power market course 04 jul 2019 - epg) projesi · case: the nordic countries (denmark, finland,...

1

Anders Plejdrup Houmøller

www.mrcgroup-consulting.com

Ankara, 4 July 2019

Copyright Houmoller Consulting ©

� The electricity trading system.

� Markets for balancing energy and balancing capacity.

� The spot market and the intra-day market.

� Transparency.

� Surveillance of the market.

� The players’ roles.

� Please also refer to the article The Liberalized Electricity Market

� You’ll find the article at the sub-page Facts and findingsat www.houmollerconsulting.dk

4 July 2019 1

Power exchange and balancing marketsRole of players



Whole-sale electricity markets

� Unless otherwise specified, this presentation will describe the liberalized electricity market, as it works in Northern Europe: CWE and the Nordic area

�CWE (Central Western Europe): Germany, France, Belgium, the Netherlands and Luxembourg.

�Nordic area: Denmark, Finland, Norway and Sweden.

� However, the following description is valid for a large part of the EropeanUnion.

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Lecturer Anders Plejdrup Houmøller� Teaches on behalf of MRC Consultants www.mrc-

consultants.com

� Owner and CEO of Houmoller Consulting ApS since 2010

� Please refer to www.houmollerconsulting.dk

� Worked for the Nordic electricity exchange Nord Pool 1998-2010

� First as Market Manager for Denmark – later as Director of Business Development.

� Introduced the electricity exchange in Denmark.

� Worked as project manager for the Danish Transmission System Operator 1997-1998.

� Worked for the Danish power producer Elsam 1993-1996 as head of Elsam’s Technology Department.

� Worked as project manager in electronics and software companies 1985-1993.

� Worked as a high school teacher 1981-1985.4 July 2019 3 Copyright Houmoller Consulting © 4

Transmission Grid(DK: above 110 kV)

Electricity market: transportation systemEuropean Union

TransmissionSystem

Operator (TSO)

...Consumers

...Distribution Grid

(DK: below 110 kV)

Distribution System Operators (DSOs)(the grid part of

the formerdistributioncompanies)

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...Producers


Transmission System Operator (TSO)European Union

� The TSO is a non-commercial monopolist.

� In the European Union, each TSO has two tasks:

�Maintains the security of supply in the TSO’s home country.

�Owns and operates the transmission grid (the high-voltage grid)

�For example, this means the TSO is responsible for setting the rules for the cross-border trading regime.

�Most EU countries have only one TSO.

�However, a few EU Member States have more than one TSO (eg, Germany)

�For these countries, each TSO operates the high-voltage grid and maintain the security of supply in the TSO’s control area.

4 July 2019 5 Copyright Houmoller Consulting ©

Performance standard for the TSOAnd for a DSO

� How often do the consumers lack electricity?

� For example: the Danish TSO publishes an annual report on the Danish security of supply.

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Copyright Houmoller Consulting © 7

RetailMarket

WholesaleMarket

The electricity market: trading system – 1European Union

...Retailer 1 Retailer M

...Consumers

A retailermay be thecommercial

part of aformer

distributioncompany

4 July 2019

...Producers

Copyright Houmoller Consulting ©4 July 2019 8

Brokers

Electricity Exchange

The electricity market: trading system – 2European Union

ProducersRetailers

Consumers

Traders


Commercial and non-commercial players

Power stations andtransmission grid

Distribution companies:local grid and retail

Before

liberalisation

After

liberalisation

Non-commercial monopolies Commercial players

TSO: transmission grid and security

of supply

DSO: DistributionSystem Operators

Producers, retailers, traders, brokers

Unbundling

4 July 2019 Copyright Houmoller Consulting ©

Grid

EU: Two flowsA flow of energy and a flow of money

...Consumers

Retailers

The retailers are not involved in the flow of energy.

But they are heavily involved in the flow of money!

€Energy

flowMoneyflow

€

The same for gas.

...Producers

It’s the TSO’sjob to keep theenergy flowing

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The Electricity Market

Producers

Consumers

50 Hz

EU: the Transmission System Operator (TSO) operates the highvoltage grid and is responsible for the country’s security of supply.


Liberalising the electricity marketSummary

� The only thing you change when you liberalise the electricity market, is the financial system

� The way the money is flowing, the way the bills are issued, etc.

� The physical supervision and maintenance of the electricity system is the same, whether you have market economy or planning economy

� The laws of nature do not change, just because we liberalise the electricity market…

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Concepts and units

PowerW

(Watt)

EnergyWh

(Watt-hour)

The amount(for example,

during an hour)

Capacity

Concept Unit Water analogy

W(Watt)

The ability tochange a flow

English

60 W

Energy consumedduring an hour:

60 W * 1h = 60 Wh

Flow: how muchenergy per

second?

The amount(for example,

during an hour)

Explanation

The ability tochange a flow

Flow: how muchwater is passingby per second?

4 July 2019 13 Copyright Houmoller Consulting © 14

PrefixesPrefix

k(kilo)

Prefixmeaning

1,000(thousand)

1 kW = 1,000 W1 kWh = 1,000 Wh

Examples

M(Mega)

1,000,000(million)

1 MW = 1,000 kW1 MWh = 1,000 kWh

G(Giga)

1,000,000,000(billion

1 GW = 1,000 MW1 GWh = 1,000 MWh

T(Tera)

1,000,000,000,000(trillion)

1 TW = 1,000 GW1 TWh = 1,000 GWh

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4000 kWh/year= 4 MWh/yearDK

2018: consumption Turkey about 291 TWh

Source: IEA


Consumption

Production

Ancillary services – 1

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� We’ll now turn our attention to this question:

� How do the TSOs maintain the security of supply?

� We’ll use the Nordic area as a case of how this can be done

�By means of the market.


Case: the Nordic countries (Denmark, Finland, Norway, Sweden)


The TSOs’ market for balancing energy

Energy

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The Nordic TSOs’ market for balancing energy

The producer has sold 200MWh to the retailer. Price:

34 €/MWh

TSO

Sell 200 MWh to producer.Producer’s purchase bid

price: 30 €/MWh

Result for TSO: aproduction decrease

of 200 MWh

: buy at30 €/MWh and sell

at 34 €/MWhProducer’s marginalcosts are 31 €/MWh

Producer’s initial plan:produce 200 MWh

RRetailer

ProducerP

Example for an hour where the production is too big


All sellers in questionget this price

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Offers and bids at the Nordic TSOs’market for balancing energy – 1

Sell bal. energy to TSOs

Price atspot

exchangeduring this hour(market price)

Example 1: during thishour, the TSOs hadto buy this amountof balancing energy

MWh

€/MWh

Buy bal. energy from TSOs

Example for oneHour of Operation

NB! This also sets theprice for imbalances

Merit order curve

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Offers and bids at the Nordic TSOs’market for balancing energy – 2

Sell bal. energy to TSOs

Price atspot

exchangeduring this hour(market price)

All buyers in questionpay this price

Example 2: during thishour, the TSOs hadto sell this amountof balancing energy

MWh

€/MWh

Buy bal. energy from TSOs


NB! This also sets theprice for imbalances

Merit order curve


Balancing energySummary

� The players at the Nordic market for balancing energy are paid the marginal price

�The last player’s price sets the price for everyone.

