Lec. 09: Electricity grid Flashcards
True or false?
Existing bidding zones
- Bids for German electricity take place in a bidding zone encompassing both Germany and Luxembourg (Austria was separated from the German bidding zone in October 2018)
- Other countries have their own bidding zones or are split into several bidding zones (see Nordic countries and Italy)
- This means that transmission constraints are only visible to the market at the borders between the bidding zones
- Internal transmission constraints are ignored - market bids are handled as if they do not exist (see next section on congestion management)
True!
European single market for electricity
Goal: Creation of a single market for electricity in Europe.
Name the benefits of a single European market.
Benefits of a single European market
- Increase in overall welfare since low-cost regions can export to high-cost regions
- Increases competition between suppliers (market power decreases and market prices decreases)
- Improves system integration of variable RES (balance variable feed-in over larger area, allow integration of best wind and solar sites)
- Improves network security by sharing system service resources (e.g. control power, backup generation in case of a power outages)
- Economies of scale for power plants
- More uniform aggregated load leads to more regular power plant operation
What is congestion?
What is congestion management?
Congestion
- Occur when the direct realization of market transactions is limited by the technical transmission/exchange capacity
Congestion management
- Is the adequate allocation of the scarce resource of transmission capacity
1) What is the goal of crossborder transmission capacity trading?
2) Name and explain different measures of crossborder transmission capacity trading.
1) What is the goal of crossborder transmission capacity trading?
- Goal: efficient allocation of cross-border transmission capacities in order to optimise the total social welfare
2) Different measures of crossborder transmission capacity trading
Pre-emptive measures
- Explicit auctions of capacity between bidding zones
–> Transmission rights are auctioned separately and independently from the electricity market
–> Via annual, monthly and daily auctions; bilaterally or via exchange - Implicit auctions of capacity between bidding zones
–> In an implicit auction, the market clearing and use of interconnection capacity is determined simultaneously in an algorithm which optimises overall social welfare.
–> In Europe for the day ahead market this algorithm is called EUPHEMIA.
–> The price per area reflects both the cost of energy and congestion
–> Via exchange
(–> Transmission rights and energy are coupled and traded simultaneously (i.e. buyers bid for electricity supplied by generators from the neighbouring market area))
Curative measures
- Redispatch of power plants within the bidding zones
True of false?
Capacities between bidding zones can be different in different directions (exports versus imports).
Some borders have alternating current (AC) and some direct current (DC).
True!
True!
What is missing?
Trade among different bidding zones
- If the price between two or more bidding zones is not the same, “…” is possible (i. e. “…”)
- If there is no limit on trade, prices will “…”
- However, trade is typically limited by the “…”
- If the “…” is limited, prices may not equalise, which increases “…”, which is the “…”
“arbitrage” ; “buying power in the lower-cost zone and selling it in the higher-cost zone”
“equalize”
“interconnection capacity”
“interconnection capacity”
“the congestion rent” ; “price difference multiplied by the flow of electricity between the regions (|delta P| * |F|)”
True or false?
There are two bidding zones: A, B
If there is free transfer capacity and the generation in bidding zone B is already at the maximum capacity (Q_B = Q_B_max). The price in both bidding zones will be equal to the price of bidding zone A, because any additional unit will come from A.
True!
Electricity Networks
Consider an electricity market with two bidding zones, A and B, which are physically connected through a transmission line. There are two generators, one in each zone.
1) How do you generally calculate the revenue of both generators?
2) How do you generally calculate the consumer payments in both bidding zones?
Q_i: Supply of generator i
Q_D_i: Demand of consumers in bidding zone i
P_i: Market clearing price in bidding zone i
1) How do you generally calculate the revenue R_i of both generators?
R_i = P_i * Q_i
–> E.g. R_A = P_A * Q_A
2) How do you generally calculate the consumer payments CP_i in both bidding zones?
CP_i = P_i * Q_D_i
–> E.g. CP_A = P_A * Q_D_A
Important! Both formulas are valid in case there are transmission and/or generation constraints!
True or false?
Consider an electricity market with two bidding zones, A and B, which are physically connected through a transmission line. There are two generators, one in each zone.
CR = GR_A + GR_B - CP_A - CP_B
CR: Congestition rent
GR: Generator revenue
CP: Consumer payments
True!
True or false?
Consider an electricity market with two bidding zones, A and B, which are physically connected through a transmission line. There are two generators, one in each zone.
If the interconnection capacity K is 0 or infinity the congestion rent is always zero.
True!
K = 0 –> |F| = 0 –> CR = 0
K = infinity –> delta P = 0 –> CR = 0
True or false?
- The country-sized and regional bidding zones ignore congestion inside the bidding zones.
