Table of Contents
OVERVIEW OF BALANCING MARKETS ………………………………………………………………. 1
1-1 The electricity sector and ancillary services ………………………………………………………… 1
1-2 Definition of ‘balancing’ in electricity grids …………………………………………………………… 2
1-3 Definition of balancing services …………………………………………………………………………….. 3
1-4 Components of balancing markets …………………………………………………………………………. 4
1-4-1 Balancing service procurement ……………………………………………………………………. 4
1-4-2 Balance responsibility ………………………………………………………………………………….. 5
1-4-3 Balance settlement …………………………………………………………………………………….. 6
1-5 Balancing services markets ……………………………………………………………………………………. 7
1-6 Balancing market integration (EU context) …………………………………………………………… 8
RESEARCH FRAMEWORK ……………………………………………………………………………… 11
2-1 The “Balance Management in National Power Markets” project …………………………………. 11
2-2 Focus of the research ………………………………………………………………………………………….. 12
2-3 Research questions …………………………………………………………………………………………….. 13
2-4 Phase one – national design ………………………………………………………………………………….. 14
2-5 Phase two – multinational design …………………………………………………………………………. 15
EXPLORING THE DESIGN SPACE OF BALANCING SERVICES MARKETS …………. 17
3-1 Introduction …………………………………………………………………………………………………………. 17
3-2 Design variables ………………………………………………………………………………………………….. 18
3-2-1 Definition of balancing services …………………………………………………………………… 18
3-2-2 Capacity and/or energy markets ………………………………………………………………….. 19
3-2-3 Reserve requirements ………………………………………………………………………………….. 20
3-2-4 Timing of markets …………………………………………………………………………………………. 21
3-2-4-1 Timing of the bidding procedure ……………………………………………………………. 21
3-2-4-2 Timing of the market clearance ………………………………………………………………. 22
3-2-5 Method of procurement …………………………………………………………………………………. 23
3-2-6 Pricing mechanism ……………………………………………………………………………………….. 24
3-3 Performance criteria ……………………………………………………………………………………………. 25
3-3-1 Operational security …………………………………………………………………………………….. 25
3-3-2 Incentive compatibility ………………………………………………………………………………….. 26
3-3-2-1 Transparency …………………………………………………………………………………………. 26
3-3-2-2 Efficiency ……………………………………………………………………………………………….. 27
3-3-2-3 Liquidity …………………………………………………………………………………………………. 27
3-3-2-4 Accuracy of balance planning ………………………………………………………………….. 28
3-4 Current literature review on analysis of the design variables ……………………………………… 29
3-5 Conclusions ……………………………………………………………………………………………………….. 30
RESERVE REQUIREMENTS AND TIMING OF MARKETS …………………………………. 33
4-1 Introduction …………………………………………………………………………………………………………. 33
4-2 Case studies ……………………………………………………………………………………………………….. 34
4-2-1 Germany ……………………………………………………………………………………………………. 34
4-2-2 The Netherlands ………………………………………………………………………………………….. 35
4-3 Reserve requirements ………………………………………………………………………………………… 36
4-4 Timing of reserve capacity markets ………………………………………………………………………. 37
4-4-1 Bid prices ……………………………………………………………………………………………………. 37
4-4-2 Excess supply ratios ……………………………………………………………………………………. 38
4-4-3 Conclusions ………………………………………………………………………………………………. 39
4-4-4 Arguments against short-term markets …………………………………………………………… 40
4-5 Timing of balancing energy markets ……………………………………………………………………. 41
4-6 Conclusions ……………………………………………………………………………………………………….. 42
COORDINATION OF TIMING OF RESERVE CAPACITY AND DAY-AHEAD MARKETS … 45
5-1 Introduction …………………………………………………………………………………………………………. 45
5-2 Agent-based modeling, motivation ……………………………………………………………………… 46
5-3 Agent-based modeling, concepts and procedure ……………………………………………………….. 47
5-4 Agent-based modeling, various methods …………………………………………………………….. 48
5-5 The basic logic of the model ………………………………………………………………………………….. 49