� Marginal pricing gives a merit order ranking where

�The cheapest among the available, idle facilities are up regulated first.

�The most expensive among the running facilities are down regulated first.

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A case: prices for balancing energy in Western Denmark Whitsunday 8 June 2014

0

5

10

15

20

25

30

35

40

45

50

€/MWh

1 3 5 7 9 11 13 15 17 19 21 23Time of day

Balancing energyup regulating

Balancing energydown regulating

Spot prices(market prices)


Case: Continental Europe

The TSOs’ market for balancing capacity


Capacity

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The TSO’s purchase of capacity� How can the TSO ensure that there are bids

and offers at the market for balancing energy?

� Western Denmark as a case: the TSO buys capacity.

� Examples:

�A producer who has sold the Danish TSO 20 MW of up balancing capacity for a given hour of the next day must for this hour place an energy offer of 20 MWh volume at the TSO’s market.

�A producer who has sold the Danish TSO 10 MW down balancing capacity for a given hour of the next day must for this hour place an energy bid of 10 MWh volume at the TSO’s market.

MWh

€/MWh

Offers

Bids

Price setting forbalancing energy

MW

€/MW

Price setting forbalancing capacity


The TSO’s purchase of balancing capacityand trading of balancing energy

� All players may send bids and offers to the Danish TSO’s market for balancing energy.

� However those who have sold capacity to the Danish TSO must send bids and/or offers.

� The Danish TSO buys this capacity day-ahead

�During the morning the day before the Day of Operation.

� During the hour of operation (or shortly before) the Danish TSO trades energy, if it’s necessary to buy or sell in order to maintain the frequency at 50 Hz.

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Fair pricing of up balancing capacity� We’ll consider one, given hour of tomorrow and one,

given power station.

� The power station in question has capacity 100 MW. The marginal production costs are 35 €/MWh.

� For this hour of tomorrow, the power station will be operating (ie, do not consider start-up costs).

� The expected spot price for the hour in question is 40 €/MWh.

� Question: what is the value of 10 MW?

� Answer: by operating 10 MW, the station’s expected profit for this hour is

10 MW * 1h * (40 - 35) €/MWh = 50 €.

� Hence, a fair capacity price is:

50 €/10 MW = 5 €/MW.

� This is also the market price, if this is the marginal offer.

Powerstation

Time

4pm 5pm

MW

€/MW

254 July 2019Note how the spot market is the starting point for the pricing!


Secondary reserve(90 MW)

Primary reserve(about 15 MW)

30 sec. 15 min.

� Western Denmark

� Energinet.dk is the Danish TSO.

� Consumption about 20 TWh/year.

� Min. load about 1 200 MW. Max. load about 3 700 MW.

� Jan. 1st, 2018: wind turbines about 4 260 MW (!).

Capacity bought by the TSOWestern Denmark as a case

Order + 15 min.Order

Tertiary reserve Manually activated

reserve(often about 280 MW up)

This is theUCTE system

Day-ahead3 pm

Month-ahead Day-ahead09:30 am

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FCR FrequencyContainment

Reserves

aFRR FrequencyRestoration

Reserves

Former name:LFC automatic LoadFrequency Control

MW

Time

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(mFRR)


Former name: Union for the Co-ordination of Transmission of Electricity (UCTE). Today RG Continental Europe

RG Continental Europe(UCTE)

RG Nordic(Nordel)

Five synchronousgrids in EU.

For the tradingof electricity, it’s

of no importance thatwe have different

synchronous areas.

You can trade acrossDC interconnectors as

well as across ACinterconnectors

4 July 2019

FCR in UCTE:A total

of 3000 MW


Case: the Nordic countries (Denmark, Finland, Norway, Sweden)


More on balancing energy

Energy

4 July 2019 28


Offers and bids at the Nordic TSOs’ market for balancing energy

Sell reg. energyto TSOs

Market priceduring this

hour (spot price)

MWh

€/MWh

Buy reg. energy from TSOs


Plus bids from players, who chose to submit energy bids atthe latest 45 minutes before the start of this Hour of Operation (voluntary bids).

Here you have energy bids from those who sold tertiary capacity reserves to the TSOs.

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When trading, the TSOs will simply trade withthose offering the best prices.



Sell reg. energy to TSOs


hour (spot price)

MWh

€/MWh



If you sold capacity the TSO, and cannot deliver energy: the punishment is that you do not receive the capacity payment.

If the TSO has harsh punishments, this may drive actors away from the TSO’s market!

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However, in case of the offence being repeated, you may be excluded from the TSO’s capacity market.

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Sell reg. energy to TSOs


hour (spot price)

MWh

€/MWh



If you offered to trade balancing energy voluntarily, and actually cannot quite trade the amount, you offered to buy or sell:

No punishment. The TSO will trade the remaining amount with another player.

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Very important principle. Allows wind turbines to offer down balancing energy.


ImbalancesThe TSO’s settlement of

imbalances with the market players


Contract no.270 MWh

A retailer’s purchase of energy forthe hour 3 p.m. - 4 p.m. July 5th, 2019

Purchase of energy on the wholesale marketAt EU’s whole-sale markets, energy is traded per hour (main rule)

Contract no. 130 MWh

Customers’ expectedconsumption: 100 MWh


Settling the consumption of energy

Imbalances - 1

Imbalance: 15 MWh.

Settle withTransmission

System Operator (TSO)

Customers’ actualconsumption:

85 MWh.Contract no. 270 MWh

Pay supplierno. 2

Contract no. 130 MWh

Pay supplierno. 1

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Imbalances - 2

� Settlement of imbalances is thus the glue between the physical and the financial system:

� For a retailer, settlement of imbalances makes the trading and the consumption balance.

� For a producer, settlement of imbalances makes the trading and the production balance.

Physicalsystem

(production and

consumption)

Financialsystem

(trading)Imbalance


The C & C Monster (Computer & Communication)Calculating the Imbalances

� For every consumer the consumption during each hour is either measured or estimated.

� For small consumers (e.g. households) the consumption is estimated. Their consumption is not measured every hour.

� The measurements and the estimates are made by the Distribution System Operators and sent to the TSO.

