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Energy Economics > Part II > Flashcards

Part II Flashcards

1
Q

Whate are recurring / multi-round auctions?

A

Indefinite number of rounds every day.

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2
Q

What’s “sealed bid”?

A

All bids are executed at once.

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3
Q

What’s marginal pricing?

A

Price = highest accepted bid

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4
Q

Auction vs. continuous trading on PX

A

Auction:
- all bids and offers are collected by an auctioneer (e.g. PX)
- Matched (executed) at once – then all transactions are executed simultaneously
- One uniform market-clearing price for all transactions (for each time step)

Continuous trading:
- You can place bids at any time
- These are published anonymously in an “order book” (brokers: not anonymous)
- Any market participant can accept bids – then this individual transaction is executed immediately
- Individual price for every single transaction
- Markets for bonds, stocks, currencies, commodities

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5
Q

Power Exchanges serving Germany (3)

A
  1. EPEX SPOT
    - European Power Exchange
    - Roots in Germany&France
    - Owned by EEX and TSOs
  2. Nord Pool
  3. EXAA
    - Energy Exchange Austria
    - Operates in Austra& Germany
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6
Q

Why do firms hedge?

A
  • Mitigate risk: sudden change of fortune may squeeze liquidity
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7
Q

Is hedging distortive?

A

It’s non-distortive. Hedging does not alter spot market behavior and asset dispatch. Even if you “sold” electricity forward, you’ll still turn off your generator if spot prices fall below your var. cost.

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8
Q

Can forward markets hedge investments? Why/ why not?

A

They cannot.
1. Short maturity:
- markets are liquid 2-3 years into the future at best, technical lifetime of wind/solar of 25+ years.

  1. Margining requirements:
    - futures require large margin payments to be deposited
    -> problem for liquidity-constrained project developers
  2. Generation pattern: shape risk
    - only “base” and “peak” products available
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9
Q

What is a PPA

A

Purchasing Power Agreement:
- Literally “electricity sales contract”
- long-term contract of 5-15 years, linked to a specific asset

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10
Q

Difference between PPA and forwards / futures

A

PPAs are asset-specific:
- A contract to sell electricity produced by a specific generator e.g. a wind park.
- Futures / forwards are stand-alone contracts, unrelated to an asset.
- PPAs sold by owner of generator, futures/ forwards may be traded by anyone

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11
Q

Flexibility and system transformation: Variables to consider (2)

A
  1. Time: Temporal matching of generation with demand for electricity
  2. Space: Spatial matching of generation with demand for electricity
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12
Q

What’s a high-value generation technology?

A

Generation technologies that match consumer preferences (time, spatial).

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13
Q

Options to mitigate the RE value drop

A
  1. Renewables-friendly power system
    - Electricity storage
    - Interconnection
    - Reduce thermal must-run
  2. system-friendly renewables
    - geographic distribution of RE
    Diversification of RE mix

Incentivizing change through:
- wholesale market design
- balancing market design
- policy (support scheme) design

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14
Q

What is known as “the silent revolution”?

A

Development of wind turbine technology thus yield through higher towers & longer blades
- smoother generation throughout the day
- higher capacity factor

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15
Q

What is system-friendly solar PV?

A

Improving solar market value through
- west facing (shifting generation further off-peak)
- bifacial

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16
Q

Steps of the electricity market from generation to consumption

A

Generation (competition), Transmission (monop.), distribution (monop.), retail supply (comp.), consumption

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17
Q

(Why) is there “the” market for electricity?

A

There isn’t. There are distinct markets for electricity products: Wholesale, retail, system services.

18
Q

Difference of OTC & PX

A

OTC: One transaction. There’s no middleman, only a broker. Thus, counterparty (credit) risk.

PX: Legally, two independent transactions, no counterparty risk.

19
Q

What are ID markets there for, abstractly spoken?

A

Trading new information: Forecast deviations of production (esp. VRE) or consumption (e.g. it’s colder than expected).

20
Q

Which power exchanges (platforms) are there, serving Germany?

A

EPEX SPOT
EXAA
Nord Pool

21
Q

Distortiveness of hedging?

