Energy Economics Electricity Markets · 2014-07-20 · 1 Energy Economics Electricity Markets Prof....
Transcript of Energy Economics Electricity Markets · 2014-07-20 · 1 Energy Economics Electricity Markets Prof....
© Prof. Dr. Georg Erdmann
1 Energy Economics: Electricity Markets
Prof. Dr. G. Erdmann Fachgebiet Energiesysteme / TU Berlin Einsteinufer 25 / TA 8 (Room TA 033) D-10587 Berlin
Internet: http://www.ensys.tu-berlin.de EPS-SIF International School of Energy 17-23 July 2014, Varenna
© Prof. Dr. Georg Erdmann
2 Content
• Theory of Efficient Power Dispatch • Implementation and Market Results
• Problem 1: Possible Price Manipulation • Problem 2: Free GHG Allowances • Problem 3: Regulation and Balancing Power • Problem 4: Clearing of Electricity Futures • Problem 5: Lack of Power Plant Investments • Problem 6: New Market Design
© Prof. Dr. Georg Erdmann
3 Theory of Efficient Power Dispatch
© Prof. Dr. Georg Erdmann
4 Generation Decision in a Competitive Market
Profit Π = p·Q – Cf– cv·Q p Price Q Generation (Quantity) cv Variable unit cost Cf Fixed costs
Profit maximizing under atomistic competition:
( ) 0f vdC d c Qd dQ dpp QdQ dQ dQ dQ dQΠ ⋅
= + − − = vdCp cdQ
= =
= 0 Sales price must exceed the variable costs, otherwise no offer
= 0
© Prof. Dr. Georg Erdmann
5
100
80
60
40
20
0 20 30 40 50 60 70
Marginal cost [Euro/MWh]
Available load without wind power [1000 MW]
Merit Order Curve Germany [without CO2 cost; Source: EU Sector Enquiry 2007, p. 260]
Demand Off-peak load
Peak load
Hard coal Lignite
Oil and gas
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6 Implementation and Market Results
© Prof. Dr. Georg Erdmann
7 European Power Exchanges
© Prof. Dr. Georg Erdmann
8 EEX Day-ahead Auction [24 hourly products]
• Double sided auction (bid and ask order book)
• Multi unit auction (share auction; transaction volume and price caps can be included in the order book)
• Sealed bid market (participants don‘t see the offers of other traders)
• Single round auction (no continuous trade)
• Uniform price auction (MCP instead of pay-as-bid)
• Combinational auction (block orders are possible)
• Gate closure 12:00 noon
• Before 15:00 h the resulting ¼ h schedules are submitted to the TSOs
© Prof. Dr. Georg Erdmann
9 Tasks of the Balancing Group Management
The balancing group mamager (BGM) provides a ¼-h load schedule and an hourly price forecast Based on a trading strategy, bid and ask orders are submitted to the energy exchange (EPEX)
before 12:00 h
until 12:00 h
12:30 h EPEX informs traders on trading results
Day-ahead
until 15:00 h BGM submits the day ahead schedule (¼-h) to the Transmission System Operator TSO
Delivery day
00-24:00 h Deviations from the schedule are covered by the TSO in form of balancing power (or covered by intra day trading)
Following day Financial settlement of trades
© Prof. Dr. Georg Erdmann
10 Day-ahead Market [Wednesday, 31 October 2007, 18-19 h]
Day-ahead price
0 5’000 10’000 15’000 20’000 25’000 [MW] 0
50
100
150
200
250
300
350 Market Clearing
Price MCP [Euro/MWh]
Unlimited asks
Unlimited bids
Price elasticity of demand
High price volatility possible
© Prof. Dr. Georg Erdmann
11
Merit-order Effect of Wind Power [15.1.2007, 18-19 Uhr; German EEX]
0
50
100
150
200
6000 8000 10000 12000 14000 16000 Load [MW]
MCP [Euro/MWh]
Ask
Bid
Bid + 1000 MW
MCP
MCP + 1‘000 MW
250
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12
-200
-175
-150
-125
-100
-75
-50
-25
0
25
50
75
100
125
150
175
200
5000 10000 15000 20000 25000 30000
[Euro
/MW
h]
[MW]
2008-12-22 4-5 Uhr Monday
bid ask
-101,50 Euro/MWh
© Prof. Dr. Georg Erdmann
13 Day-ahead Bid and Ask Curves
Ask curve Bid curve
Negative offerings prevent MCP to collapse during windy periods
Traded volume [MW]
Market Clearing
Price MCP
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14 Day-ahead Bid and Ask Curves
Ask curve Bid curve
Negative offerings prevent MCP to collapse during windy periods
Traded volume [MW]
Market Clearing
Price MCP
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15 Day-ahead Power Prices [Source: EPEX]
-‐80
-‐40
0
40
80
Januar Februar März April Mai Juni
2014
Phelix sowie Maximum und Minimum der Stundenprodukte [Euro/MWh]
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16 Day-ahead Electricity Market Products
Uhrzeit Sonntag Montag Dienstag Mittwoch Donnerst Freitag Samstag
0-2
2-4
4-6
6-8
8-10
10-12
12-14
14-16
16-18
18-20
20-22
22-24
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17 Sample Power Purchase Schedule
01.01.2008 08.01.2008 15.01.2008 22.01.2008 29.01.2008
MW
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18
Load [MW]
Portfolio Management of a Power Retailer
Mo Tu We Th Fr Sa Su
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19
Load [MW]
Day-ahead Contracts for Singular Hours
Mo Tu We Th Fr Sa Su
Base
Peak
Remaining imbalances: balancing power
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20 Connected Chain of Power Markets
OTC Forwards (continuous)
