Electricity market regulation: lessons learnt (by me) a 20 years journey

Transcription

1 Electricity market regulation: lessons learnt (by me) a 20 years journey Turin School of Regulation (8 September 2014) Jean-Michel Glachant - Director Florence School [& Marcelo Saguan - Microeconomix]

2 first step with markets

3 same for my first kid

4 A great leap forward

5 BUT: is this a market or a regulatory frame? coupling splitting Baseload product Long term contracts Day-ahead market Peak load product Capacity markets Intraday markets Balancing market Reserves/ ancillary services markets Explicit auctions for transmission capacity Implicit auctions Bilateral / OTC Congestion management Flexibility market 5

6 market borders and regulatory frame Cross-border Multilateral or OTC Power market Grid congestion CO2- GHG Grid monopoly Grid access Black-Out Externality 6

7 Yes regulation framing a market order Why? Big issues to be addressed within the market In fact there is different products to market Final electricity is a bundle of different products To market at different time horizons: day-ahead, intraday, real time A whole sequence of horizon markets How to integrate these different markets across countries? How does it work? Are the final-final resulting markets really European or still national? Integration of national markets A European market? NB: focus on wholesale market (retail market is out of scope of this lecture) 7

8 The physics of electricity (1) Electricity cannot economically be stored Electricity flows cannot be controlled & transmission lines should be operated under safe flow limits If not risk of cascading failures and black-out Implications for electricity products & related markets Different cost & value of energy at different times Many products differentiated by the time of production & consumption Transmission capacity scarce resources Many products differentiated by the location where they are produced/consumed 8

9 The physics of electricity (2) Power stations can fail suddenly Demand can vary sharply over time Most stations can only change output slowly and can take many hours to start up Demand and generation must match each other continuously If not risk of black-out Implications for electricity products & related markets Gen.Flexibility scarce resource Many products differentiated by ability to change production/consumption at short notice Uncertainties Different market horizons to buy/sell the same product Strong actors coordination needed in real time important role of System Operator in real time 9

10 Should power markets be better by being regulated? (1) First : Electricity s not a single homogeneous product as Coca Cola Differentiated by time horizon of generation/consumption Differentiated by location of generation/consumption Differentiated by flexibility to modify generation/consumption on short notice Second : Electricity s not only energy (MWh): transmission & system flexibility components are needed Transmission capacity & system flexibility (MW of Power) are complementary scarce resources and should be priced for delivery s might put a price and a delivery priority order to these invisible components of electricity 10

11 Should power markets be better by being regulated? (2) Third : Electricity trade positions (for energy, transmission, system flexibility) may be reviewed in successive markets until the time of delivery Electricity components (energy, transmission, flexibility) are physically delivered only in real time >> all the former exchanges are only notional ( virtual ) s function in a sequence of successive exchange rounds for the different electricity components 11

12 The reduced scope of power markets in a single zone of system operation Sequence of successive markets Electricity components Scope Power as Energy Transmission capacity Reserves as System Flexibility Long-term Energy markets Long-term Transmission markets Long-term Reserves/ flexibility markets T-~months/years Short-term Energy markets Short term Transmission markets Short term Reserves/ flexibility markets T-~24h T-~3h Energy Real time / balancing Mechanism Transmission (centralised by the SO) Flexibility Reserves Delivery of the good T Time NB: markets for system flexibility are often called reserves because the SO reserves some flexible system resources (power station or demand response) to ensure enough system responsiveness (Up or Down) in real time 12

13 Several zones of market operation in EU Space Country B Day ahead (energy B) Intraday market (energy B) Balancing Mechanism (energy B) Day ahead (transmission A-B) Intraday market (transmission A-B) Balancing mechanism (transmission A-B) Interconnection capacity Country A Day ahead (energy A) Intraday s (energy A) Balancing Mechanism (energy A) Time 13

14 How does the markets sequence day-ahead> intraday> real time work in a single country? Space Country B Day ahead (energy B) Intraday market (energy B) Balancing Mechanism (energy B) Day ahead (transmission A-B) Intraday market (transmission A-B) Balancing mechanism (transmission A-B) Interconnection capacity Country A Day ahead (energy A) Intraday s (energy A) Balancing Mechanism (energy A) Time 14

