Electricity Markets. Prof. Dr. G. Erdmann Fachgebiet Energiesysteme / TU Berlin Einsteinufer 25 / TA 8 (Room TA 033) D Berlin

Transcription

1 1 Energy Economics: Electricity Markets Prof. Dr. G. Erdmann Fachgebiet Energiesysteme / TU Berlin Einsteinufer 25 / TA 8 (Room TA 033) D Berlin georg.erdmann@tu-berlin.de Internet: EPS-SIF International School of Energy July 2014, Varenna

2 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

3 3 Theory of Efficient Power Dispatch

4 4 Generation Decision in a Competitive Market Profit Π = p Q C f c v Q p Price Q Generation (Quantity) c v Variable unit cost C f Fixed costs Profit maximizing under atomistic competition: dπ dq dp dcf d( cv Q) dc = p + Q = 0 p = = cv dq dq dq dq dq dq = 0 = 0 Sales price must exceed the variable costs, otherwise no offer

5 5 Merit Order Curve Germany [without CO 2 cost; Source: EU Sector Enquiry 2007, p. 260] Marginal cost [Euro/MWh] Off-peak load Demand Peak load Lignite Hard coal Oil and gas Available load without wind power [1000 MW]

6 6 Implementation and Market Results

7 7 European Power Exchanges

8 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

9 9 Tasks of the Balancing Group Management Day-ahead before 12:00 h until 12:00 h 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) 12:30 h EPEX informs traders on trading results until 15:00 h Delivery day BGM submits the day ahead schedule (¼-h) to the Transmission System Operator TSO 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

10 10 Day-ahead Market [Wednesday, 31 October 2007, h] Market Clearing Price MCP 350 [Euro/MWh] 300 Unlimited bids High price volatility possible 100 Day-ahead price Price elasticity of demand 50 Unlimited asks [MW]

11 MCP MCP [Euro/MWh] Bid Merit-order Effect of Wind Power [ , Uhr; German EEX] Bid MW MCP MW 50 Ask Load [MW]

12 12 [Euro/MWh] Uhr Monday -101,50 Euro/MWh [MW] bid ask

13 13 Day-ahead Bid and Ask Curves Market Clearing Price MCP Bid curve Ask curve Negative offerings prevent MCP to collapse during windy periods Traded volume [MW]

14 14 Day-ahead Bid and Ask Curves Market Clearing Price MCP Bid curve Ask curve Negative offerings prevent MCP to collapse during windy periods Traded volume [MW]

15 15 Day-ahead Power Prices [Source: EPEX] 80 Phelix sowie Maximum und Minimum der Stundenprodukte [Euro/MWh] Januar Februar März April Mai Juni 2014

16 16 Day-ahead Electricity Market Products Uhrzeit Sonntag Montag Dienstag Mittwoch Donnerst Freitag Samstag

17 17 Sample Power Purchase Schedule MW

18 18 Portfolio Management of a Power Retailer Load [MW] Mo Tu We Th Fr Sa Su

19 19 Day-ahead Contracts for Singular Hours Load [MW] Peak Base Remaining imbalances: balancing power Mo Tu We Th Fr Sa Su

20 20 Connected Chain of Power Markets OTC Forwards (continuous) (Tertiary) Reserve OTC spot trade (continuous) OTC Intraday (continuous) EEX Futures (continuous) (Pay-as-Bid) Day-ahead auction (uniform price) EEX Intraday (continuous) years, quarters, months ahead of delivery day ahead delivery up to three days ahead delivery up to 45 min ahead delivery OTC: Over the Counter

21 21 Bilateral Power Trade (OTC) Power Producer 1 Power Producer 2 Power Producer 3 Power Producer 5 Power Producer 4 Day- ahead Power Market Power Retailer 1 Power Retailer 2 Power Retailer 3 Power Retailer 4 The two systems power exchange and OTC trade can coexist

22 22 Power Trade in a Pool Model Power Producer 1 Power Producer 2 Power Producer 3 Power Producer 4 Power Producer 4 Day- ahead Power Pool Power Retailer 1 Power Retailer 2 Power Retailer 3 Power Retailer 4