EEX Futures (continuous)
OTC spot trade (continuous)
Day-ahead auction
(uniform price)
OTC Intraday
(continuous)
EEX Intraday
(continuous)
(Tertiary) Reserve
(Pay-as-Bid)
years, quarters, months ahead of delivery
up to three days ahead
delivery
up to 45 min ahead
delivery
day ahead
delivery
OTC: Over the Counter
© Prof. Dr. Georg Erdmann
21 Bilateral Power Trade (OTC)
Power Producer 1
Power Producer 2
Power Producer 3
Power Producer 5
Power Producer 4
Power Retailer 1
Power Retailer 2
Power Retailer 3
Power Retailer 4
Day- ahead Power Market
The two systems “power exchange” and “OTC trade” can coexist
© Prof. Dr. Georg Erdmann
22 Power Trade in a Pool Model
Power Producer 1
Power Producer 2
Power Producer 3
Power Producer 4
Power Producer 4
Power Retailer 1
Power Retailer 2
Power Retailer 3
Power Retailer 4
Day- ahead Power Pool
© Prof. Dr. Georg Erdmann
23 Problem 1: Possible Price Manipulation
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24 „Cournot-Game“ under Merit Order
Price before capacity withdraw
Marginal Cost
Price [EURO/MWh]
Load [MWh]
Demand Price aBer capacity withdraw
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25 Problem 2: Free GHG Allowances
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26 EUA Allocation and Power Prices
Em Total emissions of a facility [t CO2] g(Em) Free allocation of EUA [t CO2] C Cost function [Euro] p Power price [Euro/MW] pem Emission price [Euro/t CO2] Π Profit [Euro] Q Output [MWh]
( )( , ) ( , ) ( )emQ Em p Q C Q Em p Em g EmΠ = ⋅ − − ⋅ −
emC pEm∂
= −∂ em
C Emp pQ Q∂
= + ⋅∂
First order optimality conditions
© Prof. Dr. Georg Erdmann
27
(Clean) Dark Spread in the Day-ahead Market [Quarterly average; Germany; Source: BAFA; EEX]
0
10
20
30
40
50
60
70
2000 2002 2004 2006 2008
Coal cost [38% WG] Coal cost [38% WG] + 0,88 EUA
Phelix Offpeak
Marginal cost; electricity price [EUR/MWh]
© Prof. Dr. Georg Erdmann
28
(Clean) Spark Spread in the EEX Market [Quarterly average; German Day-ahead-market; Source: BAFA; EEX]
0
20
40
60
80
2000 2002 2004 2006 2008
Phelix-Peak Natural gas cost [η=55%] + 0,36 EUA Natural gas cost [η=42%] + 0,48 EUA
Marginal cost; electricity price [EUR/MWh]
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29 Problem 3: Regulation and Balancing Power
Power Generator TSO Balancing Group Managers
Regulation Balancing
Power Power Pay-as-bid
auction
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30 Types of Regulation Power in Germany
Pprim Primary reserve Psek Secondary reserve Pmin Tertiary reserve (Minute reserve)
Capacity
6 s 30 s
15 min
Psek Pmin
time
Psoll
Pprim
2 min 5 min
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31 Allocation of Regulation Cost
CP included in the grid access fee
CP
EP
CP
EP
Charges to Balancing group managers M
inut
e re
serv
e
Sec
onda
ry re
serv
e
Prim
ary
rese
rve
Capacity price
Energy price
© Prof. Dr. Georg Erdmann
32 Problem 4: Clearing of Electricity Futures
© Prof. Dr. Georg Erdmann
33 Continuous Trading of Power Futures
Year Futures
Quarter Futures
Month Futures
Week Futures Day hour
Rolling
Rolling: When delivery period of a year ahead future begins, the contract splits into
• 3 monthly futures M0, M1 and M2, • 3 quarterly futures Q1, Q2 and Q3
Spot markets Forward / Futures markets
Standardized Futures don’t match with typical load schedules. Open positions must be closed on the day-ahead market or with balancing power (supplied by the TSO)
¼ hour
Rolling
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34 Wholesale Power Prices [Source EEX]
0
20
40
60
80
2002 2004 2006 2008 2010 2012 2014
Year-‐ahead
Phelix
Baseload Strompreis-‐Indizes [Euro/MWh]
I II III IV V
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35 Types of Bilateral Trade Contracts
• Spot trade: Delivery and payment follow immediately after the conclusion of the trade contract
• Forwards: Conditions of the deal (quantity, quality, price, delivery and payment conditions, …) are fixed in the contract, but the contract is physically settled at a later date
• Futures: like Forwards, but financial settlement with
Clearing (Interest → Future prices exceed Forward prices)
• Call-Option: like Forward, but the buyer can withdraw from the contract
• Put-Option: like Forward, but the seller can withdraw
Cash trade
Forward trade
Deriva-tive trade
© Prof. Dr. Georg Erdmann
36 Clearing of open positions
To cover the counterparty risk, each trader is obliged to sustain a margin account at the energy exchange (or the clearing house). In addition, the trader has to open a maintenance account and to transfer an initial margin that depends, among others, on the expected volume of his open positions
If a trader holds an open position and the futures price exceeds the contracted price, the clearing house transfers the price difference times contract size from the maintenance account to the margin account of the seller and from the margin account to the maintenance account of the buyer.
