European Short-Term Electricity Market Designs Under High Penetration of Wind Power

European Short-term Electricity Market Designs under High Penetration of Wind Power European Short-term Electricity Market Designs under High Penetration of Wind Power PROEFSCHRIFT ter verkrijging van de graad van doctor aan de Technische Universiteit Delft, op gezag van de Rector Magnificus prof. ir. K.C.A.M. Luyben, voorzitter van het College voor Promoties, in het openbaar te verdedigen op donderdag 11 september 2014 om 10:00 uur door José Pablo CHAVES ÁVILA Master in Economics and Management of Network Industries Universidad Pontificia de Comillas & Université Paris-Sud geboren te San José, Costa Rica. Dit proefschrift is goedgekeurd door de promotor: Prof. dr. ir. M.P.C. Weijnen Copromotor: Dr. ir. R.A. Hakvoort Samenstelling promotiecommissie: Rector Magnificus voorzitter Prof. dr. ir. M.P.C. Weijnen Technische Universiteit Delft, promotor Dr.ir. R.A. Hakvoort Technische Universiteit Delft, copromotor Prof.dr.ir. L. Söder Kungliga Tekniska Högskolan Prof.dr.ir. M. Rivier Abbad Universidad Pontificia de Comillas Prof.ir. M.A.M.M. van der Meijden Technische Universiteit Delft Prof.dr. C. von Hirschhausen Technische Universität Berlin Prof.dr. J.M Glachant European University Institute Prof.dr.ir. P.M. Herder Technische Universiteit Delft, reservelid ISBN 978-90-79787-63-0 Published and distributed by: Next Generation Infrastructures Foundation P.O. Box 5015, 2600 GA Delft, The Netherlands Phone:+31 15 278 2564 Fax: +31 15 278 2563 E-mail: [email protected] Website: http://www.nextgenerationinfrastructures.eu This research was funded by the European Commission through the Erasmus Mundus Joint Doctorate Program, Delft University of Technology and Next Generation In- frastructures Foundation. Copyright © by J.P. Chaves Ávila August 2014, Delft, the Netherlands. Cover: Picture taken by Marina Rodríguez García, used with permission Doctoral Thesis supervisors: Prof.dr.ir. M.P.C. Weijnen Dr.ir. R.A. Hakvoort Members of the Examination Committee: Rector Magnificus voorzitter Prof.dr.ir. L. Söder Kungliga Tekniska Högskolan Prof.dr.ir. M. Rivier Abbad Universidad Pontificia de Comillas Prof.ir. M.A.M.M. van der Meijden Technische Universiteit Delft Prof.dr. C. von Hirschhausen Technische Universität Berlin Prof.dr. J.M Glachant European University Institute TRITA-EE 2014:031 ISSN 1653-5146 ISBN 978-90-79787-63-0 Printed by: Gildeprint Drukkerijen - Enschede, The Netherlands - 2014 SETS Joint Doctorate The Erasmus Mundus Joint Doctorate in Sustainable Energy Technologies and Strategies, SETS Joint Doctorate, is an international programme run by six institutions in cooperation: • Comillas Pontifical University, Madrid, Spain • Delft University of Technology, Delft, the Netherlands • Florence School of Regulation, Florence, Italy • Johns Hopkins University, Baltimore, USA • KTH Royal Institute of Technology, Stockholm, Sweden • University Paris-Sud 11, Paris, France The Doctoral Degrees issued upon completion of the programme are issued by Comil- las Pontifical University, Delft University of Technology, and KTH Royal Institute of Technology. The Degree Certificates are giving reference to the joint programme. The doctoral candidates are jointly supervised, and must pass a joint examination procedure set up by the three institutions issuing the degrees. This Thesis is a part of the examination for the doctoral degree. The invested degrees are official in Spain, the Netherlands and Sweden respectively. SETS Joint Doctorate was awarded the Erasmus Mundus excellence label by the European Commission in year 2010, and the European Commission’s Education, Audiovisual and Culture Executive Agency, EACEA, has supported the fund- ing of this programme. The EACEA is not to be held responsible for contents of the Thesis. Contents Contents i List of Figures vi List of Tables viii Acknowledgments x 1 Introduction 1 1.1 Background ................................ 1 1.1.1 Electricity liberalization process in Europe .......... 2 1.1.2 European short-term electricity markets ............ 2 1.1.3 European electricity market integration ............ 5 1.1.4 Increase of wind power in Europe ............... 6 1.2 Research topic: electricity market designs under high wind power penetration ................................ 7 1.2.1 Support schemes for wind power ................ 8 1.2.2 Wind power and intraday markets ............... 9 1.2.3 Wind power and balancing arrangements ........... 9 1.2.3.1 Wind power as a Balance Responsible Party .... 10 1.2.3.2 Wind power as a Balancing Service Provider .... 10 1.2.4 Wind power and congestion management mechanisms .... 10 1.2.5 European priority dispatch for renewable sources ....... 11 1.2.6 Cross-border balancing arrangements for wind power integration 11 1.3 Research scope ............................. 