� The TSO uses the measurements and estimates to compute the total consumption for the customers belonging to each retailer.

� By comparing with the energy purchased by each retailer the TSO can compute the imbalances.

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Measured/estimatedconsumption

C

CC

C

C

C

C

The C & C Monster (Computer & Communication)Calculating the Imbalance for One Hour of Operation

C

Consumerwho has

chosen thisretailer assupplier

TSO

Retailer

DistributionSystem

Operator2

...

Pu

rch

ase

Con

su

mp

tion

...

DistributionSystem

Operator1

Imbalance


What is an imbalance? - 1

Let’s look at a small electricity market: There are only 2 retailers in total

95MWh

105MWh

TSO

TSO buys 5 MWh TSO sells 5 MWh

Answer: imbalance is a financial product

Purchase: 100 MWh


What is an imbalance? - 2Let’s look at a small energy market:

There are only 2 retailers in total

95MWh

106MWh

TSO

TSO buys 5 MWh TSO sells 6 MWh

Purchase: 100 MWh

TSO buys 1 MWh -5 MWh + 6 MWh = 1 MWh


Imbalances - 3

� What is an imbalance?

� It is a financial product

� In contrast: balancing energy is a physical product.

� If you for one given hour of operation add up all the imbalances, you will get the balancing energy needed during this hour (provided you remember to include the sign in the imbalances):

� I1 + I2 + I3 + ... = B


Nordic settlement of imbalancesFor one hour of operation. Gains and losses relative to spot price

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Retailer

Up regulating:price for balan-cing energybigger thanspot price

Bought too littleenergy: buysat the up regu-lating price (loss �).

Bought too muchenergy: sellsat the up regu-lating price (gain ☺).

Down regulating:price for balan-cing energylower thanspot price

Producer

Produced toolittle energy: buysat the up regu-lating price (loss �).

Produced toomuch energy: sellsat the spotprice (neutral �).

Bought too littleenergy:buys at the down regu-lating price (gain ☺).

Bought too muchenergy:sells at the down regu-lating price (loss �).

Produced toolittle energy:buys at the spotprice (neutral �).

Produced toomuch energy: sellsat the down regu-lating price (loss �).

NB!

↔

NB!

↔


Transparency

Price forimbalances

Price forbalancing

energy

Marketprice

(startingpoint)

For the TSO, it’s very convenient having the marketprice as the starting point for the price setting.

This means having an imbalance is “dangerous” fora commercial player.

Trading at the market is safer than settling animbalance with the TSO.

Consequence: all players try hard to have a trading portfolio,which equals their consumption (or production).

Result for the TSO: keeping a balance between totalproduction and total consumption becomes easier.

TSO needs a transparent market price!

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TSO must have a fully transparent operation of thebalancing markets and the settlement of imbalances!

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Pricing of balancing energy and imbalances – 1

� Consider a producer, who has a portfolio of gas fires plants and wind turbines.

� In many European countries, the producers sell their expected production day-ahead (sell to the spot market).

� Hence, the producer makes a day-ahead forecast of the wind turbine production and sells this energy. In addition, the producer sells the planned energy production from the gas fired plants.

� However, normally the actual production from the wind turbines will deviate from the producer’s forecast.

� Question: should the producer hold spare capacity in-house in order to be able to self-regulate, when the wind forecast is wrong?

� Or should the producer send offers to the TSO’s markets – thereby making self-regulating impossible?

4 July 2019 43

Sell... ...

Producer

Market


Pricing of balancing energy and imbalances – 2

� Question: should a player hold spare capacity in-house in order to be able to self-regulate?

� Or should the player send offers to the TSO’s markets?

� Answer for the Nordic countries – if you analyze:

� The pricing of balancing energy (the marginal price setting).

� The pricing of imbalances.

� Then you’ll find that the most profitable option for any player is to send bids to the TSO

� Even though this makes self-regulating impossible – thereby increasing the chances of an imbalance.

� Very fortunate, as it maximises the liquidity at the TSO’s markets.

� Note: the conclusion above would not be valid, if you introduced a “fine” for imbalances.

� So the price for imbalances would be higher than the TSO’s costs for trading balancing energy.

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... ...


Balancing groups and portfolio management


BRP Balancing Responsible Party

� BRP: a player who settles imbalances with the TSO.

� If you are a producer, retailer or trader, you can choose to be BRP yourself

� However, you may also outsource the task of settling imbalances with the TSO.

� An organisation can be BRP without being a producer, retailer or trader.

� In this case, the organisation is a service provider:

� As a service for those, who are producers, retailers or traders, the organisation settles their imbalances with the TSO.

Market player

Market player

..

.BRP TSO

SettleimbalancesSettlement

4 July 2019 46


Balancing Group – 1We consider a given country/imbalance area

Consider three retailers R1, R2 and R3, who each are responsiblefor a portfolio of consumers.

At the outset, they each must settle imbalances with the TSO.

Alternatively, the three may form a Balancing Group.

With the TSO, the Balancing Group will settle thegroup’s total imbalance.

Example for a given hour: for simplicity, assume all threeretailers bought 50 MWh for their customers.

The grey columns illustrate the customers’ consumption.

R1 R3R2

For many hours, the team will save money by joining forces inthe settlement of imbalances.

50 MWhBalancing Group


Balancing group – 2� Internally, the group must have rules on how to divide the cost

of the group’s imbalances between the group’s members.

� All types of market players may form balancing groups

� Retailers, producers, traders.

� However, in some countries, a balancing group cannot have both producers and retailers.

� A case: in the Nordic countries, a balancing group can have

� Traders and retailers.

� Producers and traders.

� However, in the Nordic countries, a balancing group cannot have both producers and retailers

� As this could lead to “self-regulating”, which went against the total system’s needs

�For example, if a group had both producers and consumers:

– The producers might up regulate, if the group’s consumers seemed to consume more than expected.

– Bad if the total system needed down-regulating!4 July 2019 48

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Portfolio managers offering ancillary services to the TSO


Consumersand producers

of electricalenergy, who

have the abilityto change

production/consumption

Portfolio manager:retailer or other

commercial player.Aggregate small players’

service offersCo

mm

ercia

lag

reem

en

ts

TSO. Buyingbalancing capacity.Buying and sellingbalancing energy

Balancingenergy: bidsand offers

Balancingcapacity:

offers

FactoriesOfficesHouse-holds

Districtheating

companies

Small powerproducers

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Smart grid


Load shredding

� When consumers agree to reduce their consumption

�And thereby sell balancing energy to the TSO

� You get a price signal for security of supply

�At what price will the consumer accept to have some of the consumption cut off?

