A market design to support climate policy

Transcription

1 A market design to support climate policy Karsten Neuhoff, David Newbery, Christian von Hirschhausen, Benjamin Hobbs, Christoph Weber, Janusz Bialek, Frieder Borggrefe, Julian Barquin, Christian Nabe, Chris Dent, Francisco M. Echavarren, Rodney Boyd, Thilo Grau, Friedrich Kunz, George Papaefthymiou, Hannes Weigt Reports available at Stockholm, October 2011

2 Climate Policy Initiative - Overview CPI assesses, diagnoses, and supports national efforts to achieve low-carbon growth. Our research looks at implemented policy rather than policy design. We want to understand the impact of institutions, finance, and private firms on policy and program effectiveness. Our presence in key countries allows us to compare policies across nations.

3 Market design compatible with renewable integration Use grid across Europe effectively to lower costs and emissions Match physical reality to ensure continuity for contracts for investments for innovation European Objectives Energy for European Provision power system: secure economic Smart economical secure grid Network sustainable Demand response Storage Generation Create transparency to decide on and communicate grid expansions Operate DC lines to support European market Shield RE projects from grid delays Effective power market design necessary, not sufficient, to decarbonize power. Is the current design open for renewables? Karsten Neuhoff Report available at

4 The Time to Trade Wind forecasts improve 4 hours before real time: Currently trading/transmission allocation focused day ahead Many power stations/grid can respond short time But power market design limits participation of actors

5 Balancing and Intraday up to T-75 min up to T-60 min US ISOs: Day-ahead and intraday market structure PJM CAISO ISO-NE NYISO Day-ahead Real-time Day-ahead markets close for evaluation: Re-offer/adjustment periods close: Real-time offer/charge for deviation to previous position close:

6 Balancing and Intraday: EU/US Comparison EU $ $ $ $ T-24h Day-ahead Intraday $ Largely bilateral trading T-1h Gate closure Real time Redispatch US nodal Day-ahead Financially Firm T-12-36h $ $ $ $ $ Intraday TSO acquired balancing reserve Deviations from day-ahead +/- ISO pursues system optimisations ISO ensures sufficient ancillary services Up to T-60/75min Market Clearing $ Real time

7 Combining Products Based on: Borggrefe and Neuhoff 2010: Balancing and Intraday Market Design Options for wind integration Dispatch adjusted during day Balancing requirements / provision adjusted during day Flexible use of individual power stations International integration of intraday & balancing markets Integration of demand side response services Effective monitoring of market power possible UK System N/A German system N/A Nordpool Spanish system N/A Nodal pricing system

8 Issuing Multiple Property Rights Line Loadings: Voltage Levels >= 220kV - Max wind 50 N 40 N 10 W 30 E 0 10 E 20 E Transmission not allocated within market TSO have to buy back capacity -> inefficient, costly and creates opportunities for gaming.

9 Zones for zonal pricing do not match national borders No wind Nodal Prices: Voltage Levels >= 220kV - No wind 50 N 40 N 10 W 30 E 0 10 E 20 E Source: Model results from the Intelligent Energy Europe project Re-shaping

10 and zones with similar prices change with wind output Max wind Nodal Prices: Voltage Levels >= 220kV - Max wind Suitable zones in congested network can change hour by hour 50 N 40 N 10 W 30 E 0 10 E 20 E Source: Model results from the Intelligent Energy Europe project Re-shaping

11 Liquidity of FTRs

12 Constraining Flexibility MW of international transmission MW of international transmission MADRID Nodal no WIND min WIND mean WIND max WIND DRESDEN Nodal no WIND min WIND mean WIND max WIND Annual savings billion Euros from better system operation

13 Comparison with US experience AEP / Dayton / ComEd Integration into the PJM Market Change in Transmission Interconnector flows Bilateral Trading could only achieve 40% of the efficiency gains of LMPbased market Incremental benefit of LMP Market Integration = $180 Million annually, Net Present Value over 20 yrs is $1.5 Billion Source: Erin T. Mansur and Matthew W. White, Market Organization and Efficiency in Electricity Markets, March 31, 2009, Figure 2,pg 50, discussion draft, (available at ). (based on presentation by Andy Ott, PJM)

14 Evaluation of Congestion Management Approaches Bilateral transmission rights auction Joint multicountry auction of NTC rights Multi-region day-ahead market coupling (zonal pricing) (i) Integration with domestic congestion management (ii) Joint allocation of international transmission rights (iii) Integration with day ahead energy market (iv) Integration with intraday/ balancing market (v) Transparency of congestion management No No No No No No Yes No No No No (only at zonal level) Possible Yes No No Nodal pricing Yes Yes Yes Possible Yes Source: Congestion Management in European Power Networks: Criteria to Assess the Available Options, Neuhoff, Hobbs, Newbery

15 Smart Grids - Institutional and Energy Market Aspects Is the current design open for renewables? It s all about Time Align auction time frames with forecast quality Create a joint auction for linked energy products and Space Use market to allocate access to scarce transmission (and compensate / hedge with financial transmission contracts) Unlock flexibility of network with nodal pricing and obviously System Security ISO to host information and responsibility

16 Online Reports available at Reports, 2011 Congestion Management in European Power Networks. Balancing and Intraday Market Design: Options for Wind Integration. A Smart Power Market at the Centre of a Smart Grid. Renewable Electric Energy Integration: Quantifying the Value of Design of Markets for International Transmission Capacity. Frequently asked questions on the international experience with nodal pricing implementation. Collaboration Universidad Pontificia Comillas, Durham University, University of Cologne, Electricity Policy Research Group (University of Cambridge), TU Dresden, Ecofys Germany, TU Berlin, Duisberg-Essen University karsten.neuhoff@cpiberlin.org