15 00:30 02:00 03:30 05:00 06:30 08:00 09:30 11:00 12:30 14:00 15:30 17:00 18:30 20:00 21:30 23:00 Load [MW] Forecast error [MW] Events occur from day-ahead> (to) >real time: power station failure / demand forecast error Produced power Sold quantity Power (MW) Power (MW) Power station faliure Imbalance Imbalance Imbalance France (RTE) - 03/11/ DA forecast error Load realisation DA forecast 15

16 Gate closure Volume (MWh) Volume (MWh) Volume (MWh) A sequence of energy market positions adjustements through timely step Transactions between market players (with or without market intermediaries) Transactions with the SO (balancing bid/offers & insuring imbalance settlement) Imbalance (ex. net buyer) day-ahead market Intraday markets Contractual position / Nomination Balancing and imbalance Temps settlement réel Production / Consumption metering Positive imbalance SP1 SP2 SP3 SP1 SP2 SP3 Settlement periods Settlement periods SP1 SP2 SP3 Settlement periods Negative imbalance T-~24h T-~3h SP1 SP2 SP3 Settlement periods Time 16

17 Day-ahead markets organized as Power Exchanges (multilateral trade) 17

18 Intraday markets (organized -or not) The intraday markets can be used: Purchase/sale of quantities that have not been executed during the Day Ahead market Unplanned maintenance after the DA market Flexible tool to trade closer to real time Arbitrage with neighboring countries 18

19 Imbalance price [ /MWh] Diff. imbalance prices [ /MWh] Real-time markets: always organized by the System Operator (to balancing the whole energy system) Imbalance settlement pricing rule: one or two prices? e.g. Belgian positive versus negative imbalance prices Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. 0 Diff. imbalance prices BE Negative imbalance price BE Positive imbalance price BE

20 What does mean coupling countries markets? What do we do? Look at Day Ahead horizon Space Country B Day ahead (energy B) Intraday market (energy B) Balancing Mechanism (energy B) Day ahead (transmission A-B) Intraday market (transmission A-B) Balancing mechanism (transmission A-B) Interconnection capacity Country A Day ahead (energy A) Intraday s (energy A) Balancing Mechanism (energy A) Time 20

21 What s outcome from coupling market zones? Outcome from coupling market zones Efficient use of Gen. resources (energy cost; system flex.) Uncorrelated demands Uncorrelated renewables Also >> Security of supply Also <</>> power Day ahead (energy B) Day ahead (transmission A-B) Country B Country A Day ahead (energy A) 21

22 Illustration of market coupling outcome Outcome from coupling market zones Efficient use of resources Uncorrelated demand Uncorrelated renewables Source: Menager (2002) 22

23 But actual countries market coupling is limited by transmission capacity availability We may have to split the EU into several market zones when transmission capacity reaches security limit (i.e. there is a congestion) Transmission becomes a too scarce resource Hence a coordinated method of cross-border congestion management helps to operate softly coupling & decoupling of power market zones 23

24 Alternative regulation for coupling & decoupling EU power markets Explicit grid auctioning Separate markets for energy & cross border transmission capacity Implicit auctions Explicit auctions Country B Coordination of these two markets depends on individual ability of market players Implicit grid auctioning (market coupling or splitting) Day-ahead (energy A + B) Single Matching Algorithm takes into account limited capacity A-B Day-ahead (energy B) Day-ahead (transmission A-B) Country A Smart coordination of market borders done by single central algorithm Day-ahead (energy A) 24

25 -Perfect- coupling and decoupling From A to B Use of the crossborder capacity Country B Price A > Price B 0 Price B > Price A Energy Price Difference (A B) Country A From B to A 25

26 Reality of explicit auctioning for crossing borders between France & Spain) Country B Country A 26

27 Reality of implicit auctioning for crossing borders between France & Belgium Country B Country A 27

28 Generalising this to a regulatory frame for European internal electricity market A single European market? Or a coupling of national markets? Country B Day ahead (energy B) Intraday market (energy B) Balancing Mechanism (energy B) Day ahead (transmission A-B) Intraday market (transmission A-B) Balancing mechanism (transmission A-B) Interconnection capacity Country A Day ahead (energy A) Intraday s (energy A) Balancing Mechanism (energy A) 28

29 EU market Integration at Day Ahead horizon Hourly day ahead price convergence by region (source: ACER, 2013) 29

30 EU market Integration at Intra-Day horizon 30

31 EU market Integration at real time horizon 31

32 To conclude: is the EU Internal regulation «au menu» or «à la carte»?

33 Thank you for your attention contact: Follow me on Read the Journal I am chief-editor of: EEEP Economics of Energy & Environmental Policy My web site: 33