BALANCING MARKETS PERFORMANCE: EVIDENCE FOR THE ITALIAN MARKET - - PowerPoint PPT Presentation

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BALANCING MARKETS PERFORMANCE: EVIDENCE FOR THE ITALIAN MARKET - - PowerPoint PPT Presentation

Aug 26, 2023 183 likes •433 views

BALANCING MARKETS PERFORMANCE: EVIDENCE FOR THE ITALIAN MARKET Angelica Gianfreda 1 Lucia Parisio, Matteo Pelagatti 2 1 Faculty of Economics and Management, University of Bozen, ITALY angelica.gianfreda@unibz.it 2 Department of Economics,

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BALANCING MARKETS PERFORMANCE: EVIDENCE FOR THE ITALIAN MARKET

Angelica Gianfreda1 Lucia Parisio, Matteo Pelagatti 2

1Faculty of Economics and Management, University of Bozen, ITALY

angelica.gianfreda@unibz.it

2Department of Economics, Management and Statistic, University of Milan- Bicocca, ITALY

lucia.parisio@unimib.it, matteo.pelagatti@unimib.it

Wien, IAEE 2017, 4th September

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Introduction

Motivation and aim of the paper

High RES penetration in electricity generation has influenced wholesale markets from day-ahead to real time. Optimal design of a sequence of sessions to accommodate RES production at the minimum cost for the system The correct evaluation of RES impact on the system may be calculated only contrasting lower wholesale prices coming from the so-called merit order effect with higher costs due to direct support and to balancing activity. We provide a detailed evaluation of balancing costs which are disentangled for hours, market purpose and most importantly by technologies We highlight how different players in the balancing sessions react to flexibility needs and how prices are affected.

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Introduction

Main results

We analyze data for the Italian North zone across two sample periods: 2006-08 and 2013-15 at specific hours (H 3, 9, 11, 13, 19, 21) Balancing quantities decreased from first to second sample. We believe this is motivated by the new intra-day market design introduced in between the two samples. Balancing costs increased especially for up-regulation Evidence of peaking prices for specific hours/technologies. This is the result of strategic behavior of bidders across market sessions

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Literature

Relevant literature and received evidence 1

Papers studying the relationship between RES-E and electricity prices (mainly limited to day-ahead) Hirth and Ziegenhagen (2015) describe the main issues related to balancing activities and to the requirements imposed by the increasing share of variable RES production. Using German market data they surprisingly notice that while wind capacity has tripled since 2008, balancing reserves have been reduced by 15% and balancing costs by 50% The so-called ”German Paradox” has been explained by Ocker and Ehrhart (2017), who refer to two new flexible trading options in the market and to national and international Grid Control Cooperations which augmented system flexibility making costly reserves less necessary.

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Dataset

Evolution of the Italian generation mix

Identification of two scenarios: “low” (06-08) and “high” (13-15) RES

Italian shares by technology generation (on the left), and RES penetration together with Demand levels in TW (on the right). Source: ENTSO-E

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Dataset

RES generation in Italy

Selection of the Northern Zone

Hydro (left), solar PV (middle) and wind (right) generation In Northern Italy, there is the majority of hydro and solar PV. Whereas, most wind power is generated in Southern Italy.

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Dataset

Inspection of Intra-daily Profiles

Selection of Hours: 3–9–11–13–19–21

12000 14000 16000 18000 20000 22000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

2012 2013 2014 Load Intra-daily Profile in Northern Italy

1000 2000 3000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

2012 2013 2014 Solar Intra-Daily Profile in Northern Italy

2000 2500 3000 3500 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

2012 2013 2014 Hydro Intra-Daily Profile in Northern Italy

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

2012 2013 2014 Wind Intra-Daily Profile in Northern Italy

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Dataset

Inspection of Intra-daily Profiles

20 40 60 80 100 120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

2006 2007 2008 2013 2014 2015 Intra-daily Mean Zonal Prices for Northern Italy

Spread between peak and off-peak: in 2008 peak price was three times the

  • ff-peak, whereas in 2015 peak price was only 50% higher.