- The bidding zone is defined by assuming no congestion inside its borders.
- However, the resulting market dispatch can still lead to violations of transmission capacity inside the zone.
- Counter-measures: redispatch outside the market.
True!
Why does the expansion of renewables worsen congestition?
- Electricity grid are traditionally focused on few generation hubs (high centralization)
–> Electricity grids have developed around and were focused on a few generation centers with very high power (e.g. large nuclear and coal power plants) in the past - The expansion of renewables leads to more decentralized generation (high decentralization) and to more feed-in on the distribution level of the grid
- Result: overloaded lines/grid congestion inside and in neighbouring bidding zones increases; congestions blocks imports and exports
–> E.g. all the wind energy from north of Germany cannot be transported to the load in south Germany
True or false?
Scheduled market flows versus physical flows
Power traded between zones does not always correspond to what flows according to the network physics. This leads to political tension as wind from Northern Germany flows to Southern Germany via Poland and the Czech Republic as a loop flow rather than flowing inside Germany as intended.
True!
Name solutions for the congestion problem (overloaded lines) which increases/intensifies through the expansion of renewables.
Solution 1a: Redispatch after energy market clearing
Solution 1b: Measures involving multiple bidding zones
Solution 2: Grid expansion within bidding zones
Solution 3: Smaller bidding zones to “see” congested boundaries
Solution 4: Nodal pricing
Solution 1.5: Flow-based market coupling
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Redispatch after energy market clearing
Redispatch after energy market clearing
- In the electricity market physical and commercial flows are separated
–> Most electricity markets (e.g. day-ahead market) assume that there are unlimited transmission capacities (bidding zone = “copper-plate/sheet”) and therefore ignore the congestion problem - To ensure that electricity demand and supply can meet while the physical limits of transmission are not exceeded, the network operator rely on redispatch 2.0 (= redispatch of power plants and curtailment of renewables)
–> E.g. Redispatch: There is congestion on a specific line. TSO ramps down power plant located before the bottleneck and ramps up an other power plant after the bottleneck. - Problems: Redispatch and curtailment
–> Are very costly and results in a loss in CO2-neutral generation
–> Create no market incentives to invest in flexibilities (e.g. grid expansion, storages, PtX)
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Measures involving multiple bidding zones
Measures involving multiple bidding zones
- If redispatch actions within the bidding zone are not sufficient (following options are used much rarer):
-
Counter-trading
–> TSOs buy power in one bidding zone and sell in another on the power exchanges to reduce a bottleneck (either on the border or inside the bidding zone) -
Multilateral Remedial Action (MRA)
–> Post-market redispatch involving multiple bidding zones
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Grid expansion within bidding zones
Grid expansion within bidding zones
- Relieve congestion by expanding capacities inside the bidding zone
- Investment increases money TSOs can claim via network fee on consumers
- Federal Network Agency (Regulator) must approve the grid expansion plans
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Smaller bidding zones to to make congested boundaries visible to market
Smaller bidding zones to make congested boundaries visible to market
- Introducing smaller bidding zones makes congestion at the boundaries between zones visible to market in the implicit auctions
- E.g. Scandinavia and Italy introduced smaller bidding zones
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Nodal pricing
Nodal pricing
- Locational marginal pricing
- Introduce different prices at different locations (nodes) on the grid which are based on local supply, demand, and network constraints
- Is applied in the US and is considered too complex and subject to market power to be used in Europe
- First step towards the direction of nodal pricing: split German bidding zone into two separate bidding zones: North and South
–> Initial price difference could average up to 12 EUR/MWh
–> Prices would converge if network capacities expand
–> Politically difficult, may require, uniformized price on consumer side like in Italy
Problem
- Congestion (overloaded lines) increases/intensifies through the expansion of renewables
Explain the following (partial) solution
- Flow-Based Market Coupling (FBMC)
Flow-Based Market Coupling (FBMC)
- Is a mechanism used to optimize cross-border electricity trading by considering real-time grid constraints as well as actual power flows rather than predefined transfer limits such as NTCs
- Is applied in Europe
What are system services?
System services
- Are provided by the TSO to maintain the stability of the grid and include
–> Frequency control
–> Voltage control
–> Black-start capacities for grid restoration after black-outs
–> Compensation for transmission losses
–> Cross-border interconnection management
How do TSO control the frequency of their grid?
What is balancing power and balancing energy used for?
Balancing power and balancing energy
- Control power markets provide frequency control
- Frequency is determined by balance of supply and demand.
