time balancing information Publish imbalance forecasts need would reduce due to higher chance of getting fully activated during the whole period potentially more gates (up to 4x more) if the update frequency is fixed then there is no impact, if it is related to the settlement period, the update frequency increases some impact on data requirements for forecasting Publish bid ladder volumes and prices (ex ante) Directly activated RPM reserves Electronic activation instruction more data to be published no would be required because of increased number of activations RPM Review Report Chapter Summary

18 COMMON MARKET INTERFACE A cost/benefit analysis for a common market interface was not performed during this project. Contribution of common market interface 1. to increase the efficiency of the RPM market, and 2. to have a higher exchangeability with neighbouring systems. Since in the longer term benefits could be reached and the common market interface could serve as a pilot for the future European common market interface for FRR/RR markets. In the shorter term no direct benefits or drawbacks in terms of efficiency or exchangeability are expected. Stakeholders have varying expectations from a common market interface depending on their own market perspective. Their expectations are about 1. huge benefits to the market, 2. an integrated interface for both intraday market and RPM, 3. an uniform communication interface, and 4. and some do not think it will bring many benefits. Due to this, it is recommended to review in co-operation with stakeholders the need for a common market interface in the context of the need for a Nordic common system. Such a Nordic common system could provide central services to the TSOs and the market for e.g. the bidding into RPM, access to the common bid ladder, an algorithm to optimally select bids for the six RPM demand processes, area imbalance price calculation, settlement of activated RPM bids and BRP imbalances and finally, transparency. In this context it is also relevant to look into similar developments on the continent where coordinated TSO processes for capacity calculation and allocation have been and are being developed and supported by central service providing entities. RPM Review Report Chapter Summary

19 IMPACT OF FRR-A ON RPM Current Situation The Nordic synchronous power system stands at the dawn of an integration of automatic generation control with the manual activation of frequency restoration reserves. Recently an automatic generation control system for the Nordic synchronous area was installed with improvements to frequency quality as a result. FRR-A reserves were contracted for the goal of a pilot project in the first place, not for the goal of meeting agreed quality criteria. As the FRR-A market development takes place in another project which is still ongoing, guiding principles for the review of FRR-A and RPM integration were considered premature by the PG and are not identified here. Dutch / German Experiences from a integration of both markets For dimensioning of total FRR-A + FRR-M two approaches are applied. Either based on a single fault incident (NL) or on a probabilistic analysis of all incidents in the system that can occur within the TSO responsibility window (DE). Balance responsibility for the Dutch and German TSOs cover current and next program time unit (PTU). Self-dispatch reaction of the market is stronger in NL than in DE due to stronger energy balancing incentives. Therefore the Dutch TSO can take a certain market share into account when covering for dimensioning requirements. FRR-A dimensioning is an engineering issue. FRR-A dimensioning can be derived from statistical analysis of open loop ACE (if at least 5 minutes average values of frequency and flows are available). Most important aspects that could be of interest for a possible Nordic FRR-A / FRR-M integration are: 1. The marginal pricing of balancing energies over all activated FRR-A / FRR-M bids. 2. The surcharge on imbalance pricing in case of saturation of available bids. 3. The activation of FRR-A bids in an energy price merit order. RPM Review Report Chapter Summary

20 PURPOSE AND SCOPE OF STUDY ANALYSIS OF CURRENT RPM DESIGN REGARDING ATTRACTIVENESS AND EFFICIENCY ANALYSIS OF CHALLENGES OF FUTURE RPM DESIGN OPTIONS IMPROVEMENT OPTIONS Design framework for system balancing The current Nordic RPM Attractiveness of the RPM Quantitative Analysis Exchange options with neighbouring systems Settlement period Common Market Interface Impact of FRR-A on RPM Potential RPM Improvements Evaluation of RPM improvement options Improvements regarding use of RPM for balancing and congestion management RPM Review Report Chapter Summary

21 EVALUATION OF RPM IMPROVEMENT OPTIONS PG and E-Bridge discussed and recommend the following options to implement. Option PG common recommendation E-Bridge recommendation Resting time mark Lower bid size Harmonization of minimum activation duration to set prices. Electronic activation instruction Used in Norway today, so introduction should not immediately increase operationally complexity, if use increases from today, sophisticated planning tools are necessary. Harmonize to 1 MW conditional to implementation of electronic activation instruction and adequate operator user interface. Do it, with consideration to peak pricing effects. This is a prerequisite for lower bid size. Consider implementation as a special product for balancing. Simple merit order activation in combination with an "unavailable" mark during resting time would suffice. If volume increases, a more sophisticated bid selection/activation tool may be required. Min bid size is an exclusion mechanism implement in combination with an electronic activation instruction to the BSP and improvement of the operator view on the bid ladder (so that the screen is not taken by many small bids). Harmonize minimum duration of activation to set price to 1 min. This could increase imbalance peak prices. This might increase the difference between imbalance price and day ahead price, especially during scarcity. This is a key design parameter in the balancing mechanism: if imbalance price does not increase with increased scarcity, this indicates that the market is indifferent to an increased scarcity situation as the imbalance risk is low. In the short run this might be considered healthy for developing the market, in the long run this does not provide any investment incentive. Do a costs/benefit analysis of the most promising options including costs of electronic activation instruction where necessary. Publish imbalance forecasts (recommended by E-Bridge) Publication is not supported yet. Imbalance forecasting at the four TSOs is of a different quality today. Harmonize the quality of this imbalance forecasting by sharing the knowledge and improving the forecasting tools to a similar quality. Publication of accurate imbalance forecasts in combination with bid ladder volumes and prices increases awareness of imbalance risks. Prerequisite is that forecasts have sufficient quality and disclaimers and that imbalance price delta generally increases with expected imbalances (see ). If this is not the case, this has no effect on incentive to better plan balance in day ahead. RPM Review Report Chapter Summary

