electricity market framework in - neo carbon energy2016/02/02  · lappeenranta university of...

Electricity Market Framework in Neo-Carbon Scenarios

Samuli Honkapuro & Kaisa SalovaaraLUT School of Energy Systems

Samuli.Honkapuro@lut.fi

From transformative scenarios to market design scenarios

1) Outlining market design in top-down approach. • What kind of market design is feasible in each scenario?• Which are required elements of the market model that promote

scenario?

2) Analyzing the possible path and necessary steps from present market framework to scenario

3) Recognizing the roles of the stakeholders in market design scenarios

Electricity Market, objectives

€

Technical requirement; keep power balance in every second Production = consumption

Elements of market design in scenario work

What are the required elements of the market design that enable each scenario – what kind of market elements are possible in each scenario?Is there a common market for electricity?• Open and public price formation vs. fragmented price formation with bilateral

agreements.• Integrated system vs. scattered system (strong network connections vs. weak

network)How is the needed capacity obtained?

Applied capacity mechanismsDriving forces for market development

Consumer driven vs. corporate driven developmentWhat is the impact of disruptive technology to market design and vice versa?

Illustration of market design 1 – consumer activity and energy system design

Two driving forces perceived from the scenarios are inspected more closely: consumer activity and energy system designConsumer activity• Consumer driven market: consumers or communities are the

driving force behind the market design• Corporate driven market: corporates are the driving force behind

the market designEnergy system design (Technology enabled)• Scattered system: small to medium scale solutions, energy

generation dispersed• Integrated system: large scale solutions, integrated energy

generation

Integrated system

Scattered system

Consumer driven market

Corporate driven market

Illustration of market design 1

Value-driven techemoths

New consciousness

Radical startups

Green DIY engineers

Illustration of market design 2

In the second market design illustration a more tradition approach to market design is discussed: price formation and network capacity adequacy Price formation• Open and public price formation: there is a market where price is

formed and that is informed to market participants. • Fragmented price formation: price is formed in bilateral

agreements. Basis for network development• The market adapts to the limits set by the network: transmission

capacity limits power flow, markets have to adjust • The network adapts to the needs of the market: transmission

network is capable of transmitting power from generation to consumption according to demand

The market adapts to thelimits set by the network

The network adapts to the needs of the market

Open and public price formation

Fragmented price formation

Illustration of market design 2

Green DIY engineers

Radical start-ups

Value-driventechemoths

New consciousness

Example of market modelsZonal pricing

Uniform price area for whole market area (e.g. Nordic area), if congestions exist, market is split to predefined price areas (e.g. Finland as separate price area)Prerequisite is enough transmission capacity (no bottlenecks inside price area)Applied in Europe

Nodal pricingDifferent electricity price in each nodeIn addition to the energy component, the electricity price includes a transmission congestion fee and lossesA node may be for instance area of couple primary substations (for instance in Russia over 6 000 nodes)Applied for instance in Russia and US

If there are congestions in transmission network, nodal pricing may prove to be a better market model => Market model is chosen based on the robustness of the network

Market models

If there are congestions in transmission network, nodal pricing may prove to be a better market model => Market model is chosen based on the robustness of the network

Integrity of price areas201420132012

Source: Fingrid

Nordic electricity prices

0

10

20

30

40

50

60

70

801.

1.20

14

1.2.

2014

1.3.

2014

1.4.

2014

1.5.

2014

1.6.

2014

1.7.

2014

1.8.

2014

1.9.

2014

1.10

.201

4

1.11

.201

4

1.12

.201

4

1.1.

2015

1.2.

2015

1.3.

2015

1.4.

2015

1.5.

2015

1.6.

2015

1.7.

2015

1.8.

2015

€/M

Wh

Nordpool system price 1/14 - 8/15

0

10

20

30

40

50

60

70

80

€/M

Wh

DS Futures

What is feasible market design, if the price of electricity is 0 €/MWh?

Thank you!

Lappeenranta University of Technology (LUT)

D.Sc. Samuli HonkapuroLUT Energy

Lappeenranta University of TechnologyLappeenranta, FinlandSamuli.Honkapuro@lut.fi