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Portfoliomanager


The Role of the Commercial Players - 1

� The Transmission System Operator (TSO) has (together with the Distribution System Operator) responsibility for:

� The security of supply.

� That the consumer actually gets the commodity.

� A commercial player needs not produce electricity even if he has signed a contract which states that he will “supply”.



Commercialplayer 1

Commercialplayer 2

Contract

Produce onown facilities

Sign contractwith another

supplier

Balancingenergy

Conclusion: a supplier will notnecessarily supply electricity!



� The commercial players do not supply security of supply.

� The commercial players will not necessarily supply electricity.

� What do the commercial players supply to the consumers and each other?

� They supply prices (and the corresponding bills).

� Thus, the commercial players supply financial services.

� Naturally, because the financial system is the only thing that is changed, when we liberalise the electricity market.

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The regulator’s and the competition authority’s role in the European Union

� Surveille the market

� Guarding against abuse of market power.

� Approves/rejects grid tariffs.

� Approves/rejects procedures and technical standards for the electricity market

� Normally, the procedures and technical standards are suggested by the TSO.

� In principle, the regulatory body will never itself produce a paper describing a procedure, a tariff or a technical standard. The regulator approves/rejects such papers

� If the regulator produced such a paper, in the next step, the regulator would approve a paper produced by the regulatory body itself

�Which would not make sense.

4 July 2019 55 Copyright Houmoller Consulting ©4 July 2019 56

Buy bal. energy from retailer

Pay market price

Settlement

Balancing energy and black-outsSuppose the whole state was “black” during this hour of operation

Contract no. 130 MWh{Pay supplier

no. 1

{Contract no. 270 MWh

Pay supplierno. 2

TSO

Pay market price

Sell balancing energyto producer


The liberalisation processDenmark as a case

� Denmark:

�1997: those consumers, who have a consumption of 100 GWh/year or higher, were granted free choose of electricity supplier (were granted eligibility).

�April 1, 2000: those consumers, who have a consumption of 10 GWh/year or higher, were granted eligibility.

�January 1, 2001: those consumers, who have a consumption of 1 GWh/year or higher, were granted eligibility.

�January 1, 2003: all consumers were granted eligibility.

� Similar methods were used in Norway, Sweden and Finland

�Also in these three countries all consumers are eligible.

� All consumers in the European Union should be eligible.


Prerequisites for a liberalisedelectricity market

� Unbundling must be made.

� The “Computer & Communication Monster” must be established (and tested!).

� The country’s competition authority must be prepared: now this authority must also watch the competition for this commodity.

� The state must set up some authority which will supervise the remaining monopolies (TSO and local grid companies).

� First make the above things - then liberalise the electricity market!


The Effect of Free consumers

� At least some consumers must be granted a free choice of supplier.

� This makes the retailers worry about prices (and services).

consumer

Free consumerlooks for

competitive prices

RetailerProducer

Producer mustprovide

competitive prices

Retailer mustprovide

competitive prices


Trading electrical energy at the whole-sale market

€

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The day-ahead dispatch plans

� Several EU countries: at 3pm the producers must send the TSO their preliminary production plans for the next day.

� The bilateral trading plus the exchange trading provides the producers with their production plans

�For each hour of tomorrow, each producer must produce the amount of energy, the producer has managed to sell.

� Therefore, the market is used as a tool, which provides the dispatch plans for the next day.

Sale for tomorrow

Producer

Production plan for tomorrow


Large part of Europe: two ways of trading electrical energyAt the whole-sale market

Producer Retailer

Electricityexchange

Bilateral trading.OTC trading

Exchange trading

Baltic – Nordic area: < 10%

Baltic – Nordic area: > 90%

Seller

Receive50 - 0.046

€/MWh

Buyer

Pay50 + 0.046

€/MWh

For one hour: assume the exchange price is 50 €/MWh.Assume the exchange’s trading & settlement fee is 0.046 €/MWh

Payment

consumer

Reta

il m

arket


Trading offinancialcontracts

Clearinghouse

100% 100%88%

Powernext SA

634 July 2019

The picture is not complete

Gasexchanges

GaspointNordic

100%51%

PEGASCEGH

Direct andindirect

62%

Day-aheadand intra-day

trading ofelectrical energy

in Austria, Belgium,France, Germany,

Switzerland,the Netherlands, UK


Nasdaq OMX

CommoditiesClearingCompany

100%

Baltic-Nordic area:Two companies – two markets

Nord PoolAS

NASDAQ OMX

CommoditiesEurope

NASDAQ OMX

Commodities

The NASDAQ

OMX Group

100%

TSO1 TSO2 TSO3 TSO4 TSO5 TSO6 TSO7

Seven Baltic-Nordic TSOs


Two of the spot exchanges in EuropeNord Pool and EPEX Spot

� Nord Pool is an exchange, where the players can trade electrical energy day-ahead and intra-day.

� In 2018, about 95% of the electricity consumed in the Baltic-Nordic area was traded with Nord Pool.

� Elspot is Nord Pool’s day-ahead auction market.

� XBid is Nord Pool’s intra-day market.

� Turn-over in 2018:

�Spot 396 TWh (Baltic-Nordic area)

� Intra-day 8 TWh (Baltic-Nordic and some other European countries)

� -------------------------------------------

� EPEX Spot: the same as Nord Pool.

� Spot turn-over 2018 in Continental Europe: 435 TWh.

� Intra-day turn-over in Continental Europe: 63 TWh

�Germany 50 TWh.Copyright Houmoller Consulting © 66

Spot trading and market coupling

� The spot market.

� Handling of bottlenecks in the grid: market coupling and market splitting.

� Please also refer to the article The Liberalized Electricity Market and the PowerPoint presentation Single spot exchange for the Single Electricity Market

� You’ll find the documents at the sub-page Facts and findings at www.houmollerconsulting.dk

4 July 2019

We’ll discuss the European spot market as it currently works in the blue and green areas.

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The spot markets in EUDay-ahead markets for electrical energy

� This is where electrical energy is traded day-ahead.

� Bids and offers must be sent to the spot exchange at the latest 12 o’clock the day before the Day of Operation – gate closure time is 12 o’clock CET (Central European Time).

� At 12 o’clock CET the computation starts: by matching the bids and the offers for every hour of the following day, a spot price for each hour the following day is calculated.

� Normally, the prices for the following day are published around 1 p.m. CET (i.e., it’s day-ahead prices).

� EPEX Spot is Europe’s biggest spot exchange.

� Baltic-Nordic area: Elspot is the name of Nord Pool’s spot market

� Other European spot exchanges have other names for their spot markets (DAM Day-Ahead Market).

� Note: in the USA, the term “spot market” does not mean the day-ahead market.


