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MARKET DEVELOPMENT

MARKET DEVELOPMENT. MODERN TRANSMISSION SYSTEMS BEST PRACTICES WORKSHOP Tashkent, Uzbekistan 2019, September 18-19. Market Development CONTENTS. Electricity Market Introduction Market Integration and Congestion Management Enhancing Regional Cooperation

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MARKET DEVELOPMENT

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  1. MARKET DEVELOPMENT MODERN TRANSMISSION SYSTEMS BEST PRACTICES WORKSHOP Tashkent, Uzbekistan 2019, September 18-19 FOOTER GOES HERE

  2. Market Development CONTENTS • Electricity Market Introduction • Market Integration and Congestion Management • Enhancing Regional Cooperation • Balancing and Ancillary Services Markets • Integration of Renewable Energy Sources • Transmission Tariffs • Market Information and Transparency Platform • Inter-TSO Compensation FOOTER GOES HERE

  3. TIMESCALES OF PARTICIPANT TRADING WITHIN LIBERALISED ENERGY MARKETS • Goals: • Security of supply • Enhancement of Competitions • Elimination or limitation of monopoly • No discrimination, transparency, equal conditions for all • Integration in regional and internal market • Types of electricity market: • Financial market • Cross-border capacity market (allocation) • Ancillary Services market • Bilateral market (OTC) • Organized spot market –Power exchange • Balancing market • Issues that support electricity market: • Balance responsibility concept • Transparency • Tariffs • Guarantees of origin • CO2

  4. The role of the different markets on the timeline Day-ahead market Intraday market Balancing Derivatives Long and middle-term (Years/months/weeks) Anticipated covering of need of supply, optimisation of production means Short-term(One daybefore delivery) Balance of production and consumption Very short-term(several hoursbefore delivery) Balance of production and consumption Real-time(minutes) System security Power exchange DAY-AHEAD AUCTION CONTINUOUS INTRADAY • Flexibility through continuous trading • Optimisation of liquidity via an auction FOOTER GOES HERE

  5. Key market areas of work include: • Market Integration and Congestion Management • Enhancing Regional Cooperation • Balancing and Ancillary Services Markets • Market Design and Integration of Renewable Energy Sources (RES) • European Transmission Tariffs • Inter TSO Compensation • Transparency Platform for European Electricity Market Information • Electronic Data Interchange (EDI) FOOTER GOES HERE

  6. Example of Good Practice : Organizational structure of Transmission System Operators in Europe Organizational requirement FOOTER GOES HERE

  7. MARKET INTEGRATION AND CONGESTION MANAGEMENT FOOTER GOES HERE

  8. Market Integration • Market integration is the process of progressively harmonising the rules of two or more markets with special emphasis on harmonisation of all cross-border market rules so that electricity can flow freely in response to price signals and market conditions. • Market integration lead to: • reduce prices by increasing competition • creating more market liquidity (which lowers risk) • price matching for the same product • reducing the need for back-up generation • increase system security (regional balancing energy) • assist the integration of renewable energy sources FOOTER GOES HERE

  9. Common issues of integrated regional market Electricity target model in Europe Long term Governance Capacity calculation SpotShort term Real time FOOTER GOES HERE

  10. Market Integration and Congestion Management • A key challenge for market integration is to find ways of harmonising Regional rules and market platforms : forward markets, day-ahead markets, intra-day markets, balancing markets • Target Markets should be agreed by the Governance Body, Regulator Authorities, TSOs and stakeholders • Market integration also requires solutions to identify and effectively manage network congestion. • Network congestion occurs when electricity is unable to flow where it is needed due to physical (e.g. not enough capacity) or contractual (all available capacity has been reserved) issues. • Measures for solving congestion issues are: • investment in new network elements (cross-border transmission capacities) • rules for determining the amount of available cross-border capacity • cross-border capacity allocation on a non-discriminatory basis • equal conditions for all market participants • maximum utilization of transmission capacity FOOTER GOES HERE

  11. Congestion Management • Congestion • Physically: when network element is overloaded (in full topology, or would be in case of outage (n-1)) • Commercially: when more MW requests then capacity for the transfer at certain border (e.g. profile) • Cross-border transmission capacity allocation: Process of in-advance allocation of transmission capacities (primarily at borders between systems/countries) to the electricity market players • Cross-border transmission capacity allocation - essential part of Congestion Management process (which also considers load flow analyses such as Day Ahead Congestion Forecast and operational measures). FOOTER GOES HERE

