21, rue d'artois, F-75008 Paris http://www.cigre.org C2-102 Session 2004 CIGRÉ COMMON NORDIC BALANCE MANAGEMENT O.GJERDE* STATNETT (Norway) F.WIBROE ELTRA (Denmark) J-E. FISCHER ELKRAFT (Denmark) K.LINDSTRÖM FINGRID (Finland) T.GUDMUNDSSON LANDSVIRKJUN (Iceland) T. PINZÓN SVENSKA KRAFTNÄT (Sweden) Abstract The paper covers the Nordic real time balance management, in operation from September 2002, and shows the importance of a well-functioning market based balance management system. The development of the electricity markets in many countries shows that the need for an efficient regulating power market functioning under commercial conditions is underestimated. The same could be said about the significance of a well-functioning neutral balance settlement system. By the changes introduced in September 2002, the primary focus is now on frequency control. Area Control Error (ACE) is normally not used. Only in cases of major congestion between the countries, ACE is taken into account. To be able to do this, the transmission system operators in the countries have implemented a common regulating power market and developed a common information system. The general principles of the regulating power market, the principles for making bids, and the determination of regulating power prices and balance prices are explained. Key Words: Electricity market - Real time balance management - Secondary control - Settlement 1. INTRODUCTION The Nordic power system and electricity market have undergone a comprehensive process of restructuring in recent years. The liberalisation of the electricity markets in the Nordic countries started in the beginning of the 1990s. The common electricity market comprises the four countries Denmark, Finland, Norway and Sweden. Iceland is also taking part in the Nordic co-operation such as the Nordel organisation (the body for cooperation between the Nordic TSOs), but is not interconnected to the other countries. The peak load for the interconnected system is slightly less than 70 000 MW, and the total consumption was 397 TWh in 2002. In all Nordic countries, an independent transmission system operator (TSO) solution was chosen. This means that the TSO both owns and operates the main national grid. The networks, as natural monopolies, are separated from competitive activities. All networks are opened up for third-party access, regardless of the connection point. This means free access on equal terms for everyone to transmit power through all Nordic transmission and distribution networks. All transmission charges between the countries are removed. *ole.gjerde@statnett.no
An important part of the development of the common Nordic electricity market is the development of the power exchange Nord Pool. Nord Pool is organised in two separate companies: - Nord Pool Spot for physical trading in spot market, Elspot (day-ahead), and adjustment market, Elbas (delivery day). - Long-term trading with financial instruments in the mother company of Nord Pool Group. 2. THE ELECTRICITY MARKET PRINCIPLES When developing the Nordic market, some fundamental requirements have been fulfilled in order to ensure a well-functioning electricity market: - All players must be treated equally and impartially and be allowed equal access to the grid. - Trade-stimulating tariffs and efficient management of transmission capacity are essential. - Operations must ensure instantaneous power balance and maintain satisfactory operational security. Figure 1 shows the Nordic market model where all players have the possibility of bilateral trade and also have access to a well-functioning power exchange. Physical trade on daily basis may be bilateral or done at the spot power exchange. PRODUCERS OTHER PLAYERS CONSUMERS BILATERAL ELECTRICITY TRADING PRODUCERS OTHER PLAYERS CONSUMERS One of the basic functions of the spot exchange is to establish a public price reference for other trading. Financial market ELSPOT ELECTRICITY EXCHANGE ELBAS Regulating power Balancing power 3 years - 56 hrs 36-12 hrs 33-1 hrs In the hour After the hour of operation of Operation Figure 1 The Nordic electricity market principle After trade on the spot market has closed for the day, the players still have the possibility of adjusting their schedules either on the socalled adjustment market (Elbas) or even bilaterally very close to the operational hour. In the operational hour, the electricity balance is secured on the real time market (regulating power market) by the TSOs. Long-term risk management can be handled on the financial market or bilaterally. 3. TECHNICAL REQUIREMENTS ON SYSTEM OPERATION The Nordic electricity system has a long tradition for co-operation and co-ordination in operation and planning. The co-operation was earlier based on Nordel recommendations, and it is now based on a system operation agreement between the Nordic TSOs [1]. The TSOs shall jointly maintain a supply quality that is appropriate with respect to the joint system operation, e.g. frequency, time variation, system oscillations, etc. The criteria for operational reliability are based on the n-1 criterion. This implies that: - Single faults in a subsystem shall not result in serious operational disturbances in adjacent subsystems. - There shall be an adequate disturbance reserve and transmission capacity to enable the Nordic power system to cope with clear design contingencies. - The loss of a busbar in a subsystem must not lead to serious operational disturbances in other subsystems. 2