23 23 Problem 1: Possible Price Manipulation

24 24 Cournot-Game under Merit Order Price [EURO/MWh] Price aber capacity withdraw Price before capacity withdraw Demand Marginal Cost Load [MWh]

25 25 Problem 2: Free GHG Allowances

26 26 EUA Allocation and Power Prices ( ) Π ( QEm, ) = pq CQEm (, ) p Em gem ( ) First order optimality conditions em C Em = p em p C = + pem Q Em Q Em Total emissions of a facility [t CO 2 ] g(em) Free allocation of EUA [t CO 2 ] C Cost function [Euro] p Power price [Euro/MW] p em Emission price [Euro/t CO 2 ] Π Profit [Euro] Q Output [MWh]

27 27 (Clean) Dark Spread in the Day-ahead Market [Quarterly average; Germany; Source: BAFA; EEX] Marginal cost; electricity price [EUR/MWh] Coal cost [38% WG] + 0,88 EUA Coal cost [38% WG] Phelix Offpeak

28 28 (Clean) Spark Spread in the EEX Market [Quarterly average; German Day-ahead-market; Source: BAFA; EEX] Marginal cost; electricity price [EUR/MWh] Phelix-Peak Natural gas cost [η=55%] + 0,36 EUA Natural gas cost [η=42%] + 0,48 EUA

29 29 Problem 3: Regulation and Balancing Power Power Generator TSO Balancing Group Managers Regulation Power Balancing Power Pay-as-bid auction

30 30 Types of Regulation Power in Germany Capacity P soll P prim P sek P min 6 s 30 2 min 5 min s P prim Primary reserve P sek Secondary reserve P min Tertiary reserve (Minute reserve) 15 min time

31 31 Allocation of Regulation Cost Minute reserve Secondary reserve Primary reserve CP CP EP CP EP Capacity price Energy price included in the grid access fee Charges to Balancing group managers

32 32 Problem 4: Clearing of Electricity Futures

33 33 Continuous Trading of Power Futures Rolling Rolling Year Futures Quarter Futures Month Futures Week Futures Day hour ¼ hour Forward / Futures markets Spot 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) Rolling: When delivery period of a year ahead future begins, the contract splits into 3 monthly futures M 0, M 1 and M 2, 3 quarterly futures Q 1, Q 2 and Q 3

34 34 Wholesale Power Prices [Source EEX] Baseload Strompreis- Indizes [Euro/MWh] Year- ahead 40 Phelix 20 0 I II III IV V

35 35 Types of Bilateral Trade Contracts Cash trade Forward trade Derivative trade 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

36 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

37 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

38 38 Problem 5: Lack of Power Plant Investments

39 39 Estimated Merit Order for Germany [without CO 2 costs; Source: London Economics 2007] 100 Marginal costs of power generation [Euro/MWh] December January Available capacity in Germany without wind power [1000 MW]

40 40 Power Plant Investments on Competitive Markets Hourly day-ahead prices [Euro/MWh] Are these returns sufficient for risk adequate financing of the power plant investment? Marginal costs of a new plant Expected annual Ordered price duration curve operating hours for the planning horizon hours of the year

41 41 Ordered Day-ahead Prices in Day-ahead price [EUR/MWh] without wind + PV: Ø = /MWh Δ = 8.53 /MWh Without wind: Ø = /MWh Day-ahead price 2012: Ø = /MWh Hours

42 42 Ordered Day-ahead Price Level Necessary for Financing new GT Day- ahead price [EUR/MWh] /MWh at 500 h/a /MWh at 1000 h/a /MWh at 1500 h/a /MWh at 2000 h/a /MWh Hours

43 43 Problem 6: New Market Design

44 44 MCP with Capacity Shortages Capacity surcharge Market Clearing Price [Euro/MWh] short-term marginal cost Available capacity Demand Load [MW]

45 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?

46 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?

47 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)

48 48 Price Elasticity of Demand 50 Market Clearing Price MCP [Euro/MWh] Available generation capacity [MW]