Organization of Electricity Markets

of 39 /39
Organization of Electricity Markets Daniel Kirschen

Embed Size (px)

description

Organization of Electricity Markets. Daniel Kirschen. Differences between electricity and other commodities. Electricity is inextricably linked with a physical delivery system Physical delivery system operates much faster than any market Generation and load must be balanced at all times - PowerPoint PPT Presentation

Transcript of Organization of Electricity Markets

Industry Structure

Organization of Electricity MarketsDaniel Kirschen1Differences between electricity and other commoditiesElectricity is inextricably linked with a physical delivery systemPhysical delivery system operates much faster than any marketGeneration and load must be balanced at all timesFailure to balance leads to collapse of systemEconomic consequences of collapse are enormousBalance must be maintained at almost any costPhysical balance cannot be left to a market 2011 D. Kirschen and the University of Washington2Differences between electricity and other commoditiesElectricity produced by different generators is pooledGenerator cannot direct its production to some consumersConsumer cannot choose which generator produces its loadElectrical energy produced by all generators is indistinguishablePooling is economically desirableA breakdown of the system affects everybody 2011 D. Kirschen and the University of Washington3Differences between electricity and other commoditiesDemand for electricity exhibits predictable daily, weekly and seasonal variationsSimilar to other commodities (e.g. coffee)Electricity cannot be stored in large quantitiesMust be consumed when it is producedProduction facilities must be able to meet peak demandVery low price elasticity of the demand in the short runDemand curve is almost vertical 2011 D. Kirschen and the University of Washington4Balancing supply and demandDemand side:Fluctuations in the needsErrors in forecastSupply side:Disruption in the productionSpot market:Provides an easy way of bridging the gap between supply and demandSpot market is used for adjustmentsSpot market is the market of last resort

2011 D. Kirschen and the University of Washington5Spot market for electrical energyDemand side: Errors in load forecastSupply side: Unpredicted generator outagesGaps between load and generation must be filled quickly

Market mechanismsToo slowToo expensiveNeed fast communicationNeed to reach lots of participants 2011 D. Kirschen and the University of Washington6Managed spot marketBalance load and generationRun by the system operator to maintain the security of the systemMust operate on a sound economic basisUse competitive bids for generation adjustmentsShould ideally accept demand-side bidsDetermine a cost-reflective spot priceNot a true market because price is not set through interactions of buyers and sellersIndispensable for treating electricity as a commodity 2011 D. Kirschen and the University of Washington7Managed spot market 2011 D. Kirschen and the University of Washington8Managed Spot MarketBids to increaseproductionBids to increaseloadBids to decreaseproductionBids to decreaseloadGenerationsurplusGenerationdeficitLoadsurplusLoaddeficit

System operatorControlactionsSpotpriceManaged spot marketAlso known as:Reserve marketBalancing mechanism

As technology and confidence continue to improve, the frequency of these markets keeps increasing1 day to 1 hour to 5 minutes

2011 D. Kirschen and the University of Washington9Other marketsWell-functioning spot market is essentialEnsures that imbalances will be settled properlyMakes the development of other markets possibleMost participants want more certainty because the spot price is volatileTrade ahead of the spot market on forward markets to reduce risksForward markets must close before the managed spot market 2011 D. Kirschen and the University of Washington10Forward marketsTwo approaches:Centralized trading Pool tradingDecentralized trading - Bilateral trading

2011 D. Kirschen and the University of Washington11Pool tradingAll producers submit bids to the market operator

All consumers submit offers to the market operator

Market operator determines successful bids and offers and the market price

In many electricity pools, the demand side is passive. A forecast of demand is used instead. 2011 D. Kirschen and the University of Washington12Example of pool tradingBids and offers in the Electricity Pool of Syldavia for the period from 9:00 till 10:00 on 11 June: 2011 D. Kirschen and the University of Washington13

Example of pool trading 2011 D. Kirschen and the University of Washington14

14Example of pool trading 2011 D. Kirschen and the University of Washington15

Quantity tradedMarket priceAccepted offersAccepted bidsExample of pool tradingMarket price: 16.00 $/MWhVolume traded: 450 MWh 2011 D. Kirschen and the University of Washington16

