Spot Markets¶

Bilateral Contracts¶

flowchart LR
b[Buyer]
br[Broker]
s[Seller]

b <--> br <--> s
b <--> s

Direct exchange of energy between buyer and seller in a decentralized fashion

System operator is informed about trades that occur

Types¶

Auctions in Energy Pool¶

• All generation bids and consumption offers are placed at same time
• No one knows about others’ bids and offers
• Centralized market clearing decides bids and offers that are retained
• Eventually, the system operator is informed about the trades that occurred

Merit Order¶

• Consumption orders are ranked in dec price order
• Supply bids are ranked in inc price order

Social Welfare¶

Area between consumption and generation

Equilibrium point is that which allows to maximize social welfare

• Any buyer is to pay almost what they were ready to pay
• Any seller will get at least what they were ready to sell for

Market Clearing¶

Goal

• Schedule for all supply and demand offers
• Price at which market is cleared

Inputs

• All offers in the market are formulated in terms of quantity \(Q\) and price \(P\)
• Supply side
• Set of offers
• Maximum quantity for offer
• Price for offer
• Demand side
• Set of offers
• Maximum quantity for offer
• Price for offer

Decision variables

• Generation schedule
• Consumption schedule

Objective: Maximize social welfare

Constraints

• Non-negativity of supply and demand
• Balance of generation and consumption
• Generation and consumption within limits

Settlement Process¶

• Who should pay what?
• Who should get paid what amount?

Approaches¶

Both approaches guarantee

• individual rationality: consumers will pay at most what they were ready to pay, and producers will receive at least what they were ready to receive
• Revenue adequacy: Sum of revenues \(\ge\) Sum of payments

Geographic Prices¶

Prices vary across various locations, as power has to flow through network involved

Exchanges capacity limitations

• There is a maximum amount of energy that can be exchanged from one location to another
• When this limit is reached, there is congestion and prices for connected areas will different
• Exchange capacity limitations are directly related to network constraints and operational practice

Approaches to handle exchange capacity limitations¶

Market is not-budget balanced anymore, as the sum of consumer payments > sum of supplier revenues; difference defines congestion rent to be collected by system operator(s)

Approach 1: Split¶

Due to transmission constraints, the market has to be split and be treated as individual sub-markets

• Submarkets have their own supply-demand equilibrium
• Transmission-related offers: Extra (price-independent) consumption/generation offers representing the transmission from one zone to the next to be added

Approach 2: Flow-based coupling¶

Instead of boldly splitting market, one could instead acknowledge how power flows

This allows clearing a single market with geographically-differentiated prices

Regulation & Support Schemes¶

Grid parity = scenario when it is profitable to produce energy, ie Levelized Cost of Energy (cost of energy production) < market price

New energy generation tech may need support in order to reach grid parity

• Regulation is an instrument for policy makers to support their integration in the market
• Support schemes consist in financial support to make them competitive in the market

These have impact on participant revenues, offering strategies, market outcomes

Types

	FIT	FIP	CFT
Meaning	Feed-in-tariff	Fixed Feed-in-Premium	Contract for difference/ Sliding Premium
Implication	Guaranteed price	Fixed support regardless of market revenue	Compensation of difference between guaranteed price and market revenue
Blue: Support revenue Green: Market Revenue
Implication for producer			Just ensure you get scheduled Bid as low as possible

Safe policy to guarantee non-negative equilibrium prices: FIP or CfD at 0

Comments