New products or design of the day-ahead market?

New products or design

of the day-ahead market? Jrgen Bjrndalen, Stockholm 19/5-14

Outline

Changing needs?

PCR/Euphemia

Criteria

Potential new order formats for Elspot

Re-design of the day-ahead market?

Is there a problem?

Growth of intermittent

electricity

generation

Intermittent and/or inflexible sources to

replace fossil fuels

Increasing changes in planned positions

between day-ahead

and real-time

Presentasjonstittel - rediger under Topptekst og bunntekst 3

Yes, there is a problem


Time

Real-time Day-ahead

+ Wind

+ Solar

+ Precipitation

- Thermal

= Growing variation in

natural supply

Increasing share of generation

from sources that cannot be

predicted accurately challenges

the intra-day timeframe

Intra-day

Not a topic

in this

project

Attract as much

flexibility to day-ahead

market as possible

Define all markets such that

participants are able to find

efficient solutions;

both costs and risks

Observ

ation

Cahle

nge

European price coupling Euphemia


New algorithm

All existing order formats available

Austria

Belgium

Czech Republic

Denmark

Estonia

Finland

France

Germany

Italy

Latvia

Lithuania

Luxembourg

the Netherlands

Norway

Portugal

Spain

Sweden

Switzerland

UK

Transparency builds trust


Portfolio of order formats and design of algorithm

Understandable

Pragmatic

Efficient

Inclusion of any order format or design feature should be

explained

Why included?

Designed for which market participants?

Euphemia is transparent

Inclusion criterion

Existing order formats in participating areas must be

solvable

New formats possible

Trust is a fundamental asset for exchanges

Evaluation criteria for new order formats


Impact on flexibility

Impact on price volatility

Solvability

Complexity

Costs

What are the major sources of flexibility not offered day-

ahead?


Existing order formats for Elspot


Price

Time

Average price

Hourly price

Block bids

Block order

Price

Volume

Flexible bid

Inflexible bid

Single hourly orders Price

Time

Average price

Mother block Child block

Loss

Profit

Linked block orders

Flexible hourly sales order (1 hour, time decided by algorithm)

New demand orders?


Moving thermal loads

Some heating purposes are not time critical

Leave the timing decision to the algorithm

-Within constraints

Easily solvable within Euphemia

Too early

(A passive alternative investigated by Sweco risk enhancing volatility)

Expand the flexible hourly order

Some industrial end users may be able to reduce demand for more than one hour

Euphemia compatible

Go ahead (if sufficient interest)

Two auctions in a row

Mitigate shortlived price spikes

Give end users an option to rethink their demand

Not likely to attract new flexibility

-Rather reducing the punishment for being lazy

Forget it

Supply: Expand the flexible hourly order?


The current flexible hourly order is designed for demand offering to sell back

1 hour

If extended to several hours, it turns into a block order with flexible timing

Exchange algorithm is better positioned to make timing decisions

Participants relies on price prognoses

Does not attract new flexibility

Avoid consequence of erroneous price forecasts

But fully compatible with Euphemia

Supply: Elastic block orders?


BlockB

Price

Volumeperhour

BlockA

Elas cblockorder

MarketpricewithoutAorB

MarketpricewithB

MarketpricewithA

Mutually exclusive block orders

Avoiding paradoxically rejected block orders

Takes the impact of reduced volume on start-up cost per unit into consideration

Euphemia compatible

But does not result in efficient solutions

Algorithm unable to find solution where volume actually varies within limits from hour to hour

Supply: Main block with variable hourly

orders?

Time

Averagedayaheadprice

Dayaheadpricehourbyhour

PriceorVolume

Blockorderprice

Hourlyorderprice

Mainsalesblock Heightindicatesvolume Offerpricedependonvariable

andstartcost

Hourlypurchaseorders Heightindicatesvolume Askingpricedependon

variablecost


Nord Pool idea (?)

Euphemia compatible

Lets thermal producers offer their flexibility

While covering fixed costs

But better options exist

Supply: Bidding the cost function

Thermal power plant characteristics

Fixed and significant start-up cost

Approximately constant variable unit cost within operating range

Submit the cost function and leave the optimisation to the exchange algorithm

All embedded flexibility offered in day-ahead market

Exchange finds the optimal use of embedded flexibility

Even the timing decision can be left to the algorithm

Fully compatible with Euphemia

But not yet implemented


Supply: MIC-orders

Minimum Income Constraint

A block order with a minimum price (to cover fuel costs etc.) and a required minimum income (in addition to the minimum price)

Effectively covering both start-up costs and fuel costs

Maximum utilisation of embedded flexibility

Lets the algorithm vary output within specified limits

But timing decision left to the bidder (prognosis)

Already available in Euphemia

For the benefit of Iberian market


Outline

Changing needs?

PCR/Euphemia

Criteria

Potential new order formats for Elspot

Re-design of the day-ahead market?

Design options for the day-ahead market


Time

Real-time Day-ahead

+ Wind

+ Solar

+ Precipitation

- Thermal

= Growing variation in

natural supply

Increasing share of generation

from sources that cannot be

predicted accurately challenges

the intra-day timeframe

Intra-day

Not a topic

in this

project

Attract as much


market as possible





Observ

ation

Cahle

nge

Postponed gate closure of the day-ahead market?

Reduce the impact of the forecast error for

wind power by moving

the gate closure?

From 12:00 til 18:00 does not change anything

Merge Elspot and Elbas?

Gate closure 60 minutes ahead of real time?

Not if the only purpose is to ease wind balancing

Im convinced

That this is not a good idea


Recall the roles of the day-ahead market

Planning allocation of resources

Market participants

TSOs

Reference price for hedging and pricing

Most of the volume

If we continue with an auction (not continuous

trade)

Calculation time

Quality control


Closing auction in Elbas an improvement?

Elbas used for rebalancing according to new info after gate closure of the day-ahead market

Owner of large power plant with unexpected stop: Start buying immediately

Wind power: Optimal use of Elbas is to postpone trade as long as possible (unless prices tend to increase when approaching real time)

-Fluctuating forecasts

A closing auction would concentrate (steal) liquidity from the ahours ahead

Benefit for wind power (?)

But perhaps a negative impact on potential counterparts?

-Slow resources excluded or forced to take significant risks if they participate in the auction

Thus there is a risk of waiting until the auction

-Only costly resources left?

Is this a theoretical or an empirical question?


Conclusions


Time

Real-time Day-ahead

Cost function orders

MIC orders Extend flexible

hourly orders

Leave Elspot design as it is Consider a closing auction in

Elbas

(Note: impact of network is not considered here)

Intra-day

Not a topic

in this

project

Attract as much


market as possible





Solu

tions

Cahle

nge

Bransjerdgiver for kraftsektoren

Strategi Bedriftskonomi Samfunnskonomi


Documents

New products or design of the day-ahead market?