Using implicit auctions by power exchanges to manage cross-border congestions:
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Using implicit auctions by power exchanges to manage cross-border congestions: Decentralized Market Coupling B. den Ouden, President of Europex APEx Annual Conference 2003 Cartagena de Indias, Colombia, 14 october 2003. CONTENT. Europex members Implicit auctions The benefit for trading

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Using implicit auctions by power exchanges to manage cross-border congestions: Decentralized Market CouplingB. den Ouden, President of Europex APEx Annual Conference 2003 Cartagena de Indias, Colombia, 14 october 2003


Content

CONTENT

  • Europex members

  • Implicit auctions

  • The benefit for trading

  • The benefit for Europe

  • The decentralized market coupling model

  • Step by step approach


Europex

EuroPEX

Backgrounds:

  • Looking after PX interests

  • EU policy

  • EuLocal taxation / policies

    New lines:

  • Slow

  • Huge investment

    Allocation of limited transmission capacity

Nord Pool

APX

APX UK

EEX

Powernext

Opcom

Borzen

GME

OMEL


Some congested borders in europe

Some congested borders in Europe

Reasons:

  • National policies in the past

  • Fuel decisions

  • Local taxation / policies

    New lines:

  • Slow, huge investment

    Fragmented market!

  • Important: method of allocation of limited transmission capacity

Nord Pool

APX

APX UK

EEX

Powernext

Opcom

Borzen

GME

OMEL


Cross border allocation methods

Cross-border allocation methods

  • (New lines)

  • Non-market based:

    • First come first serve

    • Pro rate curtailing

  • Market based:

    • Explicit autioning

    • Implicit auctioning , market splitting/coupling

  • Counterbuying, compensating re-dispatch


Non market based methods

Non-market based methods

  • Stable when no congestion or non-competition

  • Unstable when there is a real value and full competition

  • First come first serve: fax run in the opening seconds

  • Pro rata: gaming for ever-bigger subscription volumes


Market based methods

Market based methods

  • Attribute an economical value to the good being limitedly available: transmission capacity

  • Explicit auctioning:

Explicit auction transmission capacity

Cap. price

Maximum im/export


Explicit auctioning

Explicit auctioning

  • Creates stability

  • Drawbacks:

    • Risky

    • Suitable for bigger players

    • No contribution to liquidity on either side

    • No “netting” of im & exports

    • Creates a barrier even at times when there is no congestion!

    • Leads to a fragmented European market


Explicit auctions of transmission capacity

Explicit auctions of transmission capacity

Auction revenue

Explicit auction transmission capacity

Maximom

export

Spot market

Area A

Spot market

Area B

Price

Cap. price

?

Maximum im/export

Quantity

Quantity

Maximum

import


Implicit auctioning market coupling full transparency in constraint management

Implicit auctioning (market coupling) Full transparency in constraint management

Area price difference

  • One-step process

  • No difference between auction price and area price difference

  • Stimulates liquidity in each area

Maximum

capacity

Price

Spot Market

Area A

Spot Market

Area B

Δ

Quantity

Quantity

Maximum

capacity


Implicit auctioning market coupling full area integration when no constraint

Implicit auctioning (market coupling):Full area integration when no constraint

One price for both areas

  • Areas merge at that moment

  • Trade barriers completely gone

  • Liquidity shared

Allocated

capacity

Price

Spot Market

Area A

Spot Market

Area B

Quantity

Quantity

Allocated

capacity


The benefit for trading

The benefit for trading

  • One-step process, ease of access

  • Priority on interconnectors based on price

  • Interconnector schedules based on area price difference

  • Hedging instruments

  • All local players also play internationally

  • Encourages liquidity and transparency

    ……thereby mitigating market power abuse


The benefit for europe

The benefit for Europe

  • European market fragmented by constraints

  • Market coupling directly unifies markets whenever there is no constraint

  • So, for x % or the time, markets will be unified.

  • Then, by other methods (e.g. additional transmission capacity) this x% percentage can be raised gradually.

  • Contributes to the establishment of the internal European electricity market


The decentralized model objectives

The decentralized model : objectives


Decentralized model overview

Decentralized model: overview

  • Each exchange to receive its area-based bids

  • Exchanges exchanging bid – based information

  • Adapting exchange price in each area:

    • Unconstrained: prices equal

    • Constrained: prices are set with maximum im/export

  • Iteration process for blocks

  • Local scheduling and balancing


Decentralised market coupling dmc 1

Decentralised Market Coupling (DMC) – 1 -

  • TSOs to publish available capacity and power transfer distribution factors (PTDFs)

  • Power exchanges (PXs) gather bids & offers in their area

  • Then calculate ‘net export curve’ showing impact of export (and import) volumes on hourly area price

  • PXs calculate optimal use of network across DMC region

  • Includes bilateral bids who pay (or counter-flows receive) price difference between areas


Decentralised market coupling dmc 2

Decentralised Market Coupling (DMC) – 2 -

  • PXs repeat process to accommodate block bids (several iterations, or a sequential process in some regions)

  • PXs notify and settle all area commitments (including cross-border bilaterals)

  • Deviations handled by local area imbalance arrangements

    More details: see Europex paper as submitted


Influence of im exports on area prices more details see europex paper at www europex org

Influence of im/exports on area prices(more details: see Europex paper at www.europex.org)

area A

area B

Price

Price

demand

Isolated price

demand

supply

Isolated price

supply

Spot market volume

Spot market volume


Features of decentralized market coupling

Features of Decentralized Market Coupling

  • Enables coupling of multiple areas together with efficient allowance for loop flows on meshed networks

  • Supports block bids and other local market requirements

  • Supports bilateral contracts and netting of counterflows

  • Requires only limited harmonization of market rules, and no change to local notification/imbalance arrangements

  • Provides open and fair market access with no additional barriers beyond existing local PX requirements

  • Transparent, rule based, auditable methodology


Key points 1

Key Points (1)

  • All physical capacity and PTDFs to be made available in the day-ahead implicit auction

  • Physical capacity must be firm and published prior to PX bid submission to ensure orderly and efficient market

    • TSOs to make allowance for unplanned events/outages

    • Regulatory issue: maximize capacity (DMC can contribute to reducing TSOs’ exposure to loop flow uncertainty)

  • Optimize the use of the physical network and maximize liquidity (+reliable reference prices)

    • hedge forward price risk with financial products

    • phase out explicit auctions of physical transmission rights

    • handle adjustments in intra-day markets


Key points 2

Key Points (2)

  • Owners of long-term capacity rights can, in effect, sell them by offering to schedule a counterflow. Historical long-term contracts could be converted into financial transmission rights

  • Rules and procedures will need defining for each ‘cluster’ of markets, plus some harmonization of market rules will be necessary - possibly could be overseen by a regional group comprising regulators, TSOs, PXs and participants

  • PXs will need to meet certain requirements - e.g., membership requirements, information publishing, audit, disputes procedures


Step by step approach

Step by step approach

Implicit auctioning between exchanges: step by step process

  • 1. Bilateral pilots at several places in Europe

  • 2. Regional developments

  • 3. European integration

    Manageable learning curve


Summary

Summary

  • Directly a partial (x %) integration of markets

  • Local Players co-acting on European scale

  • Better liquidity and transparency

  • Mitigation of market power abuse

  • Step-by-step process, practical solution

  • Incremental learning curve


Supplementary material

Supplementary material

Area A

Area B

Price

Price

PB

P*B

P*A

PA

Q*B

Import

Q*A

Export

Import

Export


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