Capacity Remuneration Mechanisms Overview & Strategic Reserves - - PowerPoint PPT Presentation
Capacity Remuneration Mechanisms Overview & Strategic Reserves for Belgium Hanspeter H oschle Workshop on Fact Sheets KU Leuven Energiestichting / Energie-Instituut (U-Wetoco) April 30, 2014 Introduction Overview Concepts Belgian SR
Introduction Overview Concepts Belgian SR Lessons Learned
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Revenues from selling electricity
◮ Inframarginal rents to cover fix costs
◮ Eroded profitability due to reduced load factors and prices ◮ Missing Money Problem
◮ Large integration of RES (mostly offering at zero marginal cost) ◮ Merit order effect (Reduced prices & reduced load factors)
◮ Lack of investment in generation capacity ◮ Disvestment of existing capacity
Variable Cost t Price e/MWh Inframarginal rent Coverage variable cost
Introduction Overview Concepts Belgian SR Lessons Learned
Energy-based payment (Output) e/MWh Capacity-based payment (Availability) e/MW
Time horizon
Forward Day-Ahead (D-1) Realtime (RT) Forward Markets Long-term contracting Day-Ahead Market
energy-only (Power exchange)
Ancillary Service Markets
Primary (R1), secondary (R2), tertiary reserve (R3),...
Remuneration for Output & Flexibility
Introduction Overview Concepts Belgian SR Lessons Learned
Energy-based payment (Output) e/MWh Capacity-based payment (Availability) e/MW
Time horizon
Forward Day-Ahead (D-1) Realtime (RT) Forward Markets Long-term contracting Day-Ahead Market
energy-only (Power exchange)
Ancillary Service Markets
Primary (R1), secondary (R2), tertiary reserve (R3),...
Remuneration for Output & Flexibility C
p l e m e n t a r y C a p a c i t y R e m u n e r a t i
M e c h a n i s m s
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Policy instrument ensuring adequate level of generation capacity ◮ Complementary mechanism besides the energy market influencing
◮ Additional revenue streams valuing the installed capacity [e/MW] ◮ Replacement of investment incentives from price spikes with a more
◮ Resolve potential problems emerging from market malfunctioning to
Introduction Overview Concepts Belgian SR Lessons Learned
Energy System
Current Situation
◮ Energy mix ◮ Network congestions ◮ Load flexibility ◮ Demand Response potential ◮ ...
Physical Uncertainties
◮ Renewable energy sources ◮ Ressources (Water, Gas, ...) ◮ Growing Demand ◮ Increasing peak-Load ◮ ...
Future context
◮ Technology transition ◮ Regulatory roadmaps ◮ Energy substitution ◮ Drivers of demand ◮ ...
Driven by A threat for SoS ? 3-5 years lead time
Introduction Overview Concepts Belgian SR Lessons Learned
Energy System
Current Situation
◮ Energy mix ◮ Network congestions ◮ Load flexibility ◮ Demand Response potential ◮ ...
Physical Uncertainties
◮ Renewable energy sources ◮ Ressources (Water, Gas, ...) ◮ Growing Demand ◮ Increasing peak-Load ◮ ...
Future context
◮ Technology transition ◮ Regulatory roadmaps ◮ Energy substitution ◮ Drivers of demand ◮ ...
Driven by A threat for SoS ? 3-5 years lead time
Mechanism Designs
Volume based vs Price based Market wide vs Targeted Centralized market vs Decentralized market Technology dedicated vs Technology neutral
Introduction Overview Concepts Belgian SR Lessons Learned
Energy System
Current Situation
◮ Energy mix ◮ Network congestions ◮ Load flexibility ◮ Demand Response potential ◮ ...
Physical Uncertainties
◮ Renewable energy sources ◮ Ressources (Water, Gas, ...) ◮ Growing Demand ◮ Increasing peak-Load ◮ ...
Future context
◮ Technology transition ◮ Regulatory roadmaps ◮ Energy substitution ◮ Drivers of demand ◮ ...