- Target frequency in Europe: 50 Hz (in other parts of world, like US, it is 60 Hz)
- TSO procure (pos./neg.) balancing power on control power markets (FCR, FRR, mFRR) and have it available in case balancing energy has to be applied
- Demand > generation → frequency drops → pos. balancing energy is applied by TSO
- Demand < generation → frequency rises → neg. balancing energy is applied by TSO
Who buys balancing power from whom?
Name the different types of control power/control power markets.
Who buys balancing power from whom?
- TSOs procure balancing power from Balance Service Providers (BSP) in balancing markets
–> E.g. BSP: generators, demand response, storage - Balancing energy cost is charged to the respective balance group
Different types of control power / control power markets
- Primary reserve (FCR: Frequency Containment Reserve)
–> Automatic activation within 30 sec
–> Duration per failure: 0 < t < 15 min
–> Auctions: 6*4 h blocks per day
–> Compensation: capacity (P) only
–> Pay-as-clear (uniform pricing)
- Secondary reserve (aFRR: Frequency Restoration Reserve with automatic activation)
–> Complete automatic activation within max. 5 min
–> Auctions: 6*4 h blocks per day
–> Compensation: capacity (P) and energy (E)
–> Pay-as-bid (P), Pay-as-clear (E)
- Tertiary/minute reserve (mFRR: Frequency Restoration Reserve with manual activation)
–> Complete semi-automatic activation within max. 15 min
–> Duration per failure: 15 < t < 60 min or up to several hours for several failures
–> Auctions: 6*4 h blocks per day
–> Compensation: capacity (P) and energy (E)
–> Pay-as- bid (P), Pay-as-clear (E)
(Pay-as-clear = uniform pricing auction)
Cost allocation of control power
Distinguish between capacity price and energy price.
Cost allocation of control power
- Capacity price (CP) is paid for control power hence the availability of control energy
- Energy price (EP) is paid for the utilization control power hence control energy
- FCR, FRR, mFRR
–> CP –> Are allocated in the grid fee (“Netzentgelt”) - FRR, mFRR
–> EP –> Costs of balancing energy are allocated to the respective BRP
True or false?
The costs of TSOs for procuring balancing power have been generally decreasing in the last decade.
True!
- Compare slide 58
True or false?
With the ongoing energy transition the electricity feed-in decreases on the transmission level and strongly increases on distribution level.
This increases the complexity DSOs have to deal with:
- Congestion management
- Voltage control
- Grid restoration after blackout
- (Frequency control – only in isolated systems)
True!
True or false?
Grid as monopoly
- Grid operation is a natural monopoly
- As any monopoly, it is prone to eliminating newcomers (potential competition for affiliated generation/retail unit) by overcharging or denying technical feasibility
Good regulation should guarantee
- Non-discriminatory third-party access (i.e. of generators and consumers)
- Transparency
- Cost recovery (so network operator doesn’t go bankrupt)
- Cost reflectiveness (clear connection between charges and actual costs)
True!
True or false?
Grid tariffs must cover the following expenses of grid operators:
- Operation and Maintenance (O&M)
- Grid extension
- Control power (capacity component)
- Redispatch 2.0 (redispatch + curtailment)
- Grid reserve (capacity held for redispatch in South)
- Capacity reserve (for peak capacity, cannot participate in energy market now or ever)
- Security reserve (coal/climate reserve)
- Reactive power
- Grid losses
- Other
True!
What is the incentive regulation in Germany?
Incentive regulation in Germany
- 5-year regulatory period
- Revenue that a TSO/DSO is allowed to earn is fixed for the regulatory period at a level.
- Revenue cap: total cost + depreciation + return on equity
- Investment costs into grid extension are allowed above cap.
True or false?
Incentive regulation in Germany
- 5-year regulatory period (current period 2019-2024)
- Revenue that TSO/DSO is allowed to earn is fixed for the regulatory period at a level.
- Revenue cap: total cost + depreciation + return on equity
- Investment costs into grid extension are allowed above cap.
Costs
- permanently non-controllable
- temporarily non-controllable
- controllable
- volatile
Efficiency benchmarking based on cost examination and structural data validation of individual TSO/DSO. The most efficient entity serves as benchmark.
True!
True or false?
The ultimate rationale of liberalisation/restructuring of the electricity sector is the prospect of lower prices for electricity consumers achievable through competition.
The option for final customer to switch supplier creates a competitive pressure for market players along the electricity supply chain.
True!
True or false?
Categories of final customers
- Residential
- Commercial
- Industrial
Household customers: up to 10,000 kWh/a consumption
- residential & small commercial
- standard load profile (SLP) - approximation
Non-household customers: all other
- commercial (> 10,000 kWh/a consumption) & industrial
- registered load profile measurement (RLM): >100 GWh p.a.
True!