A

Heding is non-distortive, thus, doesn’t alter spot market behavior and asset dispatch.

22
Q

Why forward markets cannot hedge investments

A
  1. Short maturity:
    - markets are liquid 2-3 years into the future at best
    - technical lifetime of wind/solar of 25+ years
  2. Margining requirements
    - Futures require large margin payments to be deposited
  3. Generation pattern: Shape risk
    - only “base” and “peak” products available
    - poor fit to wind/ solar generation profiles
23
Q

PPAs vs. forwards/ futures

A

PPAs are asset-specific (fut/forwards are not)

24
Q

Problems of capacity mechanisms

A
  • Danger of overcapacity
  • Availibility: How to incentivize plants to be available in peak demand times?
25
Q

Price ceiling(s) of reBAP

A

Price ceiling 1: limit reBAP to highest energy price activated.
Price ceiling 2: Linear function based on ID price for imbalances 125 MW to 500 MW

26
Q

Price adder for imbalance price

A

If system imbalance exceeds 80% of reserves, there’s a price adder.

27
Q

Two kinds of balancing reserve sizing

A

Stochastic: e.g. for 99.95% of the time
Deterministic: For a certain event.

28
Q

What limits load flow in grids? (4)

A
  • Thermal limits (heat increases resistance)
  • thermal aging
  • voltage limit
  • stability limit
29
Q

Kirchhoff’s laws

A

The flow of electricity in el. grids is determined by the laws of physics
1. Current law: Total current or charge entering a node = the charge leaving the node
2. Voltage law: In any closed loop network, the total voltage around the loop is equal to the sum of all the voltage drops within the same loop (which is equal to zero)

30
Q

What does the PTDF matrix depict?

A

The PTDF matric shows marginal impact of additional generation on line flows. It depends on network topology only.

31
Q

What’s congestion management?

A

Dealing with the limited capacity of the electricity grid.
Reworded: Measures to avoid line overloading and to remain within voltage limits.

32
Q

What part of the grid are effected by congestion management?

A
  • Distribution of the flow of electricity across lines
  • The network topology
  • The geographic distribution of electricity generation/ consumption
33
Q

What can TSOs do if they foresee line overload? (operational congestion management)

A
  1. Impact load flow directly (phase-shifting transformers)
  2. Topology changes (change topology of lines, switching operations)
  3. Redispatch (reduce generation in oversupplied region, increase in undersupplied region)
34
Q

Uniform vs zonal vs nodal pricing

A

Uniform pricing:
- wholesale el. price is the same across the entire market at any moment in time
- any physical constraints of the transmission system are addressed outside the market.

Zonal pricing:
- Market is split into a number of regions with stable delimitations
- Within each “bidding zone”, the price is uniform and trade is unconstrained
- Between zones, trade is limited and prices may diverge

Nodal pricing:
- each substation is its own bidding zone
- every line becomes an interconnector, every trade an XB trade
- Prices reflect the costs and constraints of generation and transmission

35
Q

Price determination in nodal pricing
1. What’s the impact of line congestion?
2. How is the price at the node determined?

A

1.:
Free line capacity = prices converge
Congested lines = prices diverge

  1. Accounting for all network constraints (=Beschränkungen) if 1 additional MW is fed in
36
Q

What’s the precondition for nodal prices to diverge?

A

They already diverge if one single network element is congested. Nodal prices can be different from the mar. costs of any generator (consequence of physical power flow)

37
Q

When are locational marginal prices lower/ higher than the var. cost of any generator?

A

Higher: if consuming one additional MWh requires increasing the output of a high-cost generator by more than one MWh

Lower: if consuming one additional MWh allows increasing the output of a low-cost generator by more than one MWh

38
Q

What’s the “illusion of the copper plate” meaning?

A

Within a bidding zone, the TSO guarantees that all trade among any market actors is possible without restrictions -> consequently, there is one electricity price

39
Q

The questions of allocation of cross-border capacity (2)

A
  • Who should be allowed to use interconnector capacity?
  • How much should they pay?
40
Q
A

Energy Economics (2 decks)

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