Driven by A threat for SoS ? 3-5 years lead time
Mechanism Designs
Volume based vs Price based Market wide vs Targeted Centralized market vs Decentralized market Technology dedicated vs Technology neutral
Mechanism Type
Capacity Payment Capacity Auction Capacity Obligation Reliability Options Capacity Subscription Strategic Reserve
Introduction Overview Concepts Belgian SR Lessons Learned Capacity Remuneration Mechanisms Price-based Volume-based Targeted Market-wide
Mechanism Type
Capacity Payment Capacity Auction Capacity Obligation Reliability Options Capacity Subscription Strategic Reserve
fixing price → volume emerges from market fixing volume → prices emerges from market
Introduction Overview Concepts Belgian SR Lessons Learned Capacity Remuneration Mechanisms Price-based Volume-based Targeted Market-wide
Mechanism Type
Capacity Payment Capacity Auction Capacity Obligation Reliability Options Capacity Subscription Strategic Reserve
fixing price → volume emerges from market fixing volume → prices emerges from market
Planned PJM Planned CAISO Planned
Capacity Markets
Introduction Overview Concepts Belgian SR Lessons Learned
Authority Regulator System Operator
Consumer Retailer Capacity Provider Cost Allocation P a y m e n t & V e r i fi c a t i
P r
u r e m e n t
C a p a c i t y Determination Level of Payment A u t h
i z a t i
◮ New investments derive from financial incentives ◮ Deration factor of capacity:
availability in times of scarcity, technology & flexibility Easy to implement and easy to phase out Direct support of specific technologies possible Very steady revenue stream × Assumptions about investment response × Level of payment subject to political discussion × Implemented with a consumption-independent use of charge for final consumer
Introduction Overview Concepts Belgian SR Lessons Learned
Authority Regulator System Operator
Consumer Retailer/LSEs Capacity Provider
Centralized
C
t A l l
a t i
Payment & Verification Procurement of Capacity D e t e r m i n a t i
V
u m e
C a p a c i t y A u t h
i z a t i
Authority Regulator System Operator
Consumer Retailer/LSEs Capacity Provider
Decentralized
Cost Allocation Verification Procurement
D e t e r m i n a t i
V
u m e
C a p a c i t y
◮ Capacity introduced as new commodity ◮ Demand of capacity determined by authority ◮ System Operator procures capacity (centralized) ◮ LSEs procure capacity acoording to their share of demand
(decentralized)
◮ Cost are allocated to the consumers
Amount of capacity is directly set by the authority Market-based CRM × Change of current market design → Effort for Implementation and Administration × Tracking and Verification of Capacity by System Operator
Introduction Overview Concepts Belgian SR Lessons Learned
Authority Regulator System Operator
Consumer Retailer Capacity Provider Cost Allocation P a y m e n t & V e r i fi c a t i
P r
u r e m e n t & A c t i v a t i
C a p a c i t y Determination Volume of Reserve A u t h
i z a t i
◮ Emergency capacity held by the system operator ◮ Contracted capacity taken out of the market ◮ System operator determines activation
→ In times of critical scarcity or for redispatching If market proves efficient, influence of strategic reserve minimal Easy to implement, only small changes Flexible tool in size and activation × Incorrect activation lead to market distortion × Does not address flexibility issue from RES × Price of strategic reserve forms price cap in the market
Introduction Overview Concepts Belgian SR Lessons Learned
Italy discussed Capacity Market Reliability Options France discussed Capacity Obligation Great Britain discussed Capacity Auction Germany discussed Strategic Reserves Capacity Market Poland discussed Capacity Market Spain/Portugal Capacity Payments Sweden/Finland Strategic Reserves Greece Capacity Obligations Bulgaria Capacity Payments
Introduction Overview Concepts Belgian SR Lessons Learned
Italy discussed Capacity Market Reliability Options France discussed Capacity Obligation Great Britain discussed Capacity Auction Germany discussed Strategic Reserves Capacity Market Poland discussed Capacity Market Spain/Portugal Capacity Payments Sweden/Finland Strategic Reserves Greece Capacity Obligations Bulgaria Capacity Payments
Belgium: Strategic Reserves
◮ Situation in Belgium
◮ Nuclear phase-out in stages until 2025 ◮ Total installed capacity of 5926 GW (∼35% in June 2013) ◮ Increased share of RES ◮ Share of total generated electricity 8.9% in 2012 (4.8% in 2007) ◮ Threatened system adequacy
◮ Plan Wathelet
◮ Secretary of State in charge of environment, energy and mobility ◮ Melchior Wathelet ◮ Issued in June 2012, accepted by the government in July 2013 ◮ Strategic reserves to ensure security of supply
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Winter 2014/2015:
◮ Winter 2015/2016: 1200 - 2200 MW ◮ Winter 2016/2017: 1300 - 2300 MW
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Power plants with programmed closure,
◮ For Reservation: Unit price [e/MW/h * 3624h] ◮ For Notification, Prolongation & Injection: cost reflective remuneration
◮ Contract for 3 years, SGR service during 5 Winter months
◮ From notification to activation in less than 5.5h
Pmax Pmin Set Point t P
≤-5.5h
warm-up period
≤-1.5h
ramp-up
≤-0.5h
Notification Verification Activation
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Connected to ELIA grid ◮ No interference with demand side based imbalance products ◮ Sizing based on historical demand profile
◮ SDR 4 (Duration: up to 4h, Delay between 2 activations: 4h,
◮ SDR 12 (Duration: up to 12h, Delay between 2 activations: 12h,
9h 13h Peak Hours 17h 21h Peak Hours Demand Profile Shedding Limit Reference Reserve Capacity h D
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Connected to ELIA grid ◮ No interference with demand side based imbalance products ◮ Sizing based on historical demand profile
◮ SDR 4 (Duration: up to 4h, Delay between 2 activations: 4h,
◮ SDR 12 (Duration: up to 12h, Delay between 2 activations: 12h,
Adapted Demand Profile Activation
(≤4h)
Notification Verification Set Point
≤-5h
warm-up
≤-1h
ramp-down Shedding Limit Reference Reserve Capacity h D
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Instruments reducing investment risk by ensuring steady revenue
◮ Price-based or volume-based & Market-wide or targeted ◮ Regulatory intervention which may lead to market distortions if not
Introduction Overview Concepts Belgian SR Lessons Learned
Introduction Overview Concepts Belgian SR Lessons Learned
◮ Fabien A. Roques
◮ Carlos Batlle, Ignacio J. P´
◮ Energy Institute Fact Sheet
◮ Plan Wathelet
◮ Elia → Users’ Group → Strategic Reserves Implementation Task Force
◮ H. H¨