September 24, 2018

Future Power Market Platform

Workshop on Zonal and Nodal Co-Existence

Date

September 24, 2018

Location

Elinor Ostrom Hall
Room 1.2.019
Mohrenstr. 58
10117 Berlin

Speaker

Andreas Ehrenmann, Maximilan Rinck, Konrad Purchala, Christian Nabe, Julian Dyer , Karsten Neuhoff, Jörn Richstein

The question posed in this workshop is not whether zonal or nodal is better - but in the case some countries wish to go to a nodal system, how would that interact with the neighboring electricity markets. Interested countries argue that under subsidiarity it is in their freedom to decide how strong to build their internal networks to avoid constraints or use smaller pricing zones or nodal pricing internally to deal with transmission constraints.

However - in implementing congestion management strategies, they need to contribute to a functioning EU power market, which poses the following questions which we would like to discuss during our workshop

Program

Introduction

What is the main difference between zonal and nodal market designs and would thus require consideration in design of coupled markets which is compatible for both aspects?

Pricing zones allow (i) intraday / short-term trading within and across zones in continuous trading (XBID) (ii) pursue re-dispatch to resolve transmission constraints within zones (iii) actors aim to deliver a balanced position, balancing within portfolio

Regions with nodal pricing (i) run real-time (and possibly intraday) auctions with implicit transmission allocation (repeated market coupling auction) (iii) actors submit unit based bids, and have incentive for unit based balancing, and use their portfolios for financial hedging.

The workshop will focus on discussion of key interfaces to

  • secure benefits of the common European market (trade), e.g. ensuring efficient (flexible and economically optimal) use of transmission capacity
  • facilitating cross-border support on domestic congestion (cross-border re-dispatch)
  • ensuring secure operation of the system

while giving member states the flexibility in choosing their congestion management approach.

Coordinated intraday day auctions (building on current market coupling) facilitate trade between regions (to allow for financial firm trade, as common in today's intraday markets)

  • How frequent to run intraday auctions? Are they cross-border or only within pricing areas (closure auction only, multiple, hourly)?
  • Implications of intraday auctions in nodal pricing systems?
  • What is a closing auction in zonal systems (real-time price, balancing price, …)?
  • Arbitrage between auctions at different points of time (virtual bids) / stochastic optimization?
  • What product length is necessary to create appropriate incentives for balancing in nodal pricing systems (e.g. 5 min) and what is feasible to ensure sufficient liquidity in zonal systems?
  • What bidding formats should be in place for both markets? (Hypothesis - multi-part bidding for nodal pricing is necessary, and for zonal pricing beneficial) Are there computational advantages in having unified bidding formats?
  • Is it feasible/desirable/necessary to have continuous trading alongside the auctions?

Opening Comments: Andreas Ehrenmann (Tractebel), Maximilan Rinck (EPEX Spot)  

Can the current flow-based approach be the foundation to include nodal markets for one or several countries within the existing zonal system – with definition of critical interfaces and their use in the clearing algorithm?

  • Experience with definition of critical interfaces and use in flow based market coupling in EU (Lessons from Euphemia on need for the type of harmonization of products
    • Do we need a faster algorithm, optimization?
    • Are side payments possible? (By a for profit power exchange?)
    • Can Euphemia be adapted?
  • Experience form US system with long history of co-existence of (i) nodal pricing by different ISOs in integrated network (ii) nodal pricing interfaces to integrated utilities

Opening Comment: Konrad Purchala (PSE)

What are implications for the balancing market design (i) types and definition of reserve products (ii) incentives to keep on reserves among private participants / versus virtual bids (but no private reserve contracting)

  • What are requirements that nodal systems and zonal systems need to comply with to facilitate exchange?
  • How does the imbalance settlement period of the nodal system impact the interaction with reserves of neighboring zonal reserves? (For example if there is a 5 minute resolution in the nodal market, this overlaps with the neighboring zonal reserves)
  • Is a robust real-time price possible for zonal pricing?

Opening Comment: Christian Nabe (Ecofys / Navigant), Julian Dyer (National Grid)

What are the institutional drivers for countries to introduce finer pricing zones up to introducing full nodal pricing systems, and what are the institutional barriers to their introduction?

  • Rules of prioritization of internal / cross-border congestions (critical branches)
  • Technological/system drivers (renewables, distributed active consumers, etc.)
  • Redistributional aspects and how to address them

Opening Comment: Karsten Neuhoff (DIW Berlin)