Transmission capacities and competition in Western European electricity market

The integration of national electricity markets into a single European one is expected to reduce the ability of dominant players to exercise market power. This paper investigates whether or not existing transmission capacities of cross-border interconnectors are sufficient to achieve this result and create vigorous competition in the market. A model with two decision levels is used. On the first level profit maximizing generators play Cournot game against each other. On the last level the system operator clears the market and determines flows in the network to maximize social welfare subject to a set of physical constraints. As each strategic generator anticipates her impact on equilibrium prices and congestion in the system, her optimization problem is subject to equilibrium constraints from the system operator's problem.The analysis demonstrates that interconnector capacities in Western Europe are insufficient for integration alone to reduce the exercise of market power. I compare several possible competition-enhancing policies: expansion of interconnectors and different scenarios of national markets’ restructuring. I show that although increase of line capacity is a useful tool to stimulate competition in an integrated market, it is not a substitute for the restructuring of large players.     

Germany's nuclear power plant closures and the integration of electricity markets in Europe

This paper examines the potential implications of national policies that lead to a sudden increase of wind power in the electricity mix for interconnected European electricity markets. More specifically, it examines market integration before and after the closures of eight nuclear power plants that occurred within a period of a few months in Germany during 2011. The short- and- long run interrelationships of daily electricity spot prices, from November 2009 to October 2012, in: APX-ENDEX, BELPEX, EPEX-DE, EPEX-FR, NORDPOOL, OMEL and SWISSIX; and wind power in the German system are analysed. Two MGARCH (Multivariate Generalized Autoregressive Conditional Heteroscedasticity) models with dynamic correlations are used to assess spot market behaviour in the short run, and a fractional cointegration analysis is conducted to investigate changes in the long-run behaviour of electricity spot prices. Results show: positive time-varying correlations between spot prices in markets with substantial shared interconnector capacity; a negative association between wind power penetration in Germany and electricity spot prices in the German and neighbouring markets; and, for most markets, a decreasing speed in mean reversion.     

Generation adequacy and transmission interconnection in regional electricity markets

The power system capacity adequacy has public good features that cannot be entirely solved by electricity markets. Regulatory intervention is then necessary and established methods have been used to assess adequacy and help regulators to fix this market failure. In regional electricity markets, transmission interconnections play an important role in contributing to adequacy. However, the adequacy problem and related policy are typically considered at a national level. This paper presents a simple model to study how the interconnection capacity interacts with generation adequacy. First results indicate that increasing interconnection capacity between systems improves adequacy up to a certain level; further increases do not procure additional adequacy improvements. Furthermore, besides adequacy improvement, increasing transmission capacity under asymmetric adequacy criteria or national system characteristics could create several concerns about externalities. These results imply that regional coordination of national adequacy policies is essential to internalise adequacy of cross-border effects.     

Evaluating interconnector investments in the north European electricity system considering fluctuating wind power penetration

With increasing amounts of power generation from intermittent sources like wind, transmission planning has not only to account for the expected load curve but also for the stochasticity of volatile power infeeds. Moreover investments in power generation are no longer centrally planned in deregulated power markets but rather decided on competitive grounds by individual power companies. This poses particular challenges when it comes to evaluating the benefits of increased interconnection capacities in large-scale systems like the European transmission system.Within this article an approach is presented which allows assessing the benefits of interconnector investments in the presence of stochastic power infeed and endogenous power plant investments. This model uses typical days and hours as well as recombining trees to represent both load and infeed fluctuations. An application is presented covering 30 European countries and simultaneously optimizing generation investments and dispatch as well as utilization of transmission lines. The model is used to evaluate the benefits of further line extensions between the European mainland and northern European countries. We compute welfare gains and the distribution of these gains within a business as usual scenario up to 2030.     

On the long run effects of market splitting: Why more price zones might decrease welfare

In liberalized electricity markets we observe different approaches to congestion management. While nodal pricing is implemented in Canada and some markets in the United States, European markets are split up into a limited number of price zones with uniform prices, in order to at least partially realize the benefits of regional price differentiation. Zonal boundaries often coincide with national borders, but some countries are also split into multiple zones. In this paper we shed light on possible negative welfare effects of market splitting that arise in a model where investment incentives in new generation capacity are taken into account if zones are misspecified. We show that standard approaches to configure price zones – on the basis of projected nodal price differences or congested transmission capacity – may fail to suggest reasonable zone specifications. Also an adjustment of Available Transfer Capacities (ATCs) between zones or a switch to flow-based market splitting does not ensure positive welfare effects. Our analysis suggests that a careful and detailed evaluation of the system is needed to ensure a reasonable zone configuration.     