Example of spot bids for one hourof the next day from a producerMPC: Marginal Production Costs

� In this example, the producer has 4 production units:

�U1: 40 MW, MPC 35 €/MWh

�U2: 10 MW, MPC 40 €/MWh

�U3: 20 MW, MPC 45 €/MWh

�U4: 10 MW, MPC 50 €/MWh

� For this hour of the next day, the producer has sold 50 MWh bilaterally.

� Therefore, at the outset, for this hour of tomorrow, the producer will run the units U1 and U2

�Thereby producing 50 MWh at costs 35 €/MWh and 40 €/MWh.

4 July 2019 68

Purchase bids and sales offers

from the producer for

the hour 1 p.m. - 2 p.m.

of the next day

Purchase

bids

€/MWh

35

40

45

50

10 20 30 40 50MWh

Sales

offers


Market power

� As can be seen from the previous slide on bidding at the spot exchange:

� A market player must bid using his marginal production costs as bid prices.

� However, if a player has market power, the player may bid using other prices

� Therefore, bidding with prices deviating from the marginal production costs will indicate abuse of market power

�The authorities must surveille the market in order to check for this.


Producer’s consideration

� Assume you are a producer of electricity.

� Under what circumstance could you consider to have an offer price at the spot exchange higher than your marginal production costs?

4 July 2019 70


Assume you are a producer with market power

4 July 2019 71

Price

Supply

Your offer price ☺





Quantity


Building the spot exchange’s supply/demand curvesFirst step in the calculation of the spot prices

4 July 2019 72

€/MWh

MWh

Supply

It’s the spot exchange’s supply and demand curves.Not the supply/demand curves for the whole society!

Min.price

The demand curveis built similarly

Max.price

67 68

69 70

71 72

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Ankara, 4 July 2019


Purchase volume= Sales volume

73

Calculation of the exchange’sday-ahead price (the so-called “spot price”)

Example for one hour of tomorrow

max.price

min.price

spotprice

In a ”normal” auction,only the buyers submitbids.

However, in this system,both the buyers and thesellers submit bids.

Therefore, this is wayof calculating prices iscalled a double auction.

As we are trading energyfor tomorrow, this way oftrading is calledday-ahead auction trading.

€/MWh

MWh

These exchangeday-ahead prices arecalled spot prices.

Demand2pm – 3pm

Supply2pm – 3pm

Not market couplingor market splitting

4 July 2019

(equili-briumprice)

Everybody trading at the exchange will trade at this price!Copyright Houmoller Consulting ©

Example of spot bids for one hourof the next day from a producer

4 July 2019 74




of the next day

Purchase

bids35

40

45

50

10 20 30 40 50MWh

€/MWh

Sales

offers

If the spot priceturns out to be…

Then this player has…

33 €/MWh Bought 50 MWh

38 €/MWh Bought 10 MWh

46 €/MWh

55 €/MWh

Sold 20 MWh

Sold 30 MWh

43 €/MWh Traded nothing



75



max.price

min.price

spotprice

€/MWh

MWh

Everybody trading at the exchange will trade at this price!

Demand2pm – 3pm

Supply2pm – 3pm

4 July 2019

(equili-briumprice)

These sellers did not sellto the spot exchange.The prices in their salesoffers were too high

Example: assume thespot price is 42 €/MWh



4 July 2019 76




of the next day

Purchase

bids

€/MWh

35

40

45

50

10 20 30 40 50MWh

Sales

offers

Spot price42 €/MWh



77



max.price

min.price

spotprice

€/MWh

MWh


Demand2pm – 3pm

Supply2pm – 3pm

4 July 2019

(equili-briumprice)

These buyers did not buyfrom the spot exchange.The prices in their purchasebids were too low

Example: assume thespot price is 42 €/MWh



4 July 2019 78




of the next day

Purchase

bids

€/MWh

35

40

45

50

10 20 30 40 50MWh

Sales

offers

Spot price42 €/MWh

73 74

75 76

77 78

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Ankara, 4 July 2019



79



max.price

min.price

spotprice

€/MWh

MWh


Demand2pm – 3pm

Supply2pm – 3pm

4 July 2019

(equili-briumprice)

Not market couplingor market splitting


The Electricity Market

Producers

Consumers

50 Hz

Question: among the producers – who are selling?

Answer: the competitive producers.Those who have marginal production costs at or below the market price!


The sellers’ and the buyers’ surplus

4 July 2019 81

Spot price Pspot

€/MWh

MWh

Bid price Pbid

Offer price Poffer Demand

Buyer’s surplus for this quantity: thedifference between the spot priceand the bid price Qbid * (Pbid – Pspot)

Supply

Seller’s surplus for this quantity: thedifference between the spot price andthe offer price Qoffer * (Pspot – Poffer)Qoffer

Qbid


1 3 5 7 9 11 13 15 17 19 21 23Time of day

Spot prices for Germany Monday 2 Nov. 2015Average: 40.0 €/MWh ≈ 44.0 $/MWh

0

10

20

30

40

50

60

70

€/MWh

Note: this is whole-sale prices.It’s not the consumers’ prices

4 July 2019 82


European terminologyFor electricity exchanges

� In many European countries, we have spot markets

�A spot market is a market operated by an electricity exchange, where:

�The players can trade electrical energy for tomorrow

– ie, the players trade day-ahead.

�The prices at the spot exchange are calculated by a method called double auction.

� An electricity exchange operating a spot market is called a spot exchange.

� The spot exchange’s prices are called spot prices

�Hence, spot prices are day-ahead whole-sale prices for electricity set by a spot exchange.


Spot prices for Turkey Monday 9 April 2018

0

20

40

60

80

100

120

140

160

180

200

220

TL/MWh

1 3 5 7 9 11 13 15 17 19 21 23Time of day

Average: 192.9 TL/MWh = 177.6 SAR/MWh

844 July 2019

79 80

81 82

83 84

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Ankara, 4 July 2019


Indian spot prices (Uttar Pradesh, Uttaranchal, Rajasthan, Delhi) Monday 9 April 2018

0

1000

2000

3000

4000

5000

6000

INR/MWh

1 3 5 7 9 11 13 15 17 19 21 23Time of day

Average: 3849 INR/MWh = 222 SAR/MWh


Bidding at an spot exchangeExample: a producer’s bids

4 July 2019 86




of the next day

Purchase

bids

EUR/MWh

35

40

45

50

10 20 30 40 50MWh

Sales

offers Note: the producers maysend both purchase bidsand sale offers!


A producer buying from the exchange

4 July 2019 87

Producer

Electricityexchange

Sell

Retailer

Sell

Consumers

Sell

Bilateral trading


The players’ rolesEuropean Union

� The Market Operator (MO).

