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Integrating and Utilizing Wind Energy in a Liberalized Electricity Market

Learn how to optimize the value of wind energy in a liberalized electricity market, secure energy flows, and understand the impact of wind energy on market prices. Explore the role of wind turbines as providers of regulating energy and capacity.

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Integrating and Utilizing Wind Energy in a Liberalized Electricity Market

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  1. How to integrate and utilize wind energy in a liberalized electricity marketAnders Plejdrup HoumøllerCEOBlueLime Consulting • With the Danish and the Nordic electricity market as a case: • How to use the market to optimize the value of wind energy. • How to secure the energy flows towards the high price areas. • How does wind energy affect the market price for electricity? • Wind turbines as providers of regulating energy and/or regulating capacity? Anders Plejdrup Houmøller

  2. The Nordic electricity market: Denmark, Norway, Sweden and Finland. • Denmark, Norway, Sweden and Finland have liberalised our electricity markets and we have established a common electricity exchange called Nord Pool Spot. • Denmark, Norway, Sweden and Finland: about 25 mill. people. • Electricity consumption 2008: 396 TWh. • Third biggest electricity market in the European Economic Area EEA. • EEA = European Union + Norway + Island + Liecht.). • Annual turnover at whole-sale market about $ 18 billion. Anders Plejdrup Houmøller

  3. Nordic Commercial and Non-commercial Players Unbundling Commercial players Non-commercial monopolies Before liberalisation Power stations and transmission grid Distribution companies: local grid and retail TSO: transmission grid and security of supply After liberalisation Producers, retailers, traders, brokers Local grid operators

  4. The electricity market Producers End users 60 Hz The Transmission System Operator (TSO) operates the high voltage grid and is responsible for the state’s security of supply. Anders Plejdrup Houmøller

  5. Concepts and units 60 W Flow: How much water is passing by per second? Energy consumed during an hour: 60 W * 1h = 60 Wh Concept Explanation Unit Water analogy Power Flow: How much energy per second? W (Watt) Energy The amount (for example, during an hour) Wh (Watt-hour) The amount (for example, during an hour) Capacity The ability to change a flow W (Watt) The ability to change a flow Anders Plejdrup Houmøller

  6. The Nordic market for regulating energyExample for an hour where the production is getting too big Sell 200 MWh to producer. Price: 30 EUR/MWh The producer has sold 200 MWh to the retailer. Price: 34 EUR/MWh Result for TSO: The prod. decreases TSO Producer: Buy at a price of 30 EUR/MWh and sell at a price of 34 EUR/MWh P Note: a producer will provide down regulating (ie, buy back energy), if he can buy at a price lower than his marginal production cost R Anders Plejdrup Houmøller

  7. Offers and bids on the Nordic market for regulating energy Sell reg. energy to TSO All producers in question gets this price MWh During this hour, the TSO had to buy this amount of regulating energy Buy reg. energy from TSO EUR/MWh Spot price at electricity exchange during this hour Anders Plejdrup Houmøller

  8. Nordic regulating energy • The players at the market for regulating energy are paid the marginal price • “The last player’s” price sets the price for all. Anders Plejdrup Houmøller

  9. Danish regulating energy options - 1 EUR/MWh Offers MWh Bids • How can the TSO ensure that he actually has bids and offers availed on the market for regulation energy? • Answer in Denmark and Norway: The TSO buys regulation energy options. • In Denmark, most of these options are bought day-ahead (during the morning the day before the operating day). • Examples for the regulation energy market: • A producer who has sold the TSO an up regulating energy option of 20 MW must place an offer of 20 MWh on the market. • A producer who has sold the TSO a down regulation energy option of 10 MW must place a bid of 10 MWh on the market. Anders Plejdrup Houmøller

  10. Danish regulating energy options - 2 EUR/MWh Offers MWh Bids • All players may send bids and offers to the TSO’s market for regulating energy. • However those who have sold regulation energy options to the TSO must send bids and/or offers. • The TSO buys capacity, when he buys the options • The options are bought day-ahead. • Later, the TSO trades energy, if he needs to buy or sell during the hour of operation in order to maintain the security of supply. Anders Plejdrup Houmøller

  11. Reserves bought by the TSOWestern Denmark as a case Manually activated regulating reserve (often 540 MW up) Secondary reserve (90 MW) MW Primary reserve (25 MW) Time Order Order + 15 min. 30 sec. 15 min. • Western Denmark • Energinet.dk is the Danish TSO. • Consumption about 21 TWh/year. • More than 25% of the electricity produced comes from wind. • Min. load about 1,150 MW. Max. load about 3,600 MW. • Wind turbines about 2,730 MW (!). Anders Plejdrup Houmøller

  12. A Nordic market for regulating energy and national markets for regulating capacity • Together, the four Nordic TSOs operate a Nordic market for regulating energy • Covering Denmark, Sweden, Finland and Norway. • In addition, each TSO operate a national market for regulating capacity. Anders Plejdrup Houmøller

  13. Danish regulating energyAnd Danish balancing energy • Note: for the producers of “green” energy, there is no special requirement to have own regulating capacity • For every day, the Danish TSO will day-ahead buy the regulating capacity estimated necessary in order to maintain the security of supply. • By the way, at the outset, the same equal treatment is used for balancing energy: as a producer, if you deviate from your production plan, you have to trade balancing energy with the Danish TSO • The same system applies whether you are a standard producer or a “green” producer. • However: for many “green” producers, the TSO has an obligation to handle the forecasting, the trading and the balancing energy. Anders Plejdrup Houmøller