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Balancing markets design

Structure of the Italian Power Exchange

Two reforms between first and second sample: Intra-day market (MI) in 2009 and MSD market in 2011. MSD has a scheduling sub-stage (ex-ante MSD) and a balancing market (MB). Bids submitted in MB sessions can only contain better economic conditions with respect to MSD bids. During our sample 2013-15 volumes exchanged on MSD were approximately equal to 10% of those exchanged on MGP.

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Balancing markets design

Real time markets: MSD and MB

In the ex-ante MSD, TERNA accepts bids and offers in order to relieve congestions and to create reserve margins. (Start-up, primary and tertiary control) During MB sessions, Terna accepts bids and offers in order to provide secondary control and to balance energy injections into and withdrawals from the grid in real time. (Secondary control) Market purpose: ‘upward’ reserve (for balancing capacity/energy procured to compensate a negative imbalance) and ‘downward’ reserve (for balancing capacity/energy procured to compensate a positive imbalance) The ex-ante MSD and MB are based on the pay-as-bid pricing mechanism (a reference price usually calculated as the weighted average of all accepted bids, both for purchases and for sales).

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Balancing markets design

Participants to balancing sessions

Balancing sessions are more concentrated than DAM session. Thermal (CCGT units with largest market share) Pumping units Hydro units In recent years we notice a reduction of capacity entitled to bid into balancing session, expecially in the thermal segment (-5,7%).

20000 40000 60000 80000 100000 120000 2012 2013 2014

MW

MSD Thermal MSD Power Tot Power

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Empirical Analysis Balancing market results

Balancing Quantities in the ex-ante MSD

Total yearly quantities for down-regulation (first row) and for up-regulation (second row)

50 100 150 200 250 300 350 400 450 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

Pumping Hydro Thermal GW Awarded BIDs on MSD

50 100 150 200 250 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

Pumping Hydro Thermal GW Awarded OFFs on MSD 12 / 23

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Empirical Analysis Balancing market results

Balancing Quantities in MB

Total yearly quantities for down-regulation (first row) and for up-regulation (second row)

50 100 150 200 250 300 350 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

Pumping Hydro Thermal GW Awarded BIDs on MB

50 100 150 200 250 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

Pumping Hydro Thermal GW Awarded OFFs on MB 13 / 23

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Empirical Analysis Balancing market results

Main findings

Reduced needs for down-regulation in MSD Increasing needs for up-regulation: H9, H11, H19 in MSD. This trend continues and become even more evident during 2016, when ex-ante MSD became the preferred platform to sell electricity by CCGT units. Reduced quantities awarded in MB, both for up and down-regulation Strong reduction of the share of water pumping (due to flat daily profile for the SMP)

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Empirical Analysis Balancing market results

Price differences for up-regulation across the two samples

Hydro Water Pumping Thermal Max Mean Max Mean Max Mean Hour MSD MB MSD MB MSD MB MSD MB MSD MB MSD MB 3 ↓ 20 ↑ 111 ↓ 3 ↑ 8 ↑ 19 ↑ 67 ↑ 36 ↑ 63 ↑ 148 ↑ 884 ↓ 3 ↑ 31 9 ↓ 54 ↑ 176 ↓ 33 ↓ 31 ↑ 19 ↑ 57 ↑ 11 ↑ 37 ↑ 48 ↑ 30 ↓ 28 ↑ 45 11 ↓ 12 ↑ 1422 ↓ 44 ↓ 20 ↑ 34 ↑ 55 ↑ 15 ↑ 34 ↑ 38 ↑ 25 ↓ 34 ↑ 21 13 ↓ 46 ↑ 13 ↓ 28 ↓ 31 ↑ 25 ↑ 39 ← → ↑ 28 ↑ 35 ↑ 1717 ↓ 34 ↑ 17 19 ↑ 22 ↑ 1689 ↓ 22 ↓ 24 ↑ 48 ↑ 60 ↑ 35 ↑ 40 ↓ 11 ↑ 903 ↓ 33 ↑ 18 21 ↓ 41 ↑ 1922 ↓ 28 ↓ 23 ↑ 43 ↑ 55 ↑ 36 ↑ 42 ↓ 50 ↑ 379 ↓ 34 ↑ 18 ↑, ↓ and ↔ represent an average increment, decrement or no changes across the two samples in e/MWh.