12 1.4 Research relevance ............................ 13 1.5 Research questions ............................ 14 1.6 Methodology ............................... 14 1.7 Thesis outline ............................... 15 2 The role of European intraday markets to manage energy imbalances 19 2.1 Introduction ............................... 19 2.2 Description of existing European market designs ........... 20 2.2.1 Cross-border intraday markets ................. 21 2.2.2 Challenges of European intraday market integration ..... 22 2.3 The Spanish intraday market ...................... 25 i Contents 2.3.1 Overview of the Spanish electricity market .......... 26 2.3.2 Incentives to trade in the Spanish intraday market ...... 27 2.3.3 Analysis of the Spanish intraday market outcomes ...... 31 2.3.4 Behavior of intraday market participants ........... 34 2.3.5 Reducing renewable energy imbalances in the intraday market 41 2.4 Continuous trading: the German intraday market ........... 46 2.4.1 Insights from the German intraday market data ........ 46 2.4.1.1 Price behavior ..................... 48 2.4.1.2 Relation between bid prices and bidding hours ... 49 2.4.1.3 Challenges in a continuous trading intraday electricity market: compute accurate liquidity measures and bidding strategies ................... 51 2.4.2 Changes in German RES-E support schemes ......... 52 2.4.3 German RES-E balancing .................... 53 2.5 Convergence bidding for European intraday markets ......... 54 2.5.1 Convergence bidding: theory and implementation in the USA markets .............................. 55 2.5.1.1 Definition ....................... 56 2.5.1.2 USA experiences with convergence bidding ..... 58 2.5.1.3 Possible risks of convergence bidding identified in the USA markets ...................... 58 2.5.2 European market design ..................... 59 2.5.2.1 Current organization of the European intraday markets ........................... 60 2.5.2.2 Liquidity providers in the European intraday markets 60 2.5.3 Attractiveness of convergence bidding in the German and Span- ish intraday markets ....................... 61 2.5.3.1 Market efficiency and risk premium ......... 61 2.5.3.2 Application to the Spanish market .......... 63 2.5.3.3 Application to the German market .......... 66 2.5.4 Potential benefits and implementation concerns of convergence bidding in Europe ........................ 67 2.6 Conclusions on European intraday markets .............. 68 3 Impact of electricity cross-border intraday trading on wind balancing 71 3.1 Introduction ................................ 71 3.2 Dutch and German electricity markets ................. 72 3.2.1 Dutch day-ahead and intraday markets ............ 72 3.2.2 The German intraday market .................. 73 3.2.3 Allocation of transmission capacity between Germany and the Netherlands ............................ 74 3.3 Dutch balancing rules .......................... 75 3.3.1 Bidding strategies for a Dutch WPP .............. 76 3.3.1.1 Mathematical formulation .............. 76 3.4 Case study ................................ 80 3.4.1 Data description ......................... 80 ii Contents 3.5 Uncertainty modeling .......................... 83 3.6 Results ................................... 85 3.7 Conclusions ................................ 89 4 Participation of wind power in balancing mechanisms 91 4.1 Introduction ................................ 91 4.2 Procurement designs for frequency reserves .............. 92 4.2.1 Capacity and energy markets for FRR and RR ........ 93 4.2.2 Procurement Scheme and Pricing of FRR and RR ...... 93 4.2.3 Timing of the capacity and energy markets .......... 94 4.2.4 Settlement Time Unit ...................... 96 4.2.5 Imbalance pricing ........................ 96 4.2.6 Publication time of imbalance prices .............. 97 4.3 Procurement designs of balancing services for congestion management 97 4.4 Participation of wind power in the provision of balancing services .. 99 4.4.1 Support schemes ......................... 100 4.4.2 Participation of wind power in capacity and energy balancing markets for FRR and RR .................... 100 4.4.2.1 Wind power participation in the balancing capacity markets ......................... 100 4.4.2.2 Wind power participation in the balancing energy markets ......................... 101 4.4.3 Active versus passive participation in the provision of balancing services ............................ 102 4.4.4 Danish experience with participation of wind power in the balancing market ......................... 103 4.4.5 Possible risks for the provision of balancing services by wind power ............................... 104 4.5 Conclusions ................................ 105 5 The interplay

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