Rudi A. Hakvoort

The Question of Generation Adequacy in Liberalised Electricity Markets

This paper presents an overview of the reasons why unregulated markets for the production of electricity cannot be expected to invest sufficiently in generation capacity on a continuous basis. Although it can be shown that periodic price spikes should provide generation companies with sufficient investment incentives in theory, there are a number of probable causes of market failure. A likely result is the development of investment cycles that may affect the adequacy of capacity. The experience in California shows the great social costs associated with an episode of scarce generation capacity. Another disadvantage is that generation companies can manipulate price spikes. This would result in large transfers of income from consumers to producers and reduce the operational reliability of electricity supply during these price spikes. We end this paper by outlining several methods that have been proposed to stabilise the market, which provide better incentives to generation companies and consumers alike.

Balance responsibility and imbalance settlement in Northern Europe — An evaluation

In liberalized power markets, balance responsibility and imbalance settlement are two closely related elements that constitute the heart of a balancing market (which is actually an institutional arrangement establishing market-based balancing). This paper aims to compare balance responsibility and imbalance settlement in the Nordic region, Germany, and the Netherlands. For this purpose, an overview is given of existing design variables and variable values in Northern Europe. Furthermore, the effects of different variables and values on four identified performance indicators have been rated with the support of a causal diagram of the balancing system. We conclude that different design variables create large differences in balancing market performance in Northern Europe, with the Program Time Unit, the scope of balance responsibility and the main imbalance pricing mechanism having the largest impact.

Congestion management in the European electricity system: An evaluation of the alternatives

Cross-border congestion is a large obstacle to the creation of a genuinely common market for electricity in Europe. As long as it is not practically possible to honour all cross-border electricity contracts which the market would desire to make, a full integration of the various national electricity markets remains difficult. On the other hand, the expansion of interconnector capacity, which would be necessary to avoid congestion, may not be economic, so that some degree of congestion may remain permanently. The first stage of the liberalisation process of the European electricity market(s) has led to the current situation of 15 more or less liberalised and rather isolated national electricity markets. This situation is due to the fact that the European grid is a patchwork of interconnected national grids. It also is a consequence of the freedom that EU-member states have with respect to the implementation of the electricity directive, which has resulted in different legal regimes in the different member states. This patchwork makes it difficult to manage cross-border congestion. According to the European Commission, congestion management methods should lead to an economically optimal usage of interconnectors.1 This article analyses five methods which appear to meet this criterion. Congestion management methods for the European market should, of course, also comply with the basic principles that govern the European electricity market: they must fit into the legal framework. This article is divided into two parts. The first part introduces the different methods and

Effect of integrating regulating power markets of Northern Europe on total balancing costs

Integration of regulating power markets of different balancing regions has a potential to reduce the costs of balancing within multinational power markets by exchange of regulating power between these regions. Currently, most regulating power markets are operating on a national level so that exchange of regulating power between regions is minimal. This paper investigates the potentials for reduction of total balancing costs by creation of multinational regulating power markets studying the case study of Northern Europe; the Netherlands, the Nordic region and Germany. An optimization model is built to analyze the effects on total balancing costs — the costs paid by a multinational TSO to the providers of regulating power. Based on the numerical results, total balancing costs can decrease by 100 million Euros per year when enough interconnection capacity is allocated to balancing trade. Furthermore, total amount of activated regulating power is reduced due to supportive power exchange. Finally, the use of the uniform pricing mechanism leads to frequent congestion of interconnection lines due to balancing trade. On average, regulation power prices stay within the same range.

An economic assessment of congestion management methods for electricity transmission networks

This paper provides an economic analysis of five different congestion management methods which can be used to handle congestion in electricity transmission networks: explicit auctioning, implicit auctioning, market splitting, redispatching and counter trading. These methods all have the objective to provide fair and non-discriminatory access to scarce transmission capacity in an economically efficient manner. This paper evaluates the theoretical economic efficiency of each of these methods. For this purpose an economic model is made of each method. In addition, some practical aspects of these congestion management methods are reviewed. The main conclusion is that all of the reviewed congestion management methods have, in theory, the potential of being economically efficient in the short term. That is, if they work well, they will all lead to the most efficient dispatch of generation given the existing transmission constraints. Their differences lie in the distribution of costs, their implementation costs, their practical feasibility, their susceptibility to strategic behaviour and their long-term incentives to generators and network operators. Finally, it is explained why congestion pricing methods (explicit auctioning, implicit auctioning and market splitting) in most cases are preferable as a solution for structural congestion over the corrective methods (redispatching and counter trading). They generate better economic incentives for users of the congested links which probably make them more efficient in the long term.