Unit commitment-based pool tradingReasons for not treating each market period separately:Operating constraints on generating unitsMinimum up and down times, ramp ratesSavings achieved through schedulingStart-up and no-load costsReduce risk for generatorsUncertainty on generation schedule leads to higher prices 2011 D. Kirschen and the University of Washington17Pool Trading using Unit Commitment 2011 D. Kirschen and the University of Washington18UnitCommitmentProgramMinimumCostScheduleLoadForecastGeneratorsBids

MarketPricesGenerator BidsAll units are bid separatelyComponents:piecewise linear marginal price curvestart-up priceparameters (min MW, max MW, min up, min down,...)Bids do not have to reflect costsBidding very low to get in the schedule is allowed 2011 D. Kirschen and the University of Washington19Load ForecastLoad is usually treated as a passive market participantAssume that there is no demand response to prices 2011 D. Kirschen and the University of Washington20MWTimeGeneration Schedule 2011 D. Kirschen and the University of Washington21MWTimeMarginal Units 2011 D. Kirschen and the University of Washington22MWTimeMost expensive unit needed to meet the load at each periodMarket priceBid from marginal unit sets the market clearing price at each periodSystem Marginal Price (SMP)All energy traded through the pool during that period is bought and sold at that price 2011 D. Kirschen and the University of Washington23MWTimeWhy trade all energy at the SMP?Why not pay the generators what they bid?Cheaper generators would not want to leave money on the tableWould try to guess the SMP and bid close to itOccasional mistakes get left out of the scheduleIncreased uncertainty increase in price 2011 D. Kirschen and the University of Washington24Bilateral tradingBilateral trading is the classical form of tradingInvolves only two parties:SellerBuyerTrading is a private arrangement between these partiesPrice and quantity negotiated directly between these partiesNobody else is involved in the decision 2011 D. Kirschen and the University of Washington25Bilateral tradingUnlike pool trading, there is no official priceOccasionally facilitated by brokers or electronic market operatorsTakes different forms depending on the time scale 2011 D. Kirschen and the University of Washington26

Types of bilateral tradingCustomized long-term contractsFlexible termsNegotiated between the partiesDuration of several months to several yearsAdvantage: Guarantees a fixed price over a long period Disadvantages:Cost of negotiations is highWorthwhile only for large amounts of energy

2011 D. Kirschen and the University of Washington27Types of bilateral tradingOver the Counter tradingSmaller amounts of energyDelivery according to standardized profilesAdvantage:Much lower transaction costUsed to refine position as delivery time approaches 2011 D. Kirschen and the University of Washington28Types of bilateral tradingElectronic tradingBuyers and sellers enter bids directly into computerized marketplaceAll participants can observe the prices and quantities offeredAutomatic matching of bids and offersParticipants remain anonymousMarket operator handles the settlementAdvantages:Very fastVery cheapGood source of information about the market 2011 D. Kirschen and the University of Washington29Example of bilateral tradingGenerating units owned by Borduria Power: 2011 D. Kirschen and the University of Washington30

Example of bilateral tradingTrades of Borduria Power for 11 June from 2:00 pm till 3:00 pm 2011 D. Kirschen and the University of Washington31

Net position: Sold 570 MWProduction capacity: 750 MWExample of bilateral tradingPending offers and bids on Borduria Power Exchange at mid-morning on 11 June for the period from 2:00 till 3:00 pm: 2011 D. Kirschen and the University of Washington32

Example of bilateral tradingElectronic trades made by Borduria Power: 2011 D. Kirschen and the University of Washington33

Net position: Sold 630 MWSelf schedule: Unit A: 500 MW Unit B: 130 MW Unit C: 0 MWExample of bilateral tradingUnexpected problem: unit B can only generate 80 MWOptions: - Do nothing and pay the spot price for the missing energy - Make up the deficit with unit C - Trade on the power exchange 2011 D. Kirschen and the University of Washington34