22 EVALUATION OF RPM IMPROVEMENT OPTIONS Further PG and E-Bridge identified the following options, which shall be investigated by further costs/benefits evaluations. Option PG common recommendation E-Bridge recommendation Bid aggregation Consider introducing this to anticipate towards demand side response. See BRG report on challenges with the aggregator role. The advantage of this option is that it enables a group of BSPs with small reserves to aggregate to the level where they meet minimum bid size requirement. Consider introducing this to anticipate towards demand side response. Prerequisite is that bid activation should be allocable to BRPs. Common Nordic platform There is no direct benefit expected in terms of the total TSO costs of activated energy or the exchangeability. But the market is asking for it and it could ease extensions. Consider implementation of a CMI in the context of other changes to a Nordic common platform like e.g. the implementation of a harmonized automatic activation procedure or a sophisticated activation algorithm. A common Nordic RPM platform could host this at lowest costs. Harmonized bid selection procedure (triggering points for decision to activate) There may be good reasons to not harmonize between TSOs because of different operational requirements. But the procedure within each TSO should be clear and transparent. Procedure at each TSO should be clear and transparent to the market: review description on transparency and publish. Review bid selection/activation processes in detail and evaluate feasibility to harmonize given differences in operational challenges. Directly activated RPM reserves NO, FI, DK, SE: only consider if this adds volume without capacity payment. Depending on expected volume which can be released, timing delay between the SO and the connecting TSO and investment costs, this could be interesting. Also consider contracting this kind of reserves as emergency reserves (already done today in NO, SE and FI on some units) and including additional mark-up on imbalance price if activated (not done today). In that way this product allows a capacity payment for the necessary dimensioning coverage without impacting the normal RPM market. With the mark-up, it could also improve the balancing incentives. PG categorized other options as to be evaluated further, considered for further evaluation and no go. RPM Review Report Chapter Summary

23 CONCURRENT USE OF RPM FOR BALANCING AND CONGESTION MANAGEMENT Review the RPM activation processes regarding congestion and network security management processes: First, coordination between the four network security management processes: each of these processes could at different moments in time trigger a request activation. Second, coordination between the two balancing processes: While ENDK for DK W can activate bids earlier due to a more accurate imbalance forecasting, the imbalance forecasting quality in the Nordic synchronous system is generally insufficient to apply equally early RPM bid activation. This could be optimized if the imbalance forecasting qualities can be more aligned and therefore the timings to access RPM bids for balancing more harmonized. Review if the requesting times for activation should be extended to before ID gate closure Concurrent access to the RPM bid ladder becomes an even more important issue when sharing bids with another synchronous system. In that case as one prerequisite at least the RPM access timings should be aligned. Other prerequisites like a level playing field in the RPMs should also be considered. Third, coordination between all six RPM activation processes: An optimal coordination could call for the design and implementation of an integrated optimization algorithm. RPM bid ladder Operational process overview of the RPM bid ladder 3 1 Frequency control Nordic synchronous system ACE control DK-West CM/NSM Norway CM/NSM Sweden CM/NSM Finland CM/NSM Denmark 2 RPM Review Report Chapter Summary

24 CONCURRENT USE OF RPM FOR BALANCING AND CONGESTION MANAGEMENT Improvements on transparency: Review the existing TSO-TSO communication to enable real-time sharing of information on special regulation. Communicate the special regulation designation of a bid to the market at the time of activation. Make the operational concept on congestion and security management transparent to the market to ensure that the reasons for special regulation are well understood. Train operators in applying this operational concept in a consistent way. Review on RPM pricing in relation to special regulation: Review the special regulation bid designation problem against optimal allocation principles. In particular, For each direction of regulation, areas are categorized in sets of areas that have no congestion between any of the areas in the set. RPM price in the regulation direction within each set are the same and equal to the price of the marginal bid activated in the set. Under this formulation, special regulation bids could only be designated if action and counteraction are within the same area. Also on each congested border congestion revenues are collected being the price difference of the marginally activated bids times the RPM flow over the congested borders. RPM Review Report Chapter Summary

25 FURTHER RECOMMENDATIONS BY E-BRIDGE Exchange of balancing services: Imbalance netting between synchronous systems: develop concept with TSOs concerned Exchange of balancing reserves (capacity contracts): explore the business case with TSO concerned regarding capacity reservation and probabilistic approach, using available remaining capacity only Exchange of balancing energy: Seems possible with the Baltics and Poland today on the basis of FRR-M as a standard product and a TSO-TSO model: explore this further on the basis of the guideline standard product characteristics as elaborated on the next sheet RPM Review Report Chapter Summary

26 GUIDELINE STANDARD PRODUCT CHARACTERISTICS BY E-BRIDGE As a point of departure for standard product definition: 15 min activation and deactivation time 15 min activation duration, e.g. a 15 min product time resolution. A single bid price for each 15 min period For pricing, consider the following principles by reviewing against the NCEB requirements: A foreign bid is selected and activated on the basis of the bid price but paid according to local BSP settlement arrangements: pay marginal in pay marginal systems (where it thus can set the price), pay as bid in pay as bid systems. The imbalance pricing would depend on a design choice: incentive compatible pricing or real-time pricing For an incentive compatible pricing the following principles could be considered: Imbalance price on average higher than regulating power price If border congested at market gate closure (ID) => RPM imbalance price should not be set equal to the RPM price (which includes the foreign bid) but to the price of the highest bid that is activated excluding any foreign bids If border not congested at market gate closure => imbalance price should be set to the RPM price (that includes the foreign bid) For a real-time pricing, the imbalance price should be set equal to the RPM price, including the foreign bid. RPM Review Report Chapter Summary