  12. Cross-border capacity allocation principles and methods Level of coordination: Bilateral, with capacity split (e.g. 50:50, each TSO organize separate allocation, at “its” half) Bilateral, joint (100% capacity jointly allocated) Coordinated, multilateral (at multiple borders/directions, at once) – Target model. One single Auction Office Technical method:Transaction-based (NTC or ATC, as transaction based limit, one value/direction. Bilateral or coordinated) Flow-based (PTDF/Maxflow, complex coordinated method, following physical flows. For highly meshed systems) Subject to allocation:Explicit (allocation of transmission capacity only, electricity trade is a separate process) Implicit (trade of electricity, transmission capacity obtained “implicitly”, together with electricity trade) Allocation method:Market-based (price offered for the capacity is a subject to the allocation algorithm) Non market-based (Capacity allocated by the methodology that does not consider/require price offers) FOOTER GOES HERE

  13. Cross-border capacity allocation Explicit auctions • Principles of capacity use: • Use-it-or-loose-it • Use-it-or-sell-it Explicit auctions are performed by Auction Offices or TSOs Implicit auctions - Through a single contract, capacity and electricity are traded at the same time, which is the main difference from the explicit auctions. - Transmission capacity is "implicitly" allocated among the participants, based on the offered price of electricity. - Implicit auctions are performed by Power Exchanges (PX) FOOTER GOES HERE

  14. Cross-border capacity allocation • Why allocating transmission capacity? • Transmission capacity is the deficient good of the electricity market. • Transmission capacity is an important aim of the wholesale market design • Allocating transmission rights in the most efficient way is one of main issues of establishment of fair, transparent and non-discriminatory electricity market • Congestion revenues are meant to pay back investments in transmission development which are usually financed by consumers through tariffs • Example of good practice: Establishment of common cross-border capacity market • TSOs need to collaborate in order to: • create a common grid model • define a common capacity calculation methodology • jointly allocate capacity • to split among themselves the cost borne to allocate capacity and the congestion income

  15. ENHANCING REGIONAL COOPERATION FOOTER GOES HERE

  16. Enhancing Regional Cooperation Regional market development through TSO cooperation is in combination with the adopted network codes/rules essential to the timely realisation of Internal Energy Market Regional projects (two or more courtiers) build on solutions defined in the network codes/rules and facilitate implementation of these solutions. Benefit of Regional Cooperation • regional coordination • close cooperation between all involved TSOs • facilitate the exchange of information and expertise among TSOs across regions • ensuring consistency between TSOs • Ongoing Regional Cooperation inside ENTSO-E : • Multi-Regional Coupling • flow–based project • Cross border Intraday Market project FOOTER GOES HERE

  17. Enhancing Regional Cooperation - Ongoing Regional Cooperation in Europe Multi-Regional Coupling - The CACM Regulation sets the rules for a coordinated day-ahead and intraday markets that allows market participants to trade up to at least one hour before real-time. • Flow–based project – develop a common day-ahead flow–based capacity calculation methodology which will merge the two regions into one) • Cross border Intraday Market project - The CACM Regulation defines the rules for a continuous intraday market that allows market participants to trade up to at least one hour before real-time. This single intraday cross-zonal market solution will be based on a common IT system, linking the local trading systems operated by the PXs as well as the available cross-zonal transmission capacity provided by the TSOs. Bids and offers submitted by market participants in one country can be matched by those submitted by market participants in any other country within the IT systems’ reach, provided there is cross-zonal capacity available. The intraday solution supports both explicit and implicit continuous trading and is in line with the EU Target Model for an integrated cross-zonal intraday market. FOOTER GES HERE

  18. BALANCING AND ANCILLARY SERVICES MARKETS FOOTER GOES HERE

  19. Ancillary services Ancillary services refers to a range of functions which TSOs contract so that they can guarantee system security. Ancillary services include: • black start capability (the ability to restart a grid following a blackout); • frequency response (to maintain system frequency with automatic and very fast responses); • fast reserve (which can provide additional energy when needed); • the provision of reactive power (Voltage/Reactive control) • compensation for network losses important aspect: approach of procuring ancillary services. Goal: access to a broad range of services from a wide range of providers : including generators and demand response FOOTER GOES HERE