� Operates markets where the commercial players can buy and sell electrical energy.

4 July 2019 88

MarketOperator

Seller PaymentPayment Buyer


Large part of Europe: two ways of trading electrical energyAt the whole-sale market

Producer Retailer

Electricityexchange

Bilateral trading.OTC trading

Exchange trading

Baltic – Nordic area: 5%

Baltic – Nordic area: 95%

Seller

Receive50 - 0.046

€/MWh

Buyer

Pay50 + 0.046

€/MWh

For one hour: assume the exchange price is 50 €/MWh.Assume the exchange’s trading & settlement fee is 0.046 €/MWh

Payment

consumer

Reta

il m

arket

Market operator (MO)


Transparency

� In order to ensure a level playing field for the competition:

� All market players must simultaneously have access to all price-relevant information.

� For example, Nord Pool uses UMMs (Urgent Market Messages) to inform the market if something unexpected happens

� Unplanned outages of power plants and power lines, for example.

� Also planned maintenance of power plants and power lines must be informed to the market.

4 July 2019 90

85 86

87 88

89 90

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Ankara, 4 July 2019


Price-taking spot bids

4 July 2019 Copyright Houmoller Consulting ©4 July 2019 92

Price-taking spot bidsFor a given hour of tomorrow

� A price-taking purchase bid:

� ”I’ll buy – even at the maximum price”

�Currently 3,000 €/MWh.

� A price-taking sales offer:

� ”I’ll sell – even at the minimum price”

�Currently -500 €/MWh.

� Price-taking bids: The common term for price-taking purchase bids and price-taking sales offers.

� The effect of price-taking bids on the day-ahead price:

� A price-taking purchase bid displaces the demand curve in parallel to the right (thereby increasing the price).

� A price-taking sales offer displaces the supply curve in parallel to the right (thereby lowering the price).


price

€/MWh

MWh

max. price

Price-taking spot purchase bidsOne extra, price-taking purchase bid

One extra, price-takingpurchase bid displaces the demandcurve in parallel to the right

Supply

Demand


price after

price before

€/MWh

MWh

max. price

Price-taking spot purchase bidsOne extra, price-taking purchase bid

One extra, price-takingpurchase bid displaces the demandcurve in parallel to the right

Supply

Demand


€/MWh

MWhmin. price

Price-taking spot sales offersOne extra, price-taking sales offer

Supply

price

Demand

One extra, price-takingsales offer displaces the supplycurve to the right


Price after

€/MWh

MWh

Price-taking spot sales offersOne extra, price-taking sales offer

Supply

Price before

Demand

One extra, price-takingsales offer displaces the supplycurve to the right

min. price

91 92

93 94

95 96

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Ankara, 4 July 2019


Block bids at a spot exchangeFill-or-kill

4 July 2019

Taking producers’ start-up costs into account


Block bids – 1� An example of a block sales offer:

� ”Tomorrow, to the power exchange, I’ll sell 200 MWh per hour during the hours from 7 am to 3 pm, if the exchange’s average price is at least 50 €/MWh”

�Therefore, the production facility’s start-up costs are distributed over the eight hours from 7 am to 3 pm.

�The block’s offer price = (the facility’s marginal production costs) + (the facility’s start-up costs distributed over eight hours).

� In the calculation of the spot prices: for each of the eight hours from 7 am to 3 pm, the 200 MWh are inserted as a price-taking sales offer

� ie, an offer where the seller is willing to sell 200 MWh even at the minimum price.

� Because: during a single hour, the seller is actually willing to sell at the minimum price

�Only the average price during the eight hours is of interest for the seller.

984 July 2019


Block bids – 2� An example of a block sales offer:

�”Tomorrow, to the power exchange, I’ll sell 200 MWh per hour during the hours from 7 am to 3 pm, if the exchange’s average price is at least 50 €/MWh”

� Everything is OK, if the price calculation yields an

average price for the eight hours of 50 €/MWh or higher.

� Otherwise the block is rejected, and the price calculation is repeated without the block sales offer.

� Problem: with the block rejected, the price calculation may yield an average price for the eight hours higher than 50 €/MWh!

�However: you can’t fix this by re-inserting the block offer in the price calculation…

�Hence, this gives a PRB – Paradoxically Rejected block Bid.


Block bids – 3� An example of a block purchase bid:

� Tomorrow, from the power exchange, I’ll buy 100 MWh per hour during the hours from 1 pm to 11 pm, if the exchange’s average price is at most 45 €/MWh during the ten hours.

� In the calculation of the spot prices: for each of the ten hours from 1 pm to 11 pm, the 100 MWh are inserted as a price-taking purchase bid

� ie, a purchase bid where the buyer is willing to buy 100 MWh even at the maximum price.

� Because: during a single hour, the buyer is actually willing to pay the maximum price

�Only the average price during the ten hours is of interest for the buyer.

� ”Block bids” is the common term for block sales offers and block purchase bids.

4 July 2019 100


How to select the block bids to be included in the exchange trading?

� Every day, at each exchange, there are lots of block bids.

� How to select the block bids, which will be included in the spot trading?

� Example – two competing block sales offers, where a one hour overlap creates a situation, where only one bid can be included in the trading:

101

Time

Midnight Midnight

Day of operation

Blok bid AOffer price 47 €/MWhFrom 3 am to 8 am15 MWh/hour

Block bid BOffer price 50 €/MWhFrom 7 am to 3 pm200 MWh/hour

Which blockshould

be rejected?


It’s all about selecting the block bids!When the spot prices are calculated

� If there were no block bids, there would be only one solution to the spot price calculation

� ie, only one set of valid spot prices per price zone and only one set of valid day-ahead plans for the cross-border energy flows.

� A ”valid solution” is a solution fulfilling all the requirements

� For each hour for each price zone: the spot purchase price is equal to the spot sale price.

� For each hour for each interconnector: the day-ahead plan for the cross-border energy flow must not exceed the interconnector’s capacity.

� An so on...

� With block bids: there are millions (perhaps billions) of valid solutions!

� Therefore: with block bids, you need a criterion for selecting the preferred solution among all the valid solutions!

1024 July 2019

97 98

99 100

101 102

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Ankara, 4 July 2019


The traders’ surplusOne hour one price zone. No import or export of energy

4 July 2019 103

Buyers’ surplus(red area)

For one hour for one price zone: the buyers’ and the sellers’ total surplus from the spot trading is the area between the exchange’s supply curve and the exchange’s demand curve (the red/green area A).

MWh

€/MWh

Sellers’ surplus(green area)

Supply curve

Price

Demand curve

Area A: The sum of thered and the green areas


Spot calculationThe effect of block bids

� The block bids create a time inter-dependence between the hours.

� You cannot calculate the prices for one hour only.