5-6 Inputs and parameter settings ………………………………………………………………………………… 50
5-7 Model results ………………………………………………………………………………………………………. 51
5-8 Shortage of reserves …………………………………………………………………………………………… 52
5-9 Discussion …………………………………………………………………………………………………………. 53
5-10 Conclusions ………………………………………………………………………………………………………. 54
INTEGRATION OF RESERVE CAPACITY MARKETS ……………………………………………. 57
6-1 Introduction …………………………………………………………………………………………………………. 57
6-2 Is the ‘multinational arrangement’ the main concern? ………………………………………………… 58
6-3 Lost opportunity as a result of interconnection capacity reservation …………………………….. 59
6-3-1 Year 2009 ……………………………………………………………………………………………………… 59
6-3-2 Year 2010 ……………………………………………………………………………………………………… 60
6-4 Is interconnection capacity reservation generally wrong? ……………………………………………. 61
6-5 Are we arguing for more complexity? ………………………………………………………………….. 62
6-6 Market integration, reform on a national level …………………………………………………………. 63
6-7 Wind and future …………………………………………………………………………………………………… 64
6-8 Conclusions ……………………………………………………………………………………………………….. 65
INTEGRATION OF BALANCING ENERGY MARKETS ………………………………………….. 67
7-1 Introduction …………………………………………………………………………………………………………. 67
7-2 Basic ACE netting ………………………………………………………………………………………………… 68
7-3 Main aspects of balancing energy markets integration …………………………………………………. 69
7-4 BSP-TSO trading ………………………………………………………………………………………………….. 70
7-4-1 Norway-Netherlands ……………………………………………………………………………………. 70
7-4-2 Norway-Germany …………………………………………………………………………………………. 71
7-4-3 Conclusions ……………………………………………………………………………………………….. 72
7-4-4 Low reservoir levels in Norway ……………………………………………………………………. 73
7-5 TSO-TSO trading …………………………………………………………………………………………………. 74
7-6 BSP-TSO or TSO-TSO …………………………………………………………………………………………. 75
7-7 Restricted BSP-TSO ……………………………………………………………………………………………. 76
7-8 Practical complications ………………………………………………………………………………………… 77
7-8-1 Bidding frequency …………………………………………………………………………………………. 77
7-8-2 Coordination of imbalance settlement ……………………………………………………………. 78
7-9 Conclusions ……………………………………………………………………………………………………….. 79
SUMMARY AND POLICY RECOMMENDATIONS ………………………………………………… 82
8-1 Critical characteristics of balancing markets …………………………………………………………… 82
8-2 Short and long term view ………………………………………………………………………………………. 83
8-3 Long-term view: national reforms …………………………………………………………………………… 84
8-3-1 National reforms for northern Europe …………………………………………………………….. 84
8-3-2 How to stimulate reforms? ………………………………………………………………………………… 85
8-4 Short-term view: limited cross-border exchanges ……………………………………………………….. 86
8-4-1 Integration of reserve capacity markets ……………………………………………………………. 86
8-4-2 Integration of reserve capacity markets in northern Europe ……………………………………. 87
8-4-3 Integration of balancing energy markets ……………………………………………………………. 88
8-4-4 Integration of balancing energy markets for northern Europe …………………………………. 89
8-5 Notes on further research ……………………………………………………………………………………… 90
BIBLIOGRAPHY …………………………………………………………………………………………………… 93
APPENDIX …………………………………………………………………………………………………………. 97
CURRICULUM VITAE ………………………………………………………………………………………. 101
NGINFRA PHD THESIS SERIES ON INFRASTRUCTURES …………………………………. 105
Abstract
The “balancing market” in the liberalized electricity sector of today is the tool in the hands of the system operator to balance generation and consumption in the grid and ensure system security. This dissertation addresses market design issues of balancing services markets from a national perspective, and uses the findings to make practical conclusions about how to integrate the markets at an international level and create regional/multinational markets for balancing services.