The search for the perfect match: Aligning power-trading products to the energy transition

Abstract Given the growing share of uncertain renewable energy production, the energy transition challenges modern power systems and especially calls for increased flexibility. However, relevant information on the highly asset-specific flexibility potential is typically only known to plant operators themselves and not, e.g., to transmission system operators. Therefore, liberalized electricity markets use prices that set explicit monetary incentives to disclose the relevant private information about the market participants’ assets. In this way, information asymmetries may be reduced. Given the different challenges of an integration of renewables, we argue that the associated new forms of volatile power profiles require new forms of power-trading products. In particular, based on recent advances in technical power measurement and billing, individual and market participant-specific power profiles may be superior to the current trading of average volumes. Against this background, we first outline various evolutionary adjustments of existing power-trading products and their underlying product parameters including (1) strengthening local pricing, (2) finer temporal granularity, (3) smaller minimum volume, and (4) shorter gate-closure time. Second, we open up a new perspective in form of a more disruptive shift towards power-profile trade, where market participants define their trading product using the actual power profile as a new product parameter.

[1]  F. Schweppe,et al.  Optimal Pricing in Electrical Networks over Space and Time , 1984 .

[2]  K. Jörnsten,et al.  Zonal Pricing in a Deregulated Electricity Market , 2001 .

[3]  Andreas Ehrenmann,et al.  The future electricity intraday market design , 2019 .

[4]  E. Welfonder,et al.  High frequency deviations within the European Power System: Origins and proposals for improvement , 2009, 2009 IEEE/PES Power Systems Conference and Exposition.

[5]  Alexandra Märtz,et al.  Optimal storage and transmission investments in a bilevel electricity market model , 2020, Ann. Oper. Res..

[6]  P. Cramton Electricity market design , 2017 .

[7]  Stephen C. Peck,et al.  A market mechanism for electric power transmission , 1996 .

[8]  Rolf Wüstenhagen,et al.  The flexible prosumer: Measuring the willingness to co-create distributed flexibility , 2018 .

[9]  Michael Schöpf,et al.  From energy legislation to investment determination: Shaping future electricity markets with different flexibility options , 2019, Energy Policy.

[10]  A. Pechan Where do all the windmills go? Influence of the institutional setting on the spatial distribution of renewable energy installation , 2017 .

[11]  D. Wozabal,et al.  Measuring competitiveness of the EPEX spot market for electricity , 2013 .

[12]  Alexander Martin,et al.  Transmission and generation investment in electricity markets: The effects of market splitting and network fee regimes , 2016, Eur. J. Oper. Res..

[13]  M. Bjørndal,et al.  Congestion Management in the Nordic Power Market — Counter Purchases and Zonal Pricing , 2003 .

[14]  Lion Hirth,et al.  Short-term electricity trading for system balancing: An empirical analysis of the role of intraday trading in balancing Germany's electricity system , 2019, Renewable and Sustainable Energy Reviews.

[15]  W. Hogan Contract networks for electric power transmission , 1992 .

[16]  Martin Weibelzahl,et al.  Nodal, zonal, or uniform electricity pricing: how to deal with network congestion , 2017 .

[17]  Stéphane Goutte,et al.  The value of flexibility in power markets , 2019, Energy Policy.

[18]  H. Holttinen Optimal electricity market for wind power , 2004 .

[19]  Yves Smeers,et al.  Market failures of Market Coupling and counter-trading in Europe: An illustrative model based discussion , 2013 .

[20]  Martin Weibelzahl,et al.  On the effects of storage facilities on optimal zonal pricing in electricity markets , 2018 .

[21]  Maarten J. Arentsen,et al.  Economic organization and liberalization of the electricity industry: In search of conceptualization , 1996 .

[22]  Pierluigi Siano,et al.  Flexibility in future power systems with high renewable penetration: A review , 2016 .

[23]  Karsten Burges,et al.  Pros and cons of exposing renewables to electricity market risks--A comparison of the market integration approaches in Germany, Spain, and the UK , 2008 .

[24]  J. Bower,et al.  A model-based analysis of strategic consolidation in the German electricity industry , 2001 .

[25]  Martin Weibelzahl,et al.  The Impact of Substituting Production Technologies on the Economic Demand Response Potential in Industrial Processes , 2018, Energies.

[26]  Kjell Arne Brekke,et al.  Is electricity more important than natural gas? Partial liberalization of the Western-European energy markets , 2013 .

[27]  A. K. David,et al.  Market Power in Electricity Supply , 2001, IEEE Power Engineering Review.

[28]  D. Sibley Spot Pricing of Electricity , 1990 .

[29]  S. Feuerriegel,et al.  Contract Durations in the Electricity Market: Causal Impact of 15 Min Trading on the EPEX SPOT Market , 2017 .

[30]  Christoph Weber,et al.  Distribution of costs induced by the integration of RES-E power , 2008 .

[31]  M. Saguan,et al.  Large-scale wind power in European electricity markets: Time for revisiting support schemes and market designs? , 2010 .

[32]  Hans-Jakob Lüthi,et al.  Risk management of power portfolios and valuation of flexibility , 2006, OR Spectr..

[33]  Göran Andersson,et al.  Analyzing operational flexibility of electric power systems , 2014, 2014 Power Systems Computation Conference.

[34]  J. Viehmann,et al.  State of the German Short-Term Power Market , 2017 .

[35]  B. Burstedde,et al.  From nodal to zonal pricing: A bottom-up approach to the second-best , 2012, 2012 9th International Conference on the European Energy Market.

[36]  Robert B. Wilson,et al.  Research Paper Series Graduate School of Business Stanford University Architecture of Power Markets Architecture of Power Markets 1 , 2022 .

[37]  Alexander Martin,et al.  On the long run effects of market splitting: Why more price zones might decrease welfare , 2016 .

[38]  Matthew J. Burke,et al.  Energy democracy: Goals and policy instruments for sociotechnical transitions , 2017 .

[39]  Jean-Michel Glachant,et al.  Melting-pots and salad bowls: The current debate on electricity market design for integration of intermittent RES , 2013 .

[40]  C. Weber,et al.  An Empirical Analysis of Liquidity and Its Determinants in the German Intraday Market for Electricity , 2013 .

[41]  Meysam Doostizadeh,et al.  A day-ahead electricity pricing model based on smart metering and demand-side management , 2012 .

[42]  J. Bertsch Is an inefficient transmission market better than none at all? On zonal and nodal pricing in electricity systems , 2015 .