Debits and credits are adjusted at the end of each trading day according to the market price at closure
If the maintenance account drops below a maintenance margin, the trader has to remargin the maintenance accounts within short time. Otherwise all open positions of the trader are closed by the clearing house at market conditions
© Prof. Dr. Georg Erdmann
37 Types of Trades
• Hedging: the aim of hedging is to ensure price risks. Hedgers are prepared to pay a risk premium
• Speculation: Speculation is based on price expectations that may turn to be right or wrong. Speculators ensure the hedgers and thereby earn the risk premium
• Arbitrage: the aim is to use price differences for achieving a risk free trade profit
• Markets that offer no arbitrage are said to be in equilibrium
© Prof. Dr. Georg Erdmann
38 Problem 5: Lack of Power Plant Investments
© Prof. Dr. Georg Erdmann
39
100
80
60
40
20
0 20 30 40 50 60 70
Marginal costs of power generation [Euro/MWh]
December 2005
January 2003
Available capacity in Germany without wind power [1000 MW]
Estimated Merit Order for Germany [without CO2 costs; Source: London Economics 2007]
© Prof. Dr. Georg Erdmann
40
Are these returns sufficient for risk adequate financing of the power plant investment?
Power Plant Investments on Competitive Markets
0
20
40
60
80
0 1000 2000 3000 4000 5000 6000
Hou
rly d
ay-a
head
pric
es [E
uro/
MW
h]
Marginal costs of a new plant
Expected annual operating hours
Ordered price duration curve for the planning horizon
hours of the year
© Prof. Dr. Georg Erdmann
41 Ordered Day-ahead Prices in 2012
-30
10
50
90
130
Day-ahead price 2012: Ø = 42.60 €/MWh
Without wind: Ø = 48.06 €/MWh
without wind + PV: Ø = 51.13 €/MWh Δ = 8.53 €/MWh
Day-ahead price [EUR/MWh]
Hours 1000 2000 3000 4000 5000 6000 7000 8000
© Prof. Dr. Georg Erdmann
42
Ordered Day-ahead Price Level Necessary for Financing new GT
Day-‐ahead price [EUR/MWh]
Hours -‐30
30
90
150
210
42.60 €/MWh
51.13 €/MWh at 500 h/a
52.50 €/MWh at 1000 h/a 54.07 €/MWh at 1500 h/a
55.80 €/MWh at 2000 h/a
1000 2000 3000 4000 5000 6000 7000 8000
© Prof. Dr. Georg Erdmann
43 Problem 6: New Market Design
© Prof. Dr. Georg Erdmann
44
Capacity surcharge
MCP with Capacity Shortages
Market Clearing Price [Euro/MWh]
Load [MW]
short-term marginal cost
Available capacity
Demand
© Prof. Dr. Georg Erdmann
45 Strategic Reserve
• Similar to the strategic petroleum reserve: Some (new or old) gas turbines or coal plants are taken out of the normal market supply and scheduled according to the order of the regulator
• Power capacity surplus shrinks in normal periods and increases in critical periods. Who decides about what periods are critical?
• The plants in the strategic reserve receive a capacity payment financed through the grid fees
• Who decides and according to what rules about which plants should be allocated to the strategic reserve?
© Prof. Dr. Georg Erdmann
46 Decentralized Capacity Market
• No market participant shall withdraw power from the grid without a capacity allowance which has to be purchased
• PJM Market: Distributed power (such as wind power) can be fed-in and taken out from the distribution grid so that no capacity allowance is necessary
• Alternative: Any power generator that feeds-in electricity must be in the possession of the appropriated number of fed-in allowances
• How to prevent the capacity market from not being manipulated (market power issue)?
• How to control?
© Prof. Dr. Georg Erdmann
47 Other Capacity Market Design Options
• Comprehensive capacity markets: All plants that can be dispatched according to the demand receive a capacity premium (cash flow to existent and new plants)
• Focused capacity markets: Certain new plants that have been selected through a competitive bidding receive a capacity premium (cash flow to new plants)
© Prof. Dr. Georg Erdmann
48 Price Elasticity of Demand
0
10
20
30
40
50
0 10′000 20′000 30′000 40′000 50′000
Market Clearing Price MCP [Euro/MWh]
Available generation capacity [MW]