Old Markets - New Markets: an Internal Energy Market beyond 2014? ENERDAY, Dresden Christian Dobelke 19 April 2013

• Theory: • first best solution according to textbook economics • nodal pricing, energy only market

• Policy: • second best solution: European Target Model • zonal electricity markets & energy only market (?)

• Practice – the devil‘s in the detail:

• a third best solution: market and system interact! • national market designs and the “single” Internal Energy Market • Quo vadis energy market?

First, Second, and Third Best…

14.03.2012 2 Market Design – IEM post 2014?

The European Target Model and Network Codes

14.03.2012 3

Explicit Auctions

Spot Market ̵ Day-Ahead: hourly contracts ̵ Intraday: hourly contracts or 15min-

contracts U

IOSI

Implicit Auctions

Yearly Auction

Day-Ahead (Flow-based

Market Coupling)

Yearly Capacity bilateral (NTC)

Monthly Capacity bilateral (NTC) Monthly Auctions

Nom

inat

ions

(D

-1)

Forward Market ̵ Yearly transmission rights ̵ Monthly transmission rights

M-1 D D-1 D-2 M-12 Y-1

FB-P

aram

eter

Intraday (continuous trading)

Forward NC CACM NC (+ Governance GL)

Balancing

NC Operational Planning and Scheduling NC

Delivery

Market Design – IEM post 2014?

Regional Implementation – Where are we?

14.03.2012 4

Nordic Countries

UK & Ireland

Central Western Europe

Baltic Countries

Central Eastern Europe

Central South Europe

South Western Europe

North Western Europe

CWE Market Coupling CWE Flow-Based Capacity Calculation

Trilateral Market Coupling (CZ, SK, HU), extension by PL, RO planned

NWE Market Coupling (currently Interim Tight Volume Coupling)

Central CWE/CSE Long-Term Product Auction Platform

Regions with TenneT‘s involvement

ENTS

O-E

Bid

ding

Zon

e St

udy

(CAC

M N

C e

arly

impl

emen

tatio

n)

Market Design – IEM post 2014?

First, Second, and Third Best…

14.03.2012 5

• Theory: • first best solution according to textbook economics • nodal pricing, energy only market

• Policy: • second best solution: European Target Model • zonal electricity markets & energy only market (?)

• Practice – the devil‘s in the detail:

• it’s a third best solution: market and system interact! • national market designs and the “single” Internal Energy Market • Quo vadis energy market?

Market Design – IEM post 2014?

Denmark West/East EPEX (Germany)

DKK/MWh Day Ahead Prices, 25/12/2012

-1800

-1600

-1400

-1200

-1000

-800

-600

-400

-200

0

200

400

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

© Energinet.dk

Nord Pool Spot / EPEX Spot Day Ahead Prices 2012/12/25 in DKK/MWh

Market Coupling! …and Harmonization?

14.03.2012 6

• minimum price DK: -1500 DKK/MWh (200 €/MWh)

• minimum price EPEX: -3000 €/MWh

Must-run capacities curtailment by functioning of the Price Coupling Algorithm Reason: unharmonized price caps in local markets.

Market Design – IEM post 2014?

Wind infeed DE in MW

Curtailment of Danish must-run

capacities

7

Hourly Products & Balancing Power Peaks - Background

systematic overshoot in first two ¼-h

systematic shortage in last two ¼-h Major market volume based on 1h-products

Market Design – IEM post 2014?

Source: Transparency Platform entsoe.net

8

Major market volumes based on hourly products (long term, day ahead), leading to strong need for balancing power.

Hourly Products and Balancing Power Peaks

Source: TenneT

Market Design – IEM post 2014?

TenneT strongly promotes further liquidity in ¼-hour products (Intraday, OTC).

0

20.000

40.000

60.000

80.000

100.000

120.000

140.000

160.000

inst

alle

d ca

paci

ty in

MW

Geothermie/andere reg. Erz. Wasserkraft Biomasse Wind onshore Wind offshore Photovoltaik

9

Outside the market: Forecasted RES development in Germany

(Flows) currently not TSO-influencable with market mechanisms

Market Design – IEM post 2014?

minimum load approx. 35.000 MW

maximum load approx. 84.000 MW

Sources: BMU, Langfristszenarien und Strategien für den Ausbau Erneuerbarer Energien in Deutschland, 2009 Szenariorahmen B für den Netzentwicklungsplan 2012

The TSO’s dilemma: The grid is not a copper plate

25.03.2012 10

Redispatch frequency increases:

Nuclear phase out Germany

Year Days Redispatch Actions

2003 2 2 2004 14 15 2005 51 51 2006 105 172 2007 185 387 2008 144 228 2009 156 312 2010 161 290 2011 308 998

2012 344 970

Market Design – IEM post 2014?

Quo vadis energy market? From a market with some regulation to regulation with a bit of market …

• triggered by the “Energiewende”, TenneT as an unbundled Transmission System Operator has contracted eight power plants with ca. 2,000 MW generation capacity and in addition has been involved in

14.03.2012 11

Are we back to the future of market design?

Market Design – IEM post 2014?

• arranging fuel storage • structuring gas procurement and gas

contracts • coordination of power plant revisions,

including financing power plant maintenance and repairs

Quo vadis energy market? Patchwork or “Single IEM”

14.03.2012 12

RES Schemes

Capacity Markets

… Remedies to heal adverse effects of other remedies …

Market Design – IEM post 2014?

Current market design issues …

25.03.2012 13

What “Market” if the market share is decreasing ?

How to attract investments in conventional generation ?

How to incentivice market parties to contribute to Security of Supply in the operating planning phase ?

How to grant back-up and reserve for intermittent generation ?

How to smooth the problem of grid expansion not keeping pace with changes in the generation pattern ?

How to reconciliate diverging (national) repair actions to save the IEM ?

How to bring back on track various unstable regulated components ?

Now‘s the time to set the course for a post-2014 clean, secure, competitive and European energy system with a functioning IEM

Market Design – IEM post 2014?

TenneT is Europe´s first cross-border grid operator for electricity. With approximately 20.000 kilometres of (Extra) High Voltage lines and 36 million end users in the Netherlands and Germany we rank among the top five grid operators in Europe. Our focus is to develop a north-west European energy market and to integrate renewable energy. Taking power further www.tennet.eu