Fundamentals of Electricity Markets - Pierre Pinson \Fundamentals of Electricity Markets". An overview

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  • “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: www.pierrepinson.com

    (prio to) 29 January 2018

    31761 - Renewables in Electricity Markets 1

    ppin@dtu.dk www.pierrepinson.com

  • 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

    31761 - Renewables in Electricity Markets 2

  • The 2nd of January 2015

    [source: Ingeniøren, 16 January 2015, article online]

    Those interested may analyse what happened from Nord Pool map and data 31761 - Renewables in Electricity Markets 3

    http://ing.dk/artikel/leder-rekord-i-vindmoellestroem-nu-skal-vi-laere-bruge-den-selv-173493 http://www.nordpoolspot.com

  • 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! 31761 - Renewables in Electricity Markets 4

  • 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

    31761 - Renewables in Electricity Markets 5

  • 1 Historical perspective

    31761 - Renewables in Electricity Markets 6

  • A historical perspective

    1980s First ideas for liberalization of the electricity sector, and introduc- tion 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 2000-2001 California electricity crisis!

    In short: shortage of electricity supply, rise in prices, multiple black- outs, 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 - 12’00 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!) ]

    31761 - Renewables in Electricity Markets 7

    http://en.wikipedia.org/wiki/Chicago_Boys http://pierrepinson.com/31761/Literature/sweeney2002.pdf https://www.youtube.com/watch?v=SC5mAZg2SN4 http://pierrepinson.com/31761/Literature/friedman2009.pdf

  • 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]

    31761 - Renewables in Electricity Markets 8

    http://www.nasdaqomx.com/transactions/markets/commodities/whoweare/ourhistory

  • By the way - what is deregulation?

    REGULATED DEREGULATED

    Prices are all determined by the regula- tory/government bodies:

    Prices are determined by “invisible hand” of the market

    energy prices

    transmission and distribution prices

    Vertically integrated structure Horizontal restructuring

    Cannot choose supplier 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) ]

    31761 - Renewables in Electricity Markets 9

    http://pierrepinson.com/31761/Literature/karan2011.pdf http://pierrepinson.com/31761/Literature/joskow2008.pdf http://video.mit.edu/watch/economics-regulation-and-deregulation-of-energy-sectors-9217

  • 2 Players and their role

    31761 - Renewables in Electricity Markets 10

  • 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:

    http://www.energinet.dk/EN/El/Engrosmarked/Viden-om-engrosmarkedet/Sider/Roller.aspx]

    31761 - Renewables in Electricity Markets 11

    http://www.energinet.dk/EN/El/Engrosmarked/Viden-om-engrosmarkedet/Sider/Roller.aspx

  • 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.

    31761 - Renewables in Electricity Markets 12

  • 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]

    31761 - Renewables in Electricity Markets 13

  • 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.

    31761 - Renewables in Electricity Markets 14

  • 3 Different types of market organization

    Please also read

    D. Kirschen, G. Strbac (2004). Fundamentals of Power System Economics, Chapter 1.

    31761 - Renewables in Electricity Markets 15

  • Organization: Monopoly

    [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics]

    31761 - Renewables in Electricity Markets 16

  • Organization: Purchasing agent

    [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics]

    31761 - Renewables in Electricity Markets 17

  • Organization: Wholesale market

    [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics]

    31761 - Renewables in Electricity Markets 18

  • Organization: Retail market

    [source: Kirschen and Strbac (2004). Fundamentals of Power System Economics]31761 - Renewables in Electricity Markets 19

  • 4 The actual markets and their purpose

    31761 - Renewables in Electricity Markets 20

  • 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)

    31761 - Renewables in Electricity Markets 21

  • The European picture

    [source: www. etrmsystems. com ]

    31761 - Renewables in Electricity Markets 22

    www.etrmsystems.com

  • Exciting time: The “