  20. Cross-border Reginal balancing market Balancing refers to the situation after markets have closed (after gate closure time) in which a TSO acts to ensure that demand is equal to generation in real time. Efficient balancing markets ensure: • Increase security of supply • balancing resources should be effectively shared and traded between involved countries • reducing the need for back-up generation • increase competition • reducing a cost • increase efficiency • allow the integration of more renewable energy sources. Preconditions: • harmonisation of the rules • harmonisation of the products • decision of Imbalance settlement period Regional approach should allow TSOs flexible options, which allow them to make efficient decisions. Example of Procedure for Rules harmonisation and implementation: • Framework Guidelines on Electricity Balancing adopted by Governance Body (basis for Code) • Network Code on Electricity Balancing developed by TSOs • Comitology process – NC become low • Implementation FOOTER GOES HERE

  21. Balancing services • Balancing services can be defined on two levels: • Balancing capacity (reserve) • Balancing energy (activated) • Compared to other electricity market timeframes, balancing markets represent only 2-3% of the total turnover volume of wholesale markets FOOTER GOES HERE

  22. Types of balancing services INTEGRATION FOOTER GOES HERE

  23. Implementation of balancing market – example of Europe • Ongoing projects for balancing market services through the common Platforms in Europe • Automatic Frequency Restoration Reserves (aFRR) • Manual Frequency Restoration Reserves (mFRR) • Replacement Reserves (RR) • Frequency Containment Reserves (FCR) • Imbalance Netting (IN) – IGCC - Imbalance netting is the process agreed between TSOs of two or more LFC areas that allows avoiding the simultaneous activation of frequency restoration reserves (FRR) in opposite directions by taking into account the respective frequency restoration control errors as well as the activated FRR, and by correcting the input of the involved frequency restoration processes accordingly. FOOTER GOES HERE

  24. Link between Balancing service procurement and Imbalance settlement BSP – balancing service provider BRP- balancing responsible party RT – real time FOOTER GOES HERE

  25. Balancing services trading models Recommended model Model 1 (TSO – BSP) Model 2 (TSO – TSO) Control Area 1 Control Area 1 Control Area 2 Control Area 2 Imbalance Settlement Arrangements 2 Imbalance Settlement Arrangements 1 Imbalance Settlement Arrangements 2 Imbalance Settlement Arrangements 1 TSO 1 TSO 1 TSO 2 TSO 2 BSP 2 BSP 4 BSP 4 BSP 2 BSP 1 BSP 3 BSP 1 BSP 3 TSO can only buy services from external balancing service providers (BSP) through the connecting TSO TSO can buy services directly from an external balancing service providers (BSP) FOOTER GOES HERE

  26. INTEGRATION OF RENEWABLE ENERGY SOURCES & MARKET DESIGN FOOTER GOES HERE

  27. Integration of Renewable Energy Sources The integration of renewable energy sources (RES), which is a major target of the EU’s energy and climate policy objectives for 2020 (required 27% share RES within electricity generation) and beyond for 2030 (45% should come from RES), will affect existing electricity grid infrastructure, operations and the functioning of the electricity market. It is necessary to solve a number of challenges such as: • Generations from renewable energy sources (RES) are often dispersed and located in remote areas far away from large consumption centers (cities). This creates a need for significant new investment in transmission infrastructure. • Difficulty in accurately forecasting the electrical output that some renewable technologies can generate in a particular time period (i.e. wind and solar), RES also create additional challenges for system operators. • Impact on electricity price on the electricity market Evolution of the Marginal Cost due to deployment of renewable sources FOOTER GOES HERE

  28. Integration of Renewable Energy Sources Necessary steps: A coordinated approach is required with 27% share RES Progressive Harmonisation of RES support • Alignment of the types of national support schemes; Coordinating RES support with system development and Market design • RES development must not jeopardise the reliable operation, optimal management and technical evolution of the power system • RES development has to go hand-in-hand with system development and market design The Internal Energy Market (IEM) needs to be implemented as soon as possible. • the market design needs to be reviewed, in particular to ensure correct price signals for all necessary investments • Storage, flexible generation, demand response and interconnectors are important to facilitate RES integration FOOTER GOES HERE