Buying is cheaper than producing with CNew net position: Sold 580 MWNew schedule: A: 500 MW, B: 80 MW, C: 0 MWPool vs. bilateral tradingPoolUnusual because administered centrallyPrice not transparentFacilitates security functionMakes possible central optimizationHistorical origins in electricity industryBilateralEconomically purerPrice set by the partiesHard bargaining possibleGenerator assume scheduling riskMust be coordinated with security functionMore opportunities to innovate 2011 D. Kirschen and the University of Washington35Both forms of trading can coexist to a certain extent Bidding in managed spot marketBorduria Powers position: 2011 D. Kirschen and the University of Washington36

Borduria Powers spot market bids:Spot market assumed imperfectly competitiveBids/offers can be higher/lower than marginal costSettlement processPool trading:Market operator collects from consumersMarket operator pays producersAll energy traded at the pool priceBilateral trading:Bilateral trades settled directly by the parties as if they had been performed exactlyManaged spot market:Produced more or consumed less receive spot priceProduced less or consumed more pay spot price 2011 D. Kirschen and the University of Washington37Example of settlement11 June between 2:00 pm and 3:00 pmSpot price: 18.25 $/MWhUnit B of Borduria Power could produce only 10 MWh instead of 80 MWhBorduria Power thus had a deficit of 70 MWh for this hour40 MW of Borduria Powers spot market bid of 50 MW at 17.50 $/MWh was called by the operator 2011 D. Kirschen and the University of Washington38Borduria Powers Settlement 2011 D. Kirschen and the University of Washington39

BidsCompanyQuantity [MWh]Price [$/MWh]

Red20012.00

Red5015.00

Red5020.00

Green15016.00

Green5017.00

Blue10013.00

Blue5018.00

OffersYellow5013.00

Yellow10023.00

Purple5011.00

Purple15022.00

Orange5010.0

Orange20025.00

CompanyProduction

[MWh]Consumption

[MWh]Revenue

[$]Expense

[$]

Red2504,000.

Blue1001,600

Green1001,600

Orange2003,200

Yellow1001,600

Purple1502,400

Total4504507,2007,200

UnitPmin [MW]Pmax [MW]MC [$/MWh]

A10050010.0

B5020013.0

C05017.0

TypeContract DateIdentifierBuyerSellerAmount [MWh]Price [$/MWh]

Long term10 JanuaryLT1Cheapo EnergyBorduria Power20012.5

Long term7 FebruaryLT2Borduria SteelBorduria Power25012.8

Future3 MarchFT1Quality ElectronsBorduria Power10014.0

Future7 AprilFT2Borduria PowerPerfect Power3013.5

Future10 MayFT3Cheapo EnergyBorduria Power5013.8

11 June 14:00-15:00IdentifierAmount [MW]Price [$/MWh]

Bids to sell energyB52017.50

B42516.30

B32014.40

B21013.90

B12513.70

Offers to buy energyO12013.50

O23013.30

O31013.25

O43012.80

O55012.55

11 June 14:00-15:00IdentifierAmount [MW]Price [$/MWh]

Bids to sell energyB52017.50

B42516.30

B32014.40

B21013.90

B12513.70

Offers to buy energyO12013.50

O23013.30

O31013.25

O43012.80

O55012.55

11 June 14:00-15:00IdentifierAmount [MW]Price [$/MWh]

Bids to sell energyB52017.50

B42516.30

B32014.40

B62014.30

B81014.10

Offers to buy energyO43012.80

O62512.70

O55012.55

UnitPschedPminPmaxMC

[MW][MW][MW][$/MWh]

A50010050010.0

B80508013.0

C005017.0

TypeUnitPriceAmount

[$/MWh][MW]

Bid (increase)C17.5050

Offer (decrease)B12.5030

Offer (decrease)A9.50400

MarketTypeAmount [MWh]Price

[$/MWh]Revenues

[$]Expenses

[$]

Futures and ForwardsSale20012.502,500.00

Sale25012.803,200.00

Sale10014.001,400.00

Purchase-3013.50405.00

Sale5013.80690.00

Power ExchangeSale2013.50270.00

Sale3013.30399.00

Sale1013.25132.50

Purchase-2014.40288.00

Purchase-2014.30286.00

Purchase-1014.10141.00

Spot MarketSale4018.25730.00

Imbalance-7018.251,277.50

Production CostUnit A-50010.005,000.00

Unit B-1013.00130.00

Unit C-4017.00680.00

Total09,321.508,207.50