A qualitative analysis of main cross-border balancing arrangements

The integration of balancing markets, i.e. market-based balance management arrangements, is regarded as an important next step in the development towards an Internal Electricity Market for Europe, and is expected to largely reduce the costs of real-time balancing by enhancing competition in balancing service markets. However, there is still a large knowledge gap on the possibilities and effects of balancing market integration. This paper contributes to filling up that gap by means of a qualitative assessment of the main alternative market arrangements for cross-border balancing. We evaluate the impact of seven main cross-border balancing arrangements on the basis of a set of ten high-level performance criteria. The analysis shows that although the net impact of the arrangements of ACE netting and a common merit order list can be expected to be positive, there are major uncertainties in impact related to the dependency on detailed balancing market design choices and power system and market conditions. The uncertainties and dependencies regarding the impact of balancing market integration call for a detailed analysis in each individual integration case.

Possible effects of balancing market integration on performance of the individual markets

Different cross-border arrangements for exchange of balancing services in electricity markets can potentially have different effects on the behavior of market parties and consequently market performance as a whole. This paper focuses on BSP-TSO trading (foreign bidding) as one of the main four arrangements proposed for exchange of balancing services across borders. We analyze the case of Norway and the Netherlands as a main balancing market integration case in Northern Europe and investigate the possible effect of enabling BSP-TSO trading (as one step towards full balancing market integration) between these countries on the performance of the two individual markets. An agent-based model is developed in MATLAB through which we study the possible change in behavior of market parties as a result of BSP-TSO trading implementation.

Aggregation of demand side flexibility in a smart grid: A review for European market design

The increased share of renewable generation and the integration of Distributed Generation (DG) require more electricity system flexibility. One way to increase this flexibility is to use the potentials of demand response (DR). In order to activate the full range of customers in DR, a new market intermediary actor is needed to aggregate the resources in an adequate technical and economical format. These actors, so called “aggregators”, can act as flexibility providers to support security of supply considering network, generation and consumers constraints. However, despite their technical and economical utility, aggregators are not self-emerging in many European countries. Consequently, this paper aims at identifying the main barriers accounting for this lack of aggregators in Europe. Eventually this paper provides a policy review for European market designs that support aggregation.

Analysis of the impact of cross-border balancing arrangements for Northern Europe

This paper presents an agent-based analysis of the impact of different cross-border balancing arrangements on balancing market performance for the case of Northern Europe, i.e. the Netherlands, Germany and the Nordic region, taking into account the change in behaviour of Balance Responsible Parties (BRPs). The four compared arrangements are separate markets, Area Control Error (ACE) netting, balancing energy trading, and a common merit order list. It is found that ACE netting reduces the total Dutch imbalance costs by 25%, but that the more advanced arrangements have the potential to reduce those costs for the Netherlands and Germany by as much as 50%. However, in case of the common merit order list the imbalance risks for Nordic BRPs increase largely because of the regional marginal pricing, and the system balance states of Germany and the Nordic region are largely affected due to changes in BRP behaviour. The large imbalance costs reductions in Germany and the Netherlands are the result of the import of more than half of the balancing energy from the Nordic region, which is possible because of the high availability of cross-border capacity between the areas.

Development of Demand Side Response in liberalized electricity markets: Policies for effective market design in Europe

The European Commission (EC) has set forth an arduous task for sustainable, secure and affordable future energy supply via the climate and energy package objectives. Demand Side Response (DSR) is seen as the core concept of the emerging Smart Grids paradigm and key ingredient in market development, having potential to aid in achieving the targets for 2020. DSR is of increasing interest due to the evolution of intermittency in power systems. International experience illustrates development of DSR as a flexibility resource. This paper provides an overview of the development of controllable and price-based mechanisms utilized in the United States and Europe. Future application of demand side participation lays in the integration of aggregated small-user participation through a network representative, retailer or commercial aggregator. Ultimately, consumer engagement is the objective and DSR programs must be tailored to fit their needs.