  29. Market Design (long term) As the power system evolves, the market design requires regular updates to stimulate behaviours in line with the needs of the power system but also to ensure new investment and system dispatch. • Strengthening the integration of all demand and RES into the market price • Price signal reflecting real cost of electricity (for all markets) • Regional cooperation (allow the trading of energy and of system services across borders) • Development of Risk hedging products for market participants FOOTER GOES HERE

  30. TRANSMISSION TARIFFS FOOTER GOES HERE

  31. Transmission tariffs ​​​​Transmission tariffs are one of the key elements of the well-functioning Electricity Market. There is no single correct solution for recovering costs related to electric energy transmission such as: • costs for infrastructure, • energy losses, • ancillary services, • system balancing and re-dispatching, • costs not directly related to TSO activities (mostly renewable and cogeneration energy support schema, security of supply, regulatory levies..) FOOTER GOES HERE

  32. Transmission tariffs - General principles Transmission Tariff shall be recovered from all grid-connected customers, in accordance to their effective use of the system, and taking into account possible regulation incentives; Transmission Tariff shall cover all yearly transmission costs of TSO and allowing for possible regulation incentives; Transmission Tariff shall take into account the separation of TSO in three entities (Transmission, System, and Market Operators), either through explicitly separate tariff items or through internal invoicing between the three entities Transmission Tariff is approved by the National Regulatory Authority FOOTER GOES HERE

  33. Transmission tariffs - good practice ENTSO-E’s Overview of Transmission Tariffs in Europe is published annually and analyses the design, structure and level of transmission tariffs in more than 30 countries. The report provides detailed descriptions of the different components that make up transmission tariffs and seeks to provide interested parties with an accessible and comparable overview of the alternative approaches used across Europe. https://www.entsoe.eu/about/market/#european-transmission-tariffs FOOTER GOES HERE

  34. INTER-TSO COMPENSATION FOOTER GOES HERE

  35. INTER-TSO COMPENSATION In an open, competitive market, transmission system operators should be compensated for costs incurred as a result of hosting cross-border flows of electricity on their networks by the operators of the transmission systems from which cross-border flows originate and the systems where those flows end. It is necessary establishment of a mechanism for the compensation of transmission system operators for the costs of hosting cross-border flows of electricity and a common regulatory approach to transmission charging The Inter-Transmission System Operator Compensation (ITC) mechanism shall provide for compensation for the costs of hosting cross-border flows of electricity including providing cross-border access to the interconnected system. This mechanism aims to incentivise the hosting of cross border flows and to facilitate the creation of an effectively competitive electricity market. According Regulation ENTSO-E established an ITC fund for the purpose of compensating transmission system operators for the costs of hosting cross-border flows of electricity. The ITC fund shall provide compensation for: • the costs of losses incurred national transmission systems as a result of hosting cross-border flows of electricity; • the costs of making infrastructure available to host cross-border flows of electricity. Contribution to the ITC Fund: The transmission system operators shall contribute to the ITC fund in proportion to the absolute value of net flows onto and from their national transmission system as a share of the sum of the absolute value of net flows onto and from all national transmission systems.

  36. INTER-TSO COMPENSATION The ITC fund shall provide compensation for: • the costs of losses incurred national transmission systems as a result of hosting cross-border flows of electricity; • the costs of making infrastructure available to host cross-border flows of electricity. The Inter TSO Compensation Agreement is a multiparty agreement concluded between ENTSO-E, and TSOs. It is designed to compensate transmission system operators for costs associated with losses resulting with hosting transits flows on networks. The ITC Agreement foresees an annual process in which the parties are required to provide and check the values for the calculation of the annual perimeter fee. Based on this audited data, the transit flows, including also the perimeter flows, are calculated (i.e. imports and exports of electricity to and from third countries), contributing to the framework fund and WWT calculations.