- Following a disturbance, the power system will be able to go into alert operation. The system shall return to normal operation within a period of 15 minutes. - Network protection requires a level of reliability in line with primary protection. - System protection schemes are accepted as part of the n-1 criterion, and are used to a variable degree in the various countries. - Temporarily lower reliability is more and more accepted regionally by each TSO under special operating conditions and when important lines are out for maintenance. The blackouts in the autumn of 2003 in USA/Canada, Sweden/Denmark and Italy may lead to a re-examination of this practice. Operations are based on a number of different reserves, such as: - Instantaneous operating reserve, which is split up into two parts: Frequency control reserve (activated 100% at 49.9 Hz) and instantaneous disturbance reserve (activated 50% in 5 sec. and 100% in 30 sec.). - Fast active operating reserve (activated in 15 minutes). - Slow active reserve (4-8 hours). - Reactive reserve. These reserves are of international standard. Due to the size of the system compared with for instance the UCTE, the instantaneous disturbance reserve has to be activated faster than in the UCTE system. The allowed frequency variation is normally between 49,9 and 50,1 Hz. For frequency control purposes at 50 Hz a power reserve of minimum 600 MW is required. It shall be utilised with a total primary response of 6 000 MW/Hz. 4. BALANCE MANAGEMENT AND SECONDARY CONTROL PRACTICES IN THE NORDIC POWER SYSTEM BEFORE AND AFTER DEREGULATION Before the electricity market deregulation in the early 1990s liberal frequency control practices had been applied. It was accepted to allow a free power flow between the separate control areas (countries) within certain predetermined limits. Strict set-point control was not required except under certain stressed conditions. The deviations from predetermined power interchanges were settled after the fact, following certain rules. In practice, no Automatic Generation Control (AGC) was needed. The responsibility for generation scheduling and dispatch was decentralised to the power producers. The responsibility for primary frequency control was borne by the main producers in each country. After the deregulation in the mid 1990s, these same control practices are applied. Each TSO is responsible for the control of its subsystem (control area). In the first step after the deregulation, each TSO controlled its own subsystem by control actions based on an area control error (ACE limits), but under normal conditions no individual control actions are taken any longer to control the individual area. Control steps are taken to control the frequency for the whole Nordic power system. From September 2002, a common real time regulating power market has been developed to handle the secondary control. This means that secondary control steps for the whole Nordic synchronous power system are decided centrally by the Swedish or the Norwegian TSO, who bears the responsibility for keeping the frequency. This guarantees that all resources are utilised in the most optimal way. The only reason for exceptions from this rule is when main grid transmission bottlenecks occur. In such situations, the control actions may be taken in each subsystem. The decentralised generation dispatch is still applied, i.e. the producers are obliged to plan and dispatch their generation themselves. The TSO will only affect the generation when system security is stressed. The individual TSOs are responsible for the security within their respective transmission networks. They are therefore given the authority to intervene in various ways in the operation of the interconnected power companies within their own countries (control area). 3
An important task for the TSO is to offer the market players an impartial balancing service and balance settlement. The objective is to perform a control action where it is most effective. When power is traded either via the exchange or bilaterally sooner or later the situation will arise whereby the agreed delivery is deviating from the physical one. Imbalances between agreed and physical deliveries are handled by the TSO in a way that is impartial for all parties. 5. THE FUNCTIONS IN THE COMMON NORDIC BALANCE MANAGEMENT (REGULATING POWER MARKET) Figure 2 shows how the roles of the electricity market are distributed. The electricity exchange organises and operates marketplaces for physical and financial trade as described in chapter two. The TSOs bear the overall responsibility for operational reliability of the power system. This includes among other tasks: security, ancillary services, operating the regulating power market and balance settlement. Electricity exchange Organising and operation Financial market Elspot Elbas Bids to Elspot and Elbas markets Transmission capacity Spot trade System operator (TSO) Operations security Ancillary services Real time regulating power market Balance settlement Both market players and the TSOs contribute to maintaining the balance of the power system. The players are bound by the agreements they have entered into, and they have an economical incentive to balance their schedules through bilateral trade and trading at the electricity exchange. Producers Distributors Grid operators Traders Brokers Large end users Market actors Order up and down regulation Generation schedules Bids to real time regulating power market Figure 2 Roles of the different market participants The players submit their schedules to the TSOs one day ahead. The possible errors in their forecasts will cause imbalances, which can cause them economic losses. Therefore, the players have possibilities of adjusting the schedules, in some cases, up until and during the hour of operation. In the planning phase, the market players bear the responsibility for planning themselves into balance. Following the planning phase, the TSOs take control of the power balance during the operational hour. After the operational phase, the balance responsible players will be settled for the imbalances that have occurred. 5.1 Balance Responsible Players Each party operating in the electricity market is responsible for continuously maintaining the balance between its production and consumption. In order to help the market parties in taking care of their balance responsibility, so-called balance responsible players have been introduced. According to agreement such a balance responsible player may bear the balance responsibility for several market players. The TSO makes an agreement with these balance responsible players to deliver their unplanned energy supplies for each operational hour. A balance responsible player has a right to use balance power delivered from the TSO for his imbalances. 5.2 The Real time Regulating Power Market A player who has available regulating capacity can offer it to the TSOs regulating power market. The regulating power market is based on bids on upward or downward regulation from the players (see figure 3, step 1). These bids can be steps to either increase or decrease power generation or consumption. The bids are entered into a common price list (step 2) in the common Nordic Operational Information System (NOIS). According to mutual agreement, the TSOs in Sweden and Norway activate these bids when frequency deviations occur (step 3). The final commands to the resource owners go from the national TSO (step 4). 4