Prices are calculated as weighted averages of accepted bids. Hydro: decreasing mean prices. Evidence of peaking prices in MB at H11, 19, 21. Increasing prices for water pumping Thermo: decreasing mean prices on MSD, increasing mean prices on MB, evidence of peaking prices on MB at H3,13, 19.

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SLIDE 16

Empirical Analysis Balancing market results

Hydro and Thermal units on MB

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Empirical Analysis Balancing market results

More precisely

Some units may exploit their dominant position. They do not bid in MGP (supply at the cap of e3,000) where prices are low due to the merit order effect of RES and then sell more valuable power in the real time (pay-as-bid rule) In one case a unit sold power in MGP, bought it back in intra-day sessions so that it was switch-off. It then offered power in real time at a very high price. During 2016 the strategy was so evident that the Italian Authority

  • pened a trial on the point. At the end the dispute has been resolved

with a formal commitment by the firm to accept a revenue cap.

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Empirical Analysis Balancing market results

A short detour: what drives balancing prices?

In a related research paper we investigate the dynamics of balancing prices, showing that they are quite unrelated with fuel prices Taking advantage of the pay-as-bid rule that allows us to separate awarded prices for each unit dispatched, we conduct a dynamic analysis (IRF) on thermal units bidding in MSD/MB. The natural candidate are fuel prices as leading forces (oil, coal and gas) ⇒ Balancing prices were more related to fuel prices in the first than in the second sample ⇒ Results indicate that shocks on fuel prices influence balancing prices when that technology was marginal in day-ahead market

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Empirical Analysis Balancing market results

Evolution of balancing costs across technologies

Hydro Costs (in thousands of e)

After an initial reduction, regulation services by hydro units become very costly.

  • 5000
  • 4000
  • 3000
  • 2000
  • 1000

1000 2000 3000 4000 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

MB MSD HYDRO

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Empirical Analysis Balancing market results

Evolution of balancing costs across technologies

Water Pumping Costs (in thousands of e)

Quantity and cost reduction for water pumping

  • 12500
  • 11000
  • 9500
  • 8000
  • 6500
  • 5000
  • 3500
  • 2000
  • 500

1000 2500 4000 5500 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

MB MSD WATER PUMPING

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Empirical Analysis Balancing market results

Evolution of balancing costs across technologies

Thermal Costs (in thousands of e)

  • 35000
  • 25000
  • 15000
  • 5000

5000 15000 25000 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

MB MSD THERMAL

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SLIDE 22

Empirical Analysis Balancing market results

Overall Balance (in thousands of e)

as the difference between profits and costs, faced by the Italian TSO for the Northern zone

We quantify the overall profits/costs as sum across technologies on both market sessions within a year. Clearly the activities of planning resources and dispatching balancing power are highly costly, and increasing across samples for all hours but H19 & H21

  • 8282
  • 11158
  • 20244
  • 21728
  • 19134
  • 25694
  • 19935
  • 26537
  • 20842
  • 16133
  • 19200
  • 13907
  • 35000
  • 30000
  • 25000
  • 20000
  • 15000
  • 10000
  • 5000

2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 2006 2007 2008 2013 2014 2015 3 9 11 13 19 21

Balance

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Conclusions

Conclusions

On the whole, balancing quantities reduced from the first to the second sample Balancing costs are generally higher in the second sample due to differential bidding strategies of units We have provided a detailed analysis across hours, market purpose and technologies and we showed that:

Costs from water pumping have strongly reduced Hydro costs have initially decreased and then increased from 2014 to 2015 especially at sunset The largest share of costs remunerate balancing power sold by thermal

  • units. After market reform costs decreased but in the last two years the

trend was reverted We have found signals of strategic behavior of sellers

The capacity market rules that will be implemented in the near future will in fact cap the balancing price avoiding extreme price

  • bservations.

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