Electricity Market Framework in Neo-Carbon Scenarios

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2 Electricity Market Framework in Neo-Carbon Scenarios Samuli Honkapuro & Kaisa Salovaara LUT School of Energy Systems

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4 From transformative scenarios to market design scenarios 1) Outlining market design in top-down approach. What kind of market design is feasible in each scenario? Which are required elements of the market model that promote scenario? 2) Analyzing the possible path and necessary steps from present market framework to scenario 3) Recognizing the roles of the stakeholders in market design scenarios

5 Electricity Market, objectives Technical requirement; keep power balance in every second Production = consumption

6 Elements of market design in scenario work What are the required elements of the market design that enable each scenario what kind of market elements are possible in each scenario? Is there a common market for electricity? Open and public price formation vs. fragmented price formation with bilateral agreements. Integrated system vs. scattered system (strong network connections vs. weak network) How is the needed capacity obtained? Applied capacity mechanisms Driving forces for market development Consumer driven vs. corporate driven development What is the impact of disruptive technology to market design and vice versa?

7 Illustration of market design 1 consumer activity and energy system design Two driving forces perceived from the scenarios are inspected more closely: consumer activity and energy system design Consumer activity Consumer driven market: consumers or communities are the driving force behind the market design Corporate driven market: corporates are the driving force behind the market design Energy system design (Technology enabled) Scattered system: small to medium scale solutions, energy generation dispersed Integrated system: large scale solutions, integrated energy generation

8 Illustration of market design 1 Consumer driven market Scattered system Green DIY engineers New consciousness Integrated system Radical startups Value-driven techemoths Corporate driven market

9 Illustration of market design 2 In the second market design illustration a more tradition approach to market design is discussed: price formation and network capacity adequacy Price formation Open and public price formation: there is a market where price is formed and that is informed to market participants. Fragmented price formation: price is formed in bilateral agreements. Basis for network development The market adapts to the limits set by the network: transmission capacity limits power flow, markets have to adjust The network adapts to the needs of the market: transmission network is capable of transmitting power from generation to consumption according to demand

10 Illustration of market design 2 Open and public price formation The market adapts to the limits set by the network Radical start-ups New consciousness The network adapts to the needs of the market Green DIY engineers Value-driven techemoths Fragmented price formation

11 Example of market models Zonal pricing Uniform price area for whole market area (e.g. Nordic area), if congestions exist, market is split to predefined price areas (e.g. Finland as separate price area) Prerequisite is enough transmission capacity (no bottlenecks inside price area) Applied in Europe Nodal pricing Different electricity price in each node In addition to the energy component, the electricity price includes a transmission congestion fee and losses A node may be for instance area of couple primary substations (for instance in Russia over nodes) Applied for instance in Russia and US If there are congestions in transmission network, nodal pricing may prove to be a better market model => Market model is chosen based on the robustness of the network

12 Market models If there are congestions in transmission network, nodal pricing may prove to be a better market model => Market model is chosen based on the robustness of the network

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14 Integrity of price areas Source: Fingrid

15 /MWh Nordic electricity prices Nordpool system price 1/14-8/ /MWh What is feasible market design, if the price of electricity is 0 /MWh? DS Futures

16 Thank you! D.Sc. Samuli Honkapuro LUT Energy Lappeenranta University of Technology Lappeenranta, Finland Lappeenranta University of Technology (LUT)