What drives renewable energy development?

This viewpoint reviews renewable energy development in 14 markets that differ in market structure (restructured vs. not restructured), use of feed-in-tariff (FIT) (yes vs. no), transmission planning (anticipatory vs. reactive), and transmission interconnection cost allocated to a renewable generator (high vs. low). We find that market restructuring is not a primary driver of renewable energy development. Renewable generation has the highest percent of total installed capacity in markets that use a FIT, employ anticipatory transmission planning, and have loads or end-users paying for most, if not all, of the transmission interconnection costs. In contrast, renewable developers have been less successful in markets that do not use a FIT, employ reactive transmission planning, and have generators paying for most, if not all, of the transmission interconnection costs. While these policies can lead to higher penetration of renewable energy in the short run, their high cost to ratepayers can threaten the economic sustainability of renewable energy in the long-run.     

Demand response resources: Who is responsible for implementation in a deregulated market?

Demand response resources (DRR) have potential to offer substantial benefits in the form of improved economic efficiency in wholesale electricity markets. Those benefits include better capacity factors for existing capacity, reductions in requirements for new capacity, enhanced reliability, relief of congestion and transmission constraints, reductions in price volatility, mitigation of market power and lower electricity prices for consumers. However, DRR has been slow to penetrate. There has been substantial disagreement as to which entities in a restructured market should promote the expanded implementation of DRR. This paper contends that no single entity can perform this function. But rather, wider implementation will need to accrue from coordinated actions along the electricity supply chain.     

Statistical analysis of negative prices in European balancing markets

The presence of renewable power generation technologies increases the need for system flexibility due to their variable nature. The increasing share of variable renewables in European power systems create a downward adequacy problem, which deals with the ability of power systems to cope with periods of excess generation. The occurrence of negative prices on Central Western European electricity markets confirms the relevance of this issue, which is referred to as “incompressibility of power systems” and is assessed as a barrier for further renewable power integration. The objective of this article is to identify the main drivers of negative price periods in European balancing markets, by means of both an empirical and regression analysis. Results confirm a positive relation with the scheduled generation of renewables and inflexible base load, as well as a negative relation with the scheduled system load. Furthermore, the occurrence of negative prices is related to the positive and negative forecast error of renewable generation and demand, respectively. It is concluded that negative balancing market prices provide a market signal for investments in flexibility sources such as flexible generation, demand response, electricity storage, and interconnector capacity.     

The competitive role of the transmission system in price-regulated power industries

This note shows how the transmission system can enhance competition in price-regulated power industries, thus extending earlier findings reported in the literature for deregulated industries. In the context of a two-technology, price-regulated power industry, we show that the interconnection of two markets initially supplied by a different monopoly reduces market power and raises welfare. We also show that the capacity of the transmission line plays a key role in determining whether market equilibrium lies closer to competition or monopoly.     

Generation capacity adequacy in interdependent electricity markets

This paper deals with the practical problems related to long-term security of supply in regional electricity markets with transmission constraints. Differences between regulatory policies and market designs in terms of generation adequacy policies may distort the normal functioning of the neighboring markets, as well as the reliability of supply. We test the effect of heterogeneous regulatory design between two interdependent markets: energy-only market, price-capped market without capacity mechanisms and price-capped markets with forward capacity contracts obligation. We rely on a long-term market simulation model in system dynamics that characterizes expansion decision in a competitive regime. The results show that differences in market designs affect both price and reliability of supply in the two markets. We examine both the short and long terms effect, and how free-riding may occur where capacity adequacy policies are adopted in one market but not the other. The main finding is that the lack of harmonization between local markets in policies to ensure capacity adequacy may lead to undesirable side effects.     

Volatility spillovers in Australian electricity markets

Electricity markets are significantly more volatile than other comparable financial or commodity markets. This study examines volatility spillover effects across different regions in the Australian National Electricity Market (NEM), aiming at providing a better understanding of the transmission of risks in a multi-regional context. Our analysis is based on the econometric framework originally proposed by Diebold and Yilmaz (2009, 2012). We conduct both a static and a dynamic assessment of aggregated spillover effects as well as their directional decomposition between the individual regions. We find that volatility spillovers are typically more pronounced between physically interconnected markets. We further relate the dynamic spillover patterns to specific short-term market events as well as long-term changes in the share of renewable energy, fuel mix, generation capacity, and the implementation of a Carbon Pricing Mechanism. Our findings provide important insights to market participants and regulators with regard to cross-regional trading of electricity, developing risk management strategies, and building additional interconnector infrastructure to facilitate regional market integration in the NEM.     