  37. MARKET INFORMATION AND TRANSPARENCY PLATFORM FOOTER GOES HERE

  38. Transparency of market information Transparency of market information is a key element of an open, functional, efficient, liquid and competitive Electricity Market Transparency of market information should: allow availability and disclosure of all relevant information to all market participants allow market participants to take efficient production, consumption and trading decisions increase the security of energy supplies allow equal conditions for all market participants help to avoid abuse of market power Realisation thought the Central information platform (TSOs responsible for establishing and managing the platform) - https://transparency.entsoe.eu/ Goal: coherent and consistent view of the market Market data and information are defined in Regulation/Codes (The Commission Regulation (EU) No 543/2013 on submission and publication of data in electricity markets) Practice has shown: legally binding transparency framework is needed for the Electricity Market since voluntary approach did not work

  39. Benefits from increased market transparency Trust & visibility Data symmetry Reduced uncertainty Easing market entry equal conditions for all market participants Enhancing competition Supporting analysis, planning & decision-making Improved monitoring & market surveillance • Type of data: • Fundamental data • Transaction data FOOTER GOES HERE

  40. What kind of data and information are published Fundamental data LOAD Actual Load, Load forecasts (D+1, W+1, M+1, Y+1), outages of large consumption units… GENERATION Actual Generation per fuel types, per units over 100 MW, outages, hydro reservoirs… TRANSMISSION Schedule Commercial Exchange, Cross border phisical flow, offered and sold capacities, congestions, outages of lines, day-ahead prices… BALANCING Rules, Volumes and prices of reserves, ISP, TSO to TSO balancing, redispecing,

  41. The data journey: from owner to user DATA OWNERSgeneration companies, power exchanges, capacity allocation offices, transmission & distribution system operators, market balancing operators, large consumption units… DATA USERSanalysts from trading, financial, governmental, regulatory and NGO organisations, academics, research, press and publishing, data owners and providers…

  42. Additional data – voluntary basis - Real time data Serbia Hungary

  43. Electronic Data Interchange FOOTER GOES HERE

  44. Electronic Data Interchange (EDI) • Harmonisation and implementation of standardised and reliably functioning electronic data exchanges has a great influence on the establishment of secure, well-functioning and cost efficient the electricity market. • Electronic Data Interchange should cover: • development the data exchange formats required for market, system operation and system development processes • development and the implementation of standardized data exchange formats used between different electricity actors such as TSOs, DSOs, RSCs (Regional Security Coordinators), market participants, NEMOs, NRAs • Development of different role model • Development of coding system • Goal: • To facilitate the electronic data exchanges between different electricity actors • to facilitate the development of off-the-shelf products by vendors using these standards FOOTER GOES HERE

  45. Electronic Data Interchange Working Group EDI WG main tasks: Implementation guides for new business processes related data exchange defined in network codes or guidelines Implementation guides for transparency regulation and REMIT business process integrate the all business processes related data exchange into the CIM (Common Information Model) Implementation of Common grid model exchange Role model development and maintenance (identifying roles and domains which are used in information interchange in the electricity market - it is not a model of the electricity market) • Harmonised role model • European electricity market role model (based on the network codes and guidelines) • European system operation role model (based on the network codes and guidelines) Maintenance of existing implementation guides Energy Identification Coding (EIC) Scheme and support Central Issuing Office Communication standard governance • MADES (Market Data Exchange Standard): • Standard for EDX (Energy Data eXchange) FOOTER GOES HERE

  46. EAR EAR EAR EAR EAR ESS Confirmation Report Detailed metered information by meter for the area Example of Role model - Settlement Process Aggregated billing information by BRP Aggregated metered information by BRP for the area TSO Aggregation of confirmed schedules and regulation data Aggregated metered data and imbalance by BRP MDA ISR BRP Detailed schedule information sent using ESS procedure MDR TSO: Transmission System Operator BRP: Balance Responsible Party DSO: Distribution System Operator MDA: Meter Data Aggregator ISR: ImbalanceSettlementResponsible Billing agent

  47. Regulation/Rules Adoption Procedure FOOTER GOES HERE

  48. Example of procedure for Regulation adoption in EU countries NC AND G covers: - Connection topics - Operational topics - Market topics Comitology procedure Network codes Commission Regulations • A significant difference between network codes (NC) and guidelines (G) is that guidelines include processes whereby TSOs an/or NEMOs must develop methodologies EC Regulation • Similarities (NC AND G): • Both carry the same legal weight (both are Commission Regulations and are legally binding) • Both are directly applicable – i.e. there is no requirement to transpose them into national law • Both are subject to the same adoption procedure (Comitology procedure) Commission Regulations Guidelines FOOTER GOES HERE

  49. Example of procedure for NC adoption in Energy Community FOOTER GOES HERE

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