Cost-efficient Power Balancing – Intraday Trade

Cost-Efficient Power
Balancing
Intraday Trade and Imbalance Pricing
GEERT VAN MOER – UNIVERSITY OF ANTWERP
all errors are my own
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The challenge
• Organize markets such that the cheapest units available generate
Why do we care about an ARP’s costs?
1. Costs are passed through to consumers
2. By shifting generation from expensive to cheap units, all parties
(ARPs, Elia, consumers, …) can be made better off
GEERT VAN MOER
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Overview
1. Two claims
• ARPs self-balance too much
• ARPs trade too little
2. One suggestion
• An alternative imbalance pricing mechanism
GEERT VAN MOER
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A setting
ARP A
WIND
CCGT
PEAKER
ARP B
WIND
CCGT
PEAKER
TSO
PEAKER
CCGT
• ARPs have cheap and expensive technologies
• The TSO can activate cheap and expensive reserves
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Day-ahead
ARP A
WIND?
CCGT
PEAKER
ARP B
WIND?
CCGT
PEAKER
• Wind availability is uncertain
• ARPs schedule the activation of their units:
GEERT VAN MOER
TSO
PEAKER
CCGT
or
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Real time
ARP A
WIND
CCGT
PEAKER
ARP B
WIND
CCGT
PEAKER
TSO
PEAKER
CCGT
• Will ARPs self-balance with their peaker ? or outsource
from the TSO in return for imbalance settlements?
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Make (in-house) or buy (TSO settlement)
It would be cost-efficiënt if
• An ARP MAKES whenever in-house generation is cheaper
• An ARP BUYS whenever the TSO’s reserves are cheaper
My claim
• ARPs self-balance too much
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Numerical example
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Numerical example
ARP is 50 MWh short
and pays red area
without action
Does it activate a unit
of 25 MWh?
system shortage
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Numerical example: benefit of activation (1)
1. Quantity effect
Avoid tariff for this
generation
100 * 25 = 2500 €
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Numerical example: benefit of activation (2)
2. Price-zone effect
Move to low-price
zone
40 * 25 = 1000 €
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Numerical example: what do we learn?
• The price-zone effect motivates the ARP to activate expensive units,
even while the TSO has cheaper reserves available
Reason
The ARP thereby reduces the tariff applied for its remaining shortage
CLAIM 1
• ARPs with a shortage generate too much in-house
• ARPs with a surplus reduce in-house generation too much (similar
reasoning)
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Bunching?
Imbalance price
buy at low price
100
sell at high price
60
ˆ2
ˆ1
R3- & free bids
R2-
IGCC
R2+
GEERT VAN MOER
System shortage
R3+ & free bids
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.04
.02
0
GDV – ˆ1 .
.01
Histogram
Density
.03
Belgian data
-400
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-200
GDV_gamma1
0
200
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Balancing market <-> ARPs that trade
Two objectives:
1. Shift generation from expensive to cheap plants
2. Shape each other’s position on the balancing market
objective 2 interferes with objective 1
CLAIM 2
 ARPs trade too little
Intraday markets can only work if balancing markets work!
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A suggestion: alternative imbalance pricing
mechansim
• Hold each ARP responsible for its externality on the grid operator
• Each time period, for each ARP, calculate the grid operator’s costs as if
the ARP incurred zero imbalance
 Charge the cost differential, if positive
 Pay the cost differential, if negative
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Numerical example 1
Penalty for an ARP
that is 50 MWh short
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Numerical example 2
Payment for an ARP
that is 10 MWh long
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About the proposed mechanism
• ARPs self-balance efficiently
• The cheapest units generate
=> everyone can be made better off
• What is the effect on ID markets?
• What is the effect on ARPs/grid operator?
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Reference
Van Moer, G. (2015). Cost-Efficient Power Balancing: Intraday Trade
and Imbalance Pricing. Manuscript in preparation, Department of
Economics, University of Antwerp, Belgium.
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THANK YOU !!
Any question or suggestion is welcome 
GEERT VAN MOER
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