Institut fr Elektrische Energiesysteme

Power System Economics

Market Architecture II

Fundamentals of Electricity Markets, Real-Time Market

Ahmet Can Yksel

Contents

Introduction to Power Market Real-Time Market

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Fundamentals of Electricity Markets, RealTime Market

What is Market?
A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby businesses sell their goods, services and labor to people in exchange for money.

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Fundamentals of Electricity Markets, RealTime Market

Power Markets (1)

Power markets are the only markets that can suffer an instability which occurs in less than a second like a blackout. In this consideration, the power market should be controled instantaneously.

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Fundamentals of Electricity Markets, RealTime Market

Power Markets (2)

Forward market is a financial market in contracts for future delivery. Spot market is a market in which financial instruments or commodities are traded for immediate delivery.

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Fundamentals of Electricity Markets, RealTime Market

Power Markets (3)

Forward markets are financial markets, while the RT market is a physical market. If power sold in the DA market is not provided by the seller, the seller must buy replacement (liquidated damages) power in the spot market. Because customers are virtually never disconnected, power is delivered and they are charged for it. This is called a two-settlement system.

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Fundamentals of Electricity Markets, RealTime Market

Example-1 of Settlement System: Generator 2 Fails to Supply

For ar Commitment W Gen Gen Loa Lo P 1 2 B ($/ W ) tual ispat W 9 ifferen e or m alan e W 40 -40 0 0 For ar s ar et e enue or payment *3 = $1 *3 = $12 50*30 = ($ 500) 40*30 = ($ 00) Spot ar et e enue or Payment 40*45 = $1800 -40*45 =-$1800 0 0 otal e enue Or Payment $33 ($600) ($ 500) ($ 00)

50 40
$30

50 40
$45

Increases spot price to 45 from 30 forward Gen. 1 increases supply to balance load Gen. 2 pays the increase in price caused by its failure
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Example-2 of Settlement System: oad B Underestimates Demand

Forward Commitment (MWh) 50 40 50 40 30 Actual Dispatch (MWh) 50 50 50 50 40 Difference or Imbalance (MWh) 0 10 0 Forwards Market Revenue or (payment) 50 30 1500 40 30 1200 50 30 ( 1500) 40 30 ( 1200) Spot Market Revenue or Payment 0 10*40 = $400 0 Total Revenue r Payment 1500 1600 ( 1500) ( 1600)

Gen. 1 Gen. 2 oad A oad B Pr ce( MWh)

10

10*40 =$400

Reduces pr ce n forward market Increases pr ce n spot market oad B buys 10 extra un ts at h gher spot pr ce
8

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Fundamentals of Electricity Markets, RealTime Market

Example-3 of Settlement System: oad A verestimates Demand

or ard ommitment en en Load A Load B Price($/MWh) A t al Dispat Differen e or m alan e or ards ar et even e or payment 50*40 = $2000 Spot ar et even e or ayment otal even e r ayment $1700 ($1700) ($2000)

10 50 50

$40

10*30 =$300
10*30 = $300 0

40 50
$30

10 0

50*40 = ($2000) 50*40 = ($2000)

Increases price in forward market Reduces price in spot market oad A sells 10 extra units at lower spot price (Gen. 2 buys back extra units)
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Different Types of Market Coupling

Decentralized Market Coupling Centralized Market Coupling

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Market vs. System

perator

 Market Operator: Operate and/or facilitate the market

Registration of market participants Receiving bids offers from market participants Market clearing Settlement and invoicing

 System Operator: Operate the system, ensure reliability and security

Real-time dispatch to balance supply and demand Managing ancillary services to maintain system reliability Manage congestion
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Basic Market Models

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The Real-Time Market

No bids No contract (all Forward) A price is announced then suppliers and customers respond.

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The Real-Time Market (2)

Real-time sales are not under contract!! 1. Exception: PJMs RT pool (Make-whole) 2. Would raising the RT price raise the cost of the power? (price during 5 min. of the contract) 3. Suppose there is a contract !!

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The Real-Time Market (3)

Suppose there is a contract!!
Delivery made

Expected delivery

80 MW

50 MW

Is this an exception of RT market to have a contract?

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What determines the Real-Time Price?

The RT price is determined by total actual supply and demand. This includes power traded under forward contracts and in the RT market. Supplier paid: Q1 x (P1 P0) + Q0 x P0 ( loopholes)

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What determines the Real-Time Price? (2)

Forward Price Real-Time Price

55

50

Generator wouldnt produce anymore. It is a better choice to buy from RT to generate. RT price controls all the RT power flows.

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Why Real-Time Markets are not Purely Bilateral

 Most markets operate as bilateral. Why is RT not?

Provision of ancillary services. Speed and capability of bilateral market.

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Thank you for your attention!