� In one go, you must calculate for all 24 hours of the next day

�And for the whole coupled area.

4 July 2019

Hour no. 3Hour no. 3Hour no. 3


…



104


Price volatilityCase: Nordic market

Price

Time


Price drivers at the Nordic market (Denmark, Finland,

Norway, Sweden)

€/MWh

MWh

Hydro, wind, sun

Nuclear

Coal and gas

Oil

Normal year

Wet yearDry year

Demand


The Nordic System Price

0

80

160

240

320

400

NOK/MWh

0

10

20

30

40

50

60

70

80

90

100

110€/MWh

May 4th, 1992 – April 8th, 2018 Nominal terms

93 95 97 99 01 03 05 07 09 11 13 15 17

Moving 7-days average

Dry and

cold

Dry y

ear

Cold

weather

Dry year

Dry and cold Dry and

coldCold and low

Swedish nuclearpower output

Co

ld

Spring floodAutumn

Wet

year

Wet yearWet Wet

Wet

year

Annual turnover

at the Nordicwhole-sale market:about € 14 billion

(about USD 18 billion)

1074 July 2019 Copyright Houmoller Consulting ©4 July 2019 108

Cross-border trading of electricity

103 104

105 106

107 108

19



Ankara, 4 July 2019


NO5 NO1

NO2

NO3

SE4

SE3

SE2

SE1

DK1DK2

Price zonesThe Baltic-Nordic area as a case

Normally, there are not the same spotprices in the Baltic-Nordic area.

Normally, there are high-price zonesand low-price zones.

Norway can be split into anumber of price zones

Denmark is divided into twoprice zones.

Sweden is divided into fourprice zones.

Lithuania, Latvia, Estonia and Finlandeach constitute one price zone.

Currently, Norway is splitinto five price zones.

FIN

EE

LT

LV

4 July 2019

It’s the Norwegian TSOwho decides the Norwegianprice zones.


Price zone – definition

� A price zone is a geographical area, within which the market players can trade electrical energy day-ahead without considering grid bottlenecks.

� As a consequence: for a given hour of operation and a given price zone, a spot exchange will calculate one spot price for the whole zone

�Hence the name ”price zone”.

4 July 2019 110


How to couple energy markets together

Producers

consumers

50 HzLowpricezone

Highpricezone

A good grid congestion management system willensure the energy flows towards the high price zone!


Bottlenecks in the Nordic grid� Among the commercial players: Who is granted (part of) the

Nordic bottleneck capacity?

� No one!

� The electricity exchange is given all the capacity at all the bottlenecks.

� The electricity exchange uses the capacity to increase the price in low price zones and decrease the price in high-price zones.

� This system is neutral and fair for all players in the market -no commercial player is granted special rights on the bottlenecks.

� Bottlenecks:

�The interstate connections are per definition always treated as bottlenecks.

�The connections between the domestic price zones in Denmark, Sweden and Norway are treated as bottlenecks.


Spot calculation

4 July 2019 113

Every day, shortly after noon, the spot software calculates the spotprices and the market coupling flows for the market coupling area.

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

Pricezone

All price zones and all interconnectors in thecoupled region are included in the calculation.


Spot trading and market coupling Summary

� The blue area: the market coupling PCR (Price Coupling Regions)

� The same calculation taking place at several spot exchanges

�Using the same input and the same algorithm.

� The methods used to build the demand curves and the supply curves vary form region to region.

� However, once the curves have been built, the same algorithm is used to calculate the prices and the flows.

� The algorithm is called Euphemia.

� As for the market coupling in the green area (the Czech Republic, Slovakia, Hungary, Romania):

� Euphemia is used.4 July 2019 114

109 110

111 112

113 114

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Ankara, 4 July 2019


XBidA European intra-day trading platform

� So far, we have considered the spot market.

� However, many European countries have also an intra-day market.

� As a case, we’ll consider how XBid works in the Baltic-Nordic countries

� At XBid, in the Baltic-Nordic countries, you can trade down to one hour before the hour of operation.


Computerscreen

XBidA continuous trading system

Othersale offers

Sale: A MWhX €/MWh

Otherpurchase bids

Buy: B MWhY €/MWh

This is anexample for one future

hour of operation for

one price zone

Spread {


XBid featuresIn the Baltic-Nordic countries

� Nord Pool operates XBid in the Baltic-Nordic states

� And in some other European countries.

� In the Baltic-Nordic countries, XBid trading for the next day opens at 2pm

� You can trade down to one hour before the hour of operation

�In Finland and Estonia, you can trade until 30 min. before the hour of operation.

Time

Next day

Midnight Midnight

You can tradeuntil 10am

hour ofoperation:11am-12

12 spotgate closure

2pm XBidtrading

for the nextday opens


Electricity exchange and spot exchange

� Electricity exchange: here the players can trade electrical energy day-ahead and intra-day

� Baltic-Nordic area: both markets are operated by Nord Pool.

� Baltic-Nordic area: Nord Pool’s names of the two markets are

�Elspot (day-ahead auction market).

�XBid (intra-day market – continuous trading).

� In other European countries, the electricity exchanges have other names for their day-ahead auction market.

� Spot exchange: that part of the electricity exchange, where the exchange offers day-ahead auction trading.

118

Spot exchange: the exchange’s day-ahead auctionmarket

Intra-day market

Big turn-over

Small turn-over

4 July 2019

Electricityexchange


EU: time line for trading electrical energy

Time

Day of Operation (D)

Mid

nig

ht

Mid

nig

ht

Day of Operation:The day where the electrical energy is produced and consumed.Hour of Operation:The hour where the electrical energy is produced and consumed.

Long-term contracts (physical and financial):Some days ahead, week-ahead, month-ahead, year/years ahead

Day-ahead trading

Intra-day trading Trading balancingenergy with TSO

D - 1

Mid

nig

ht

Hour ofOperation

Noon D-1:gate closuretime for spot

trading


EU: time line for trading electrical energy

Time

Day of Operation (D)

Mid

nig

ht

Mid

nig

ht

Day of Operation:The day where the electrical energy is produced and consumed.Hour of Operation:The hour where the electrical energy is produced and consumed.

Long-term contracts (physical and financial):Some days ahead, week-ahead, month-ahead, year/years ahead

Day-ahead trading

Intra-day trading Trading balancingenergy with TSO

D - 1

Mid

nig

ht

Hour ofOperation

Noon D-1:gate closuretime for spot

trading

4 July 2019 120

Trade bilaterally ortrade via an exchange

115 116

117 118

119 120

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Ankara, 4 July 2019


Exchange tradingVersus bilateral trading

� Exchange trading:

� The exchange takes care of settlement

�Buyer pays exchange and exchange pays seller.