Bids on upward and downward regulation Step 1 National TSOs handles Step 2 Common Nordic Operational Information system (NOIS) Merit order list list of of bids 50 Hz Market players owning regulating resources Consumption Generation Norwegian and Swedish TSOs maintains the frequency Step 3 Activate the bids Activate the bids National TSO submit Step 4 Order upward or downward regulation Figure 3 The real time control steps In situations of bottlenecks in the transmission system, necessary steps to avoid the bottleneck are first taken. Subsequently, the frequency is corrected, if necessary. In many cases, the steps to alleviate bottlenecks will clear out the frequency deviations. The total number of active regulation steps today for frequency control in the common system is much lower than in the earlier balance management in each country. 5.3 The Pricing Mechanism Figure 4 shows how the bids are handled and how the pricing is performed. For purposes of compensating the balance responsible players, the upward and downward regulation prices in the regulating power market have to be defined. The highest price of the regulation step, which is called to regulate upwards during the hour in question, becomes the upward regulation price. The lowest price of the regulation step, which is called to regulate downwards during the hour in question, becomes the downward regulation price. The energy produced or saved on the basis of these regulation steps is defined as regulating power. Price Price Highest up regulation price = Sales price for balancing power Downward regulation Upward regulation Spot price = base price - MWh + MWh Lowest down regulation price = Purchase price for balancing power Regulating power Figure 4 The pricing mechanisms Balancing power 5
The successful bidders are paid for the regulating power based on the highest (upward regulation) or lowest price (downward regulation) during the operational hour. This means that the successful bidders get the same or a better price than they have asked for when bidding. For upward regulation, the TSO will pay the bidder for the used power, and for downward regulation the bidder will pay the TSO for the saved power. If no transmission bottlenecks occur, the regulating power price will be optimal and the same in all countries. In constrained transmission situations, the price differs from one subsystem to the other. The cost of the regulations is used as a basis for pricing the imbalances, which is calculated in the settlement phase (described below). The settlement and pricing procedure for balancing power within each country is still different. 5.4 Self-regulation during the Operational Hour Traditionally in the Nordic countries, the major power generating companies used to control their balance individually during the operational hour. The development of the electricity market has shown that there are many disadvantages of this self-regulation. Individual control steps can disturb the total system balance and available regulating capacity can be withheld from the market. This would cause larger deviations in energy flow from one country to another compared to planned energy exchange. It can also be much more expensive for the individual market player. As a result, the individual national balances are no longer regulated during the operational hour. In some cases, the rules are such that self-regulation is not feasible at all. 5.5 Balance Settlement The purpose of the balance settlement is to settle the electricity deliveries between all parties in the electricity market. The balance settlement is based on metered hourly delivered energies where available, and based on so-called load profiles for customers without hourly metering. In the balance settlement, the total balancing power between the TSO and the balance responsible players is calculated. The TSOs perform two kinds of balance settlement: one between the countries and one inside each country. The imbalances which occur during the operational hour are handled as purchase or sales of balancing power. The balance settlement between two countries is done in two steps. In the first step, the pre-agreed electricity deliveries are summarised to determine the planned net exchange. In the second step, the metered hourly energy exchange on all interconnections is collected and summarised to determine the real exchange. Imbalance energy is the difference between planned net exchange and metered exchange. The imbalance energy is settled financially on the basis of the price of regulating power for the hour. It means that the costs of regulating actions, based on executed regulations, are distributed between the TSOs. In situations of transmission constraints, regulating power prices differ from each other and the mean value between each country is calculated. The balance settlement inside the country is also done in two steps. In the first step, the production and consumption in the regional and distribution networks are computed. In the second step, the settlement is done between the TSO and the balance responsible players by computing the imbalance energy as the difference between the scheduled and the actual supply and demand. A balance responsible player who has less metered consumption than metered production is compensated for his imbalance energy. A balance responsible player who has more metered consumption than metered production is invoiced for his imbalance energy. 6