  14. Wind turbines as providers of regulating energy? • Naturally, when it’s producing, a remote controlled wind turbine is very well suited to provide down regulating • However, a producer will only buy back energy, if the purchase price is below his marginal production costs! • Hence, a wind turbine owner will only buy back energy, if the whole-sale electricity price has turned negative (or just slightly over zero). • However, this is precisely the situation we often face, when the wind turbine production is high. • Conclusion: on a windy day, when the security of supply is threatened by over-production, the wind turbines can be used to solve the problem • Provided the market system and the subsidy system are designed the right way. • After having down regulated, a wind turbine is producing below it’s potential • Hence, it’s now very well suited to provide up regulation, if this should be needed… Anders Plejdrup Houmøller

  15. Wind turbines as suppliers of regulating capacity? • If you are a player with enough wind turbines in your portfolio, you may offer the TSO down regulating capacity day-ahead. Anders Plejdrup Houmøller

  16. Nord Pool SpotThe Nordic electricity exchange • Nord Pool Spot is an exchange, where the players can trade electrical energy day-ahead and intra-day. • Elspot is Nord Pool Spot’s day-ahead auction market. • Elbas is Nord Pool Spot’s intra-day market. • Turn-over in 2009: • Elspot 285 TWh • Elbas 2 TWh • More than 70% of the electricity consumed in the Nordic area is traded with Nord Pool Spot’s day-ahead auction market Elspot. Anders Plejdrup Houmøller

  17. Nord Pool SpotThe four Nordic TSOs are the owners Energi- net.dk Fingrid Svenska Kraftnät Statnett 20% 30% 30% 20% Nord Pool Spot AS Anders Plejdrup Houmøller

  18. The Elspot marketThe exchange’s day-ahead market for electrical energy • This is where electrical energy is traded day-ahead. • Bids and offers must be sent to Nord Pool Spot’s headquarters in Oslo at the latest 12 o’clock the day before the day of operation (gate closure time is 12 o’clock). • At 12 o’clock Nord Pool Spot’s computer start working: By matching the bids and the offers for every hour of operation the following day, the computer calculates a spot price for each hour of the following day. • Normally, the prices for the following day are published around 1 p.m. (ie, it’s day-ahead prices). Anders Plejdrup Houmøller

  19. Calculation of the day-ahead priceExample for one hour Demand 2pm – 3pm Supply 2pm – 3pm day- ahead price In a ”normal” auction, only the buyers submit bids. EUR/MWh However, in this system, both the buyers and the sellers submit bids. max. price Therefore, this is way of calculating prices is called a double auction. As we are trading energy for tomorrow, this way of trading is called day-ahead auction trading. MWh min. price Anders Plejdrup Houmøller

  20. System Price Tuesday, Feb. 23rd, 2010 18 16 14 12 10 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 Average: 13.4 US cent/kWh US cent/kWh Time of day

  21. Denmark: wind power and the liberalised marketHow to cope with a market and subsided energy? The Danish case: when you have a liquid power exchange this is easy! Buy at price set politically TSO Sell at market price Cover loss via an extra grid fee (PSO) Elspot: power exchange’s day- ahead market Result: financially, this wind energy enters the market as price-taking sales offers Anders Plejdrup Houmøller

  22. Denmark: wind power and the liberalised market – 2 Buy at price set politically TSO Sell at market price Turbine owners trading themselves (in practice, they outsource the trading to commercial players) Elspot: power exchange’s day- ahead market Result: financially, this wind energy enters the market as sale offers at the exchange with offer prices a bit higher than zero Anders Plejdrup Houmøller

  23. Denmark: daily operationHow to sell the wind energy • Every morning, each of the commercial players having wind turbines in their portfolio – and the TSO • For each hour of the next day: make a forecast of the energy produced by “their” wind turbines during this hour. • This energy is offered for sale at the exchange • The TSO will sell “his” wind energy at any price (even at negative prices). • Each of the commercial players will sell at a price slightly higher than zero (if they are selling on behalf of remote-controlled wind turbines). • For a seller: when the forecast turns out to be wrong, the seller must trade balancing energy with the TSO • Applies to TSO also: he’ll trade balancing energy with himself on same conditions as the commercial players. • Provides transparency: what is the TSO’s costs for handling “his” wind energy? Anders Plejdrup Houmøller

  24. Price volatilityWhich contribution from which factor? • In the Nordic area, the weather has a huge impact on the prices for electricity • Demand: Cold/mild winters have a huge impact on the demand • In the Nordic area, air conditioning is not important, so we don’t have this summer effect… • Supply: The hydro situation creates huge quarterly/monthly variations • So do the prices for fossil fuels (not a weather effect). • In Denmark, the wind turbines create huge hourly variations (but not big variations on quarterly/monthly basis) • In Denmark, about 20% of the electricity is produced by wind turbine. Anders Plejdrup Houmøller

  25. Thank you for your attention! Anders Plejdrup Houmøller CEO BlueLime Consulting E-mail ah@bluelime.dk Tel.: +45 28 11 23 00 Anders Plejdrup Houmøller

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