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Neo-Carbon Energy researchers’ seminar
Developing electricity market designs for Neo-Carbon scenarios
Kaisa SalovaaraLUT School of Energy Systems
Samuli HonkapuroMari Makkonen
Olga Gore
19.2.2016
Neo-Carbonscenarios
Task 1.5 Scenarios’
market designs
Task 1.5 Roadmapto market
designs
Energy issues in scenarios
WP 1 TASK 1.5. MARKET DESIGN AND ACTOR ANALYSIS
LUT tasks:1) Analyses of the feasible energy markets designs in four transformative neo-
carbon scenarios. 2) Identifying the required elements of the market design that enable each
scenario.3) Roadmap; analyzing the possible path and necessary steps from present
market framework to scenario
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Contents
1) What do fully RES markets mean?2) Options for fully RES market design3) Framework for determining market designs from transformative scenarios 4) Market designs for four transformative scenarios
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Merit order effect for renewables
19.2.2016 Source: J. Partanen. Smart Grid concept
Impact of RES to market design
Variable marginal cost for production decreases near zeroMerit order for demand-supply equilibrium changes and wholesale prices decreaseCost recovery on new plants unfeasibleInvestment signals are attenuated
Increased volatility of productionIncreased volatility of pricesChanged load profile for non-variable plantDispatchable generation (hydro, biomass, energy storages) can recover high scarcity pricesNeed for balancing mechanisms is increased
Generation relocationNetwork topology changesCongestion issues
Small, scattered energy productionNew market actors; prosumerism
Need to redesign network tariff structuresEtc.
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Fully RES market options PRICING MECHANISM TRADING CAPACITY INCENTIVES
Marginal pricing: zonal ExchangeCapacity mechanisms*,
add-ons**
Marginal pricing: nodal Exchange and/or pool
Capacity mechanisms*, add-ons**
Dispatch based on marginal cost and pricing on LCOE (leveled cost of energy)
Pool No
Pay-as-bid Pool No
Cost of service - No
Over the counter trading (OTC) where market actors decide on pricing
Bilateral No/defined by the state
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*Capacity mechanisms are designed to support investment to fill the expected capacity gap and ensure security of supply. E.g. Capacity payments, markets etc. **Add-ons: FiT, FiP, etc.
Scenario set-up information
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ENERGY PRODUCTION AND CONSUMPTION STRUCTURE
RADICAL START-UPSVALUE-DRIVEN TECHEMOTHS
GREEN DIY ENGINEERS
NEW CONSCIOUSNESS
Energy issues from each scenario descriptions
CENTRALIZED / DISTRIBUTED
Distributed energy system, Scattered
system
Centralized solutions, large-scale,
Integrated system
Highly distributed energy system,
Scattered system
Distributed-centralized,Integrated system
SHARE OF SOLAR/WIND
From high to very high
From medium to high (limited by high
potential for centralized solutions)
From medium to high (limited by high
potential for traditional biomass)
From high to very high
P2G OPTIONSmall-medium scale
P2GCentralized P2G Small-scale P2G
Centralized P2G/ small-medium-centralized P2G
DEMAND RESPONSEAdvanced
automationAdvanced
automationManual demand
responseAdvanced automation
TRANSMISSION BETWEEN AREAS
Interconnected with areal bottlenecks
Strong interconnections
Weak interconnections
Super grid/Strong grid
Framework for determining market designs from transformative scenarios
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? • Is the system integrated or scattered? Axis for market design
approach 1• Is the price formation open and public or fragmented with bilateral
agreements? Axis for market design approach 2How is the needed generation and transmission capacity obtained?• What are the applied capacity and congestion management
mechanisms? Axis for market design approach 2Which are the driving forces for market development?• Consumer driven vs. corporate driven development Axis for market
design approach 1
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Framework for market design
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Applicability of the market designs – preliminaryestimates
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PRICING MECHANISM/SCENARIO RADICAL STARTUPS TECHEMOTHS DIY ENGINEERS NEW CONSCIOUSNESS
MARGINAL PRICING WITH ZONAL
MARGINAL PRICING WITH NODAL
PAY-AS-BID
MARGINAL COST BASED DISPATCH AND PRICING ON LCOE
COST OF SERVICE
OVER THE COUNTER TRADING
Extremely suitable
Very suitable
Moderate suitable
Slightly suitable Not at all suitable
Preliminary market designs for four transformative scenarios
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RADICAL START-UPS
VALUE-DRIVEN TECHEMOTHS
GREEN DIY ENGINEERS
NEW CONSCIOUSNESS
PRICE FORMATION Nodal/OTC If common market needed:
zonal/LCOE, otherwise OTC
LCOE/nodal/OTC/PAB
Cost of service/Zonalmodel with ISO
COMMONMARKETS
Exchange + bilateral Bilateral orpool/exchange
if needed
Pool/exchangewith strong role of
bilateral trading
Exchange butbilateral trading is
also allowedCAPACITY
MECHANISMCM needed,
add-onsNot necessary if
LCOE or bilateral in the common
markets.
Not necessary Public investments
NETWORK INFRASTRUCTURE
Public investements, scarce cross-border
connections(Interconnected with
areal bottlenecks)
Private and publicinvestments
(Stronginterconnections)
Public (community) investments
(Weakinterconnections)
Public investments(Strong grid)
Next steps
19.2.2016
1) Deepening the analysis on scenarios’ market designs and options for a 100 % renewable markets in general
2) Analyzing the possible path and necessary steps from present market framework to scenario
3) Agent based simulations of the impacts of market design (continues in 2nd
FP)
Result will be published: “Electricity markets framework in Neo-Carbon Energy 2050 Scenarios” in Neo-Carbon Energy Working Paper series (FFRC e-Book) Conference paper “100 % Renewable Energy System – Challenges and Opportunities for Electricity Market Design. Abstract accepted to EEM 16 (European Energy Markets) conference, which will be held in 6/16 in Porto, Portugal
Thank you!
Lappeenranta University of Technology (LUT)
D.Sc. Kaisa SalovaaraLUT Energy
Lappeenranta University of TechnologyLappeenranta, Finland