6. EXPERIENCES As mentioned in this report there is a need to set up a framework of rules and organise the different functions in the electricity market in such a way that the functionality and the confidentiality in the market will be guaranteed. The TSOs bear the main responsibility for fulfilling this requirement. To measure the outcome of the balance management in an electricity system, both the quality and the cost have to be considered. The most relevant quality parameter to use in evaluating the balance management is the system frequency. The Nordel Operations Committee is following the quality of frequency as the number of minutes the frequency is exceeding the limits of normal value (high or low). Statistics are available from the early 1990s, showing a slowly increasing trend. These deviations are more evident in summer time at lower load periods with less generation connected to the power system. Another observation is that the deviations seem to occur around the change of the hour. Some remarkable change in the frequency variations occurred from 1996 until now. At the same time, the electricity market was extended gradually from Norway to all Nordic countries. As such, these variations in frequency are not seen as critical, because the quality of the frequency is still far below the limits of concern, but the trend gives some reasons for concern for the TSOs. The trading of electric energy on the electricity market is based on hourly periods, specifically trading on the spot market, which has continuously increased. Because of this, the producers tend to keep the generation on a permanent level through most of the hour. They then tend to change the generation near the change of hour causing large gradients. As a natural consequence, the quality of frequency will decrease causing the system operators to take stronger control steps. Bad synchronisation of all control steps is contributing to larger imbalances. Finally, we have to conclude that the market players do not always follow their plans accurately. Too early or too late regulation steps cause imbalances. A key challenge is to develop the real time procedures and the real time market. A challenge is also to encourage the power producers and consumers to participate in the real time market. The implementation of a fully integrated real time market takes time for developing both technical systems (information systems, metering) as well as human abilities to act in a proper way. A joint approach to developing real time markets will give substantial benefits for participants. One of the key issues in developing the functions is how the regulating resources in the neighbouring countries can be utilised, and how the markets are developing in these countries. The energy metering needs to be developed towards hourly registering meters. Hourly registered energy meter values do not necessarily need to be collected every hour. A test period regarding improved frequency quality has been performed in the Nordic system in the autumn of 2003. This showed that it is possible to break the trend of decreasing frequency quality. By better planning of control actions, increased focus on the frequency control process and an increased number of control steps, it has been possible to reduce the number of minutes the frequency is exceeding the limits of normal value. Some solutions to improve the frequency quality on a more permanent basis are underway: - To improve the methods and details of generation scheduling by better considering the variations in the consumption of the individual market players. 7
- Generation schedules based on 15-minute periods instead of one hour are considered. This more detailed planning might give the TSOs some more possibilities to impact on the control steps especially regarding hydro generation. - The more accurate generation scheduling does not as such improve the balance in the system, but it will improve the possibilities for the TSOs of planning their own actions. - More attention will be paid to the producers following their generation schedules. From this might follow that the schedules might include timing of control steps. - Procedures to monitor how the players follow their plans are developed and more stable generation might be required. - Increasing the primary response requirements in the system decreases the need for manual activities, but it would at the same time occupy some more capacity, causing less capacity for energy trading in the electricity market. The model for common use of regulating resources, which was introduced in Nordel in September 2002, is an essential step on the road to harmonising the conditions for the players on the Nordic electricity market. The model has had the following outcome: - Efficient balance control. - Lower number of control actions in opposite direction in the different control areas. - Lower total control cost for the TSOs. - Improved operational reliability due to simplified routines and improved overview in the TSO control centres. - Equalisation of the regulating power price in the Nordic countries. - Increased interest in placing bids on the regulating power market. - Harmonisation of balance settlement between the countries. - In practice, the TSOs work as one company in this respect. The principles for balancing developed on the Nordic electricity market are well in line with the strategic goals inside the common European market. According to the latest EU strategy report on the development of the internal electricity market in Europe, balance management is handled differently from one European country to the other. Improvement is foreseen. The report furthermore points at a common regulating power market as an efficient tool to prevent abuse of market power. 7. REFERENCES [1] Nordel System Operation Agreement, Nordel home page, May 2002. [2] F. Wibroe, J.-E. Fischer Pedersen, K. Lindström, T. Gudmundsson, O. Gjerde, T. Pinzon. Common Balance Management in the Nordic Countries, Nordel Annual report 2002, Feature article, pp. 18-25, Jun. 2003, Nordel home page, June 2003. [3] W.R. Kearsley, C. Norlander, N. Lindén, O. Gjerde, G. Nilsen. Information Exchange in a Liberalised International Market for Electricity [Report SC 39, Cigré Session, Paris 1998] [4] Nordel homepage: www.nordel.org 8