Optimizing biogas plants with excess power unit and storage capacity in electricity and control reserve markets

Increasing shares of intermittent power sources such as solar and wind will require biomass fueled generation more variable to respond to the increasing volatility of supply and demand. Furthermore, renewable energy sources will need to provide ancillary services. Biogas plants with excess generator capacity and gas storages can adapt the unit commitment to the demand and the market prices, respectively. This work presents a method of day-ahead unit commitment of biogas plants with excess generator capacity and gas storage participating in short-term electricity and control reserve markets. A biogas plant with 0.6 MW annual average electric output is examined in a case study under German market conditions. For this biogas plant different sizes of the power units and the gas storage are compared in consideration of costs and benefits of installing excess capacity. For optimal decisions depending on prices, a mixed-integer linear programming (MILP) approach is presented.The results show that earnings of biogas plants in electricity markets are increased by additional supplying control reserve. Furthermore, increasing the installed capacity from 0.6 MW to 1 MW (factor 1.7) leads to the best cost–benefit-ratio in consideration of additional costs of excess capacity and additional market revenues. However, the result of the cost–benefit-analysis of installing excess capacity is still negative. Considering the EEG flexibility premium, introduced in 2012 in the German renewable energy sources act, the result of the cost–benefit-analysis is positive. The highest profit is achieved with an increase of the installed capacity from 0.6 MW to 2 MW (factor 3.3).     

Interconnector capacity allocation in offshore grids with variable wind generation

Different capacity allocation regimes have a strong impact on the economics of offshore wind farms and on interconnectors in offshore grids. Integrating offshore generation in offshore grids is currently a subject of discussion for different regions, e.g. the North Sea. A novel question is how the interconnector capacity should be allocated for wind generation and for international power trading. The main difficulty arises from the stochastic nature of wind generation: in a case with radial connections to the national coast, the wind park owner has the possibility of aggregating the offshore wind park with onshore installations to reduce balancing demand. This is not necessarily the case if the interconnector capacity is sold through implicit or explicit auctions. Different design options are discussed and quantified for a number of examples based on Danish, Dutch, German and Norwegian power markets. It is concluded that treating offshore generation as a single price zone within the interconnector reduces the wind operator's ability to pool it with other generation. Furthermore, a single offshore price zone between two markets will always receive the lower spot market price of the neighbouring zones, although its generation flows only to the high‐price market. Granting the high‐price market income for wind generation as the opposite design option reduces congestion rents. Otherwise, compensation measures through support schemes or different balancing responsibilities may be discussed. Copyright © 2012 John Wiley & Sons, Ltd.     

Measuring the competitiveness benefits of a transmission investment policy: The case of the Alberta electricity market

Transmission expansions can increase the extent of competition faced by wholesale electricity suppliers with the ability to exercise unilateral market power. This can cause them to submit offer curves closer to their marginal cost curves, which sets market-clearing prices closer to competitive benchmark price levels. These lower wholesale market-clearing prices are the competitiveness benefit consumers realize from the transmission expansion. This paper quantifies empirically the competitiveness benefits of a transmission expansion policy that causes strategic suppliers to expect no transmission congestion. Using hourly generation-unit level offer, output, market-clearing price and congestion data from the Alberta wholesale electricity market from January 1, 2009 to July 31, 2013, an upper and lower bound on the hourly consumer competitiveness benefits of this transmission policy is computed. Both of these competitiveness benefits measures are economically significant, which argues for including them in transmission planning processes for wholesale electricity markets to ensure that all transmission expansions with positive net benefits to electricity consumers are undertaken.     

Day-ahead electricity price forecasting using back propagation neural networks and weighted least square technique

This paper proposes the day-ahead electricity price forecasting using the artificial neural networks (ANN) and weighted least square (WLS) technique in the restructured electricity markets. Price forecasting is very important for online trading, e-commerce and power system operation. Forecasting the hourly locational marginal prices (LMP) in the electricity markets is a very important basis for the decision making in order to maximize the profits/benefits. The novel approach proposed in this paper for forecasting the electricity prices uses WLS technique and compares the results with the results obtained by using ANNs. To perform this price forecasting, the market knowledge is utilized to optimize the selection of input data for the electricity price forecasting tool. In this paper, price forecasting for Pennsylvania-New Jersey-Maryland (PJM) interconnection is demonstrated using the ANNs and the proposed WLS technique. The data used for this price forecasting is obtained from the PJM website. The forecasting results obtained by both methods are compared, which shows the effectiveness of the proposed forecasting approach. From the simulation results, it can be observed that the accuracy of prediction has increased in both seasons using the proposed WLS technique. Another important advantage of the proposed WLS technique is that it is not an iterative method.     