� Trading is anonymous

�For both buyer and seller: the exchange is the counterpart.

4 July 2019 121

Electricityexchange

Seller PaymentPayment Buyer

Bilateral trading: not anonymous and seller has counterparty risk

Payment BuyerSeller

Clearingexchange takes

care of settlementand guarantees

settlement.


Two types of exchange trading

Price discovery: the process of determining the market price of acommodity through the interactions of buyers and sellers.


Exchange tradingcontinuous trading versus spot trading (double auction)

Computer

Buy

Sell

Exchangeprice

Demand

Supply

Exchangeprice

Continuous trading: exchange trading systemfor stocks, derivatives and most commodities

Every trading day: the exchange price iscontinuously changed during the periodwhere the exchange is open for trading.

If it’s electronic trading: you trade byclicking at a purchase bid or a sale offer.

Double auction: the dominant way of day-aheadtrading at electricity exchanges in Europe

All the exchange’s day-ahead liquidity isconcentrated just before 12 o’clockthe day before the Day of Operation.

The exchange prices for the next day are setonce and for all by the calculation carriedout just after 12 o’clock.

123

Sp

read


Exchange with continuous tradingA market maker

� Market maker: a player who voluntarily submits both sale offers and purchase bids to the exchange.

� The market maker has agreed with the exchange:

� A certain minimum volume for both the sale offers and the purchase bids.

� A maximum allowed spread.

� If a market maker during a trading day sells and buys the same volume, the market maker’s profit is:

� spread * (traded volume)

� If the exchange has one or more market makers you can always

� Buy and sell at the exchange.

� Set the exchange’s price for the commodity traded at the exchange.

4 July 2019 124

Computer

Buy

Sell

Sp

read

Exchangeprice


Strengths and weaknesses� Continuous trading

� Robust towards low liquidity

�If there’s a market maker, there’s always an exchange price – even if there’s no exchange trading!

�Less secure price discovery

– At which time do we have the right price for tomorrow?

• The closing price is normally used.

�More difficult/expensive for the market players.

� Double auction (spot trading)

� Very good price discovery

�All the exchange’s day-ahead liquidity is concentrated at 12 o’clock.

� Easy/inexpensive for the players.

� Very vulnerable towards low liquidity

�What if there’s no intersection?

– Danish gas exchange as a case.

Buy

Sell

Demand

Supply

125

Sp

read


Power exchange risk

126

The power exchange must have conflict-resolving rules.

Electricityexchange

Marketplayer

Market player:I sold 200 MWh to the exchange

Exchange:You sold 100 MWh

The exchange’s rule book must clearly lay out how to solvesuch conflicts.

4 July 2019

121 122

123 124

125 126

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Ankara, 4 July 2019


Trading at an exchangeCCP Central Counter Party (the clearing house)

Clearing house(CCP)

Exchange(pricing energy)

Marketplayers

The exchange and the clearinghouse may be the same company.

Case: the Baltic-Nordic electricityexchange Nord Pool Spot does nothave a separate clearing house.


May or may notbe the same

company

€

Risk for the clearing house – 1

Marketplayers(sellers)

We look at trading of electrical energy

Marketplayers

(buyers)

Exchange

Clearing house(CCP)

€

Sell Buy

TSO€

Producer€

CCPSeller€

If thesellerfails todeliverelectricalenergy:

No problem forthe clearing house.

The TSO will deliver the energy.The seller will settle the energyimbalance with the TSO.

(ie, the seller pays the TSO).

128

CCP and exchange notinvolved in energy flow!

Clearing house hedges againstthis risk by requiring themarket players post collaterals.

If thebuyerfails topay:

The clearinghouse hasa problem!

Exchange(pricing energy)

4 July 2019

CCP notinvolved


Risk for the clearing house – 2

� The collateral: a market player must have a pledged bank account.

� In both cases:

�The clearing house must ensure, the collateral is sufficiently big

�However, requiring too much collateral may drive the customers away!

129

Marketplayers

(buyers)

Clearing house(CCP)

€


The settlementCase: Nord Pool’s settlement of spot trading

Clearing house(CCP)

The Day of Operation (D)is the day, where the energyis produced and consumed.

Assume D is Tuesday.

In this case, the energywas traded at the exchange Monday.

Buy and sellfor Tuesday

CCP takesmoney from

buyers’ accounts

Wednesday (D+1)

CCP pays sellers

TimeTuesday (D)Monday (D-1)

Sellers’bank

accounts

Buyers’bank

accounts€

D€

D+1

CCP hasauthorityto takemoneyfrom theplayers’accounts

1304 July 2019


Comparison of Principle Buyer, competitive market, central dispatch, … etc.

� Simple example:

� Very small country with only 4 producers.

� We ignore start-stop costs.

� Base load: 50 – 100 MW.

� Intermediate load: 101 – 300 MW.

� Peak load: 301 – 400 MW.

131

1 2 3 4

100 MW 100 MW 100 MW 100 MW

25 €/MWh 30 €/MWh 35 €/MWh 40 €/MWh

Base load

Intermediate load

Peak load

This should be theshort-term result,no matterwhich system youare using!

The signal for inves-tors may differ.


The importance of exchange liquidity – 1

� A necessary condition for reliable exchange prices is high liquidity

�Among other things, high liquidity implies individual players’ decision to buy or sell will not affect the exchange’s prices.

� The virtuous circle where liquidity creates liquidity:

�High liquidity → Reliable exchange prices → Players feel confident trading at the exchange → More players choose to trade at the exchange → exchange’s liquidity increases.

4 July 2019 132

127 128

129 130

131 132

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Ankara, 4 July 2019


The importance of exchange liquidity – 2

� Without high exchange liquidity, a few players’ decision to trade can change the exchange prices a lot – thereby creating volatility unrelated to the market situation.

� In turn, this brings about a feeling the exchange is a casino best avoided by sane players

�This is the vicious circle, where lack of liquidity creates lack of liquidity.

4 July 2019 133

Naturally, both at a spot exchange at a financialexchange, you can have the virtuous and the vicious circle.


Change long-term PPAs to financial contractsExample: PPA with price of 40 €/MWh

Producer Retailer

Electricityexchange

PPA

Exchange trading

Seller

Receive30

€/MWh

Buyer

Pay30

€/MWh

For one hour: assume the exchange price is 30 €/MWh.

Payment

consumer

Reta

il m

arket

134

10 €/MWh

4 July 2019


Anders Plejdrup HoumøllerHoumoller Consulting ApS

Tel. +45 28 11 23 [email protected]

Web houmollerconsulting.dk

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power market course 04 jul 2019 - epg) projesi · case: the nordic countries (denmark, finland,...

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