POWER MARKETS: CRITICAL ELEMENTS FOR PROPER FUNCTIONING

Transcription

1 POWER MARKETS: CRITICAL ELEMENTS FOR PROPER FUNCTIONING Regional Electricity Trading Conference Tbilisi, Georgia, 19-20/Nov/2012 Plamen Popov, Statkraft 1

2 AGENDA Market elements Standardization issue All markets 2

3 Trading Channels via OTC Counterparts: via Broker : via Exchanges : APX (NL) EEX (DE) EXAA (AT) South Pool (SI) Nord Pool (NO, SE, FI, DK) OPCOM (RO) HUPX (HU)

4 OTC and and Exchange Exchange Markets Markets Bilateral contracts Trading via Power Exchange PX

5 Offering at Day-ahead Market DAM Participants Consumers and Suppliers : Usually limited flexibility. Usually MUST BUY ; Generators : Inflexible and flexible. Sometimes MUST SELL or MUST BUY ; Traders most flexible. Usually Price dependent bids and offers ; Grid operators sometimes buy to cover technical losses. Market Participants have different strategies; Sell / Buy = Integral part of production planning.

6 Industrial consumer Trading strategy Change of power consumption pattern Е, MWh Sell Buy Sell 21 1 s.6 t, hours час MWh

7 Generator Trading strategy A Generator could face an outage or. to speculate around fuel cost: Еnergy, MWh Buy Price, EUR/MWh Hour MWh P1 (fuel cost) Buy Sell Price MWh t, hours Еnergy, MWh

8 Optimal Utilization of Generating Capacity Under Competitive Spot Market conditions Producers generate only when the price is higher then Marginal Production Cost. PX bids = marginal cost. Fixed cost is not considered under short term planning.

9 Forming a Demand side Curve Forming a Demand-side Curve P, MW Buy Sell Price, EURO/MWh Bid valid for: Mon Tue Wed Thu Fri Sat Sun Week Corrected Date: Time: s.9 Hour\Price: Bids are sent electronically or vie fax.

10 Power Exchange Clearing Price/Quantity Price Price independent Demand Supply (sell) Clearing price. Demand (buy) MWh Price independent Supply Q, MWh s.10

11 s.11 Power Exchange Real Curves

12 Power Exchange Advantages PX Less bilateral agreement; Reduced credit risk; Collaterals only to the exchange (clearing house); Invoicing only against the exchange; High automation and standardization degree.

13 Power Exchange Regulation and Monitoring PXs are usually regulated by common set of market rules with a correspondence with energy laws and regulations; PXs monitoring is performed by commodity and stock markets regulatory institutions; PXs organize and maintain tools for prevention of trading with internal information and transparency monitoring.

14 Какво получаваме от борсата? Why Power Exchange? PX The Power Exchange is a media for competition between market participants, resulting in an optimal Power Plant Dispatch with minimum transaction cost. Transparency Competition Price (Index) Flexibility Credit Protection Liquidity Short term: Optimal and Efficient generation utilization Mid/Long term: Right signals to the industry Instrumentation for Risk mitigation and hedging

15 OTC Trading via Brokers Brokers support trading: They look for a Seler for every Buyer abd vice versa; Brokers are interested in meeting the highest bid Buyer with the lowest offer Seller, thus forcing all market participants to improve their prices; Improve liquidity and trading transparence. Decreasing transactions cost; Tools: Phone, Screens, Yahoo messenger. Examples: TFS, GFI, ICAP, Spectron...

16 Products structure D WWWW 1 year 2 year 3 year 4 year 5 year 6 year M M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 YR: YR: YR: YR: YR: YR: 1/1-12/31 1/1-12/31 1/1-12/31 1/1-12/31 1/1-12/31 1/1-12/31

17 Why we need OTC then? Better feeling of market movements; Flexible products and conditions; Brokerage facilitate trader s life; Counterparty selection depends on the credit risk estimation;... and where the power exchanges are not operational yet.

18 TERM and SPOT trading SPOT markets provide day-ahead balancing between supply (production) and demand; TERM markets provide long term price stability (= hedging) for producers and consumers; Forward contract An agreement between two parties for a commodity/payment exchange in a future period. The price and payment methods are set when the agreement is concluded. Forward Futures Product Standard on non standard Standard only Trading via OTC Exchange Credit risk Counterparty risk Counterparty risk limited Nature Physical Financial

19 Physical and Financial Trading Physical Power Company Physical delivery Fixed price Client Financial SPOT Exchange Physical delivery Power Company Daily price Daily price Fixed price Futures Exchange

20 FUTURES = Standard Financial Contract

21 Why Financial Products? No delivery schedules Traded via exchange - Liquidity; - No credit risk; Excellent hedging tool

22 Intraday Market OMEL model organized in 6 sessions; Separate trading for every hour by matching between best bids and offers First intraday market (28 hours) Second intraday market 2 (24 hours) Third intraday market (20 h.) Intraday 4 (17 hours) Intraday 5 (13 h.) Intraday 6 (9 h.)

23 Intraday Market German model Continuous trading for every hour; Trading starts at 16:00 on D 1 and ends 45min before the delivery hour.

24 Balancing Market - 1 Operated by TSOs providing them with flexible energy for UP and DOWN regulation. Usually traded products: Tertiary (or Secondary + Tertiary) reserves. Balancing Market Participants Passive(price takers) : All consumers, organized in balancing groups (but only BRP is a partner of the TS). Active (price makers): Flexible generators (hydro, gas). Sometimes flexible load; TSO Operator and central counterpart Neighboring TSOs.

25 Balancing market - 2 P, MW Pmax, MW O B O F Price, EUR/MWh A C G P, MW Price, EUR/MWh B C E D A P, MW Pmin, MW Price, EUR/MWh t A B C E D G C Activated when the entire system is long A F Activated when the entire system is short +

26 Balancing market price system price system DAM Price TOP UP SPILL DAM Price TOP UP SPILL System LONG SHORT LONG SHORT

27 Why balancing market is important? BM provides TSOs with flexible energy for UP/DONN regulation under market conditions; Competition between providers of balancing energy; Competition between market segments (DAM vs BM); Generation Transparent TSO operations and transactions; Demand Operational discipline and incentives for correct production/consumption scheduling.

28 Ancillary Services Market Ancillary Services Reserve for Primary Frequency Control Reserve for Secondary Frequency Control (AGC) Tertiary or other slow (replacement) reserves Voltage / Reactive power control Island mode operation (during severe disturbances) Black start (for system restoration) TSO Operator and natural services user

29 EFET: Characteristics of a mature wholesale market Standardisation Standard Products: Base: Mo Su: 0:00 24:00h Peak: Mo Fr : 8:00 20:00h For OTC: 1 Standard Master Contract (EFET) Example: EEX Futures Market Liquidity Transparency Trading data: Prices & Volumes PXs & Broker ~ 2.5 x consumption in DE 5 Market Maker: continuously simultaneous bids & offers Fundamental data: Generation data (incl. RES) e.g. EEX; Nordpool; Grid data: transmission data ENTSO Vista

30 Markets time-frames Future & Forward Markets: Years, Quarters, Months, Weeks, Days Day Ahead Market Intra Day Market Balancing Market D 1 D t 45 t 15 t

31 Competition & Liquidity Complete Market Picture Standardization Transparency & Predictability Ancillary Services Intraday Market Financial Market Protection & Surveillance X border rights OTC Market Power Exchange SOLID FUNDAMENTALS Balancing Market

32 THANK YOU Plamen Popov