Social cost-benefit analysis of electricity interconnector investment: A critical appraisal

This paper examines the economic analysis (social cost-benefit analysis) underlying two decisions to build an interconnector (NorNed and the East–West interconnector) in Europe. The main conclusion is that current interconnector and transmission investment decisions in Europe are unlikely to maximize social welfare. The arguments are as follows. (i) It is unclear how much demand for transmission capacity and interconnectors actually exists, and thus the benefits of investment are unclear. (ii) Both analyses underlying the investments studied are incorrect, to the point where, in one case, even the sign may be wrong. (iii) The main criticism concerns the fact that they do not take the resulting changes in generator investment plans into account and ignore the (potential) benefits of increased competition. (iv) Several smaller issues can be improved, such as the discount rate used. (v) Decisions at the European level are taken very differently, and approval may depend on which authority grants approval. (vi) Interconnector decisions receive the most attention, although most money goes to transmission investments. Two research recommendations for future improvements are formulated.     

差异化市场下储能运营风险效益评估

储能得益于其充放电的灵活性可应用于多个电力市场并从中获取相应的效益.然而,储能在获利的同时也要承受来自不同市场的风险,且具有高利润的市场往往伴随着高风险,因此很有必要评估不同市场的风险效益并优化储能应用于不同市场的容量,以期在最小的风险水平下实现效益最大化.提出一种差异化市场下的储能运营风险效益评估方法,考虑能源服务市...     

A data‐driven approach to study the role of interconnectors in a future low‐carbon electricity supply system

This paper investigates the potential role of the electricity interconnectors in improving the security of supply in Great Britain (GB) in 2030. Real electricity demand and price data for GB and France in 2016 were used to understand the relationship between power exchange between the two countries and their wholesale electricity prices. A linear programming optimisation model was developed to find the economic power dispatch. Two interconnection links were considered; two‐way trade interconnector with a capacity of 5.4 GW and a 12.3 GW import‐only interconnector between GB and other states. The GB–France link transmits electricity from cheaper system to the more expensive one. The total electricity demand in 2030 will be 406 TWh. Gas‐fired power plants w/wo CCS will provide 83 TWh of the total electricity demand, whereas nuclear power plants will produce 74 TWh. In addition, wind farms and solar PVs are expected to deliver ~120 TWh electricity. CHP units will provide 88 TWh electricity in 2030. The electricity traded between GB and France in 2030 was found to be 33 TWh, which is 160% larger compared with 2016. The power import from France is about 27 TWh and occurs in 59% of the time. For 64% of the time, the interconnector with France is fully loaded. The electricity imported via the 12.3 GW interconnector in 2030 is 1 TWh and mainly occurs during winter‐time when the demand in GB is high. De‐rated capacity margin was calculated based on instantaneous electricity demand and varies between ?2% and 139%. The impact of the price of the imported electricity via the 12.3 GW link was investigated. Increasing the price of the imported electricity via the 12.3 GW link results in a higher capacity factor for all the generation options except the 12.3 GW interconnector link.     

Towards a worldwide integrated market? New evidence on the dynamics of U.S., European and Asian natural gas prices

Has the integration of European, North American and Asian natural gas markets been fostered over the last few years by growing LNG export capacities and an increasing market share of spot transactions? This is the key question that this article sets out to answer. For this purpose, we develop bivariate error correction models with structural breaks and asymmetric responses among gas references prices, oil prices, and coal prices. We use daily prices of all reference prices spanning from January 12, 2004, to January 12, 2018, for the North American, Asian and European areas. We show that if European and U.S. gas prices are co-integrated when multiple breaks are allowed, their respective markets cannot be considered integrated. However, our results show that the degree of interdependence between European and American prices is increasing, whereas the degree of interdependence between gas and crude oil prices is decreasing. More surprisingly, we also highlight that reversions to long-term equilibria both between the Henry Hub (HH) and the National Balancing Point (NBP) and between the HH and the Japan Korean Marker (JKM) are highly asymmetric, a pattern that could be intuitively interpreted as the consequence of market arbitrage strategies by exporting countries in a context of oversupplied markets.     

Short-term strategies for Dutch wind power producers to reduce imbalance costs

The paper assesses bidding strategies for a wind power producer in the Netherlands. To this end, a three-stage stochastic optimization framework is used, maximizing wind power producer's profit using the day-ahead and cross-border intraday market, taking into account available interconnection capacity. Results show that the wind power producer can increase its profits by trading on the intraday market and – under certain imbalance prices – by intentionally creating imbalances. It has been considered uncertainties about prices, power forecast and interconnection capacity at the day-ahead and intraday timeframes.