WHOLESALE ELECTRICITY

SPOT MARKET (WESM)
DESIGN STUDY

Phase 3:
Ph 3 Analysis
A l i off Day-Ahead
D Ah d
Markets and Other Day-Ahead
Approaches
pp
Forum presentation in Manila
18 November 2013

SW Advisory 1

Presentation O
Overview
er ie
• Phase 3 of the project brief is to consider the case for a day
ahead market (DAM) for the WESM
• A DAM:
• Is a potential full or part solution to some of the issues of Phase 1 in
particular, such as managing unit commitment
• Would affect other areas of market operations, such as support for the
demand-side and the treatment of renewable energy sources
• This presentation
• Describes what a DAM is
• Identifies different types of DAMs and examples of them
• Evaluates them against a set of relevant criteria
• Suggests a prudent way forward for the WESM

Intelligent Energy Systems
SW Advisory 2

day ahead or some other Intelligent Energy Systems SW Advisory 3 . dispatch market • Essentially the same. energy usually a financial “swap” swap contract • Payment = contract quantity*(contract price – settlement price) • Ancillary service (reserve) contracts are for physical delivery • “Close out” time • The time of the settlement (reference) price • A contract could close out at spot time. not ex ante. Real Time Market (RTM) (RTM).Terms Used in this Presentation • Spot market market. the market for physical operations • We will only refer to the hourly trading price in this discussion. ex post. or dispatch prices (except ancillary services) • Contract • For energy.

unit commitment) over a whole day • Decentralised: central control restricted to dispatch process • Technical/financial market • Technical: Models complex operational issues such as start-up • Financial: Concerned only with delivery/purchase of energy/AS • Compulsory/Optional • Compulsory p y – activityy is part p of MO/SO pphysical y operations p • Optional – provided as an optional service to participants Intelligent Energy Systems SW Advisory 4 .Terms Used in this Presentation (2) • Day-ahead Market (DAM) • A market in which contracts are formed a day ahead of spot time and closed out in the RTM or spot market • Centralised/decentralised markets • Centralised: scheduling (inc.

DAM Options and Examples SW Advisory 5 .

MISO (all U. three of which are DAMs. PJM (mixed with technical) 4 Market 4.S. Zealand.Broad Da Day-ahead Approaches Day- Four day ahead processes. Market with compulsory financial DAM & intra-day trades • Spain. Market with information-driven day-ahead processes • Australia New Zealand Australia. Market with Compulsory Technical DAM • PJM. based) 3. Scandinavia. ERCOT. Scandinavia. Intelligent Energy Systems SW Advisory 6 . Options 2 & 3 are often together. Singapore Singapore. PJM (mixed with technical and financial) • Option 4 is add-on add on to Option 1. 3 & 4 together. M k t with ith optional ti l fifinancial i l DAM and d intra-day i t d ttrades d • Spain. current WESM 2. PJM has 2. di i Th The options ti are: 1. capture th main the i ffeatures t for f discussion:.

Option 1: Information only on day ahead E ample A Example: Australian stralian NEM Timeline for key markets Spot Day Long term Bilat/F’wards Day ahead Spot AS/Reserves Information Intelligent Energy Systems SW Advisory 7 .

Option 1 1: A Australian stralian NEM Feat Features res • Zonal pricing (5 zones). quarterly contracts only (but can trade until closure) • Has run reliably with minimal intervention for 15 years Intelligent Energy Systems SW Advisory 8 . every hour within day and every 5 minutes up to an hour • Prices/dispatch incl incl. 5 minute dispatch interval. half h hour ttrading di iinterval t l • Ancillary services (reserves) procured 5 minutes ahead • But there are some “network network support” support • No centralised DAM – self commitment • Rich forecast and other information provided • Years. weeks and day ahead. load up & down sensitivities by zone • There is a forward market run by stock exchange.

• self commitment with simple energy contracts (Option 3).e. and • non-physical energy contract trades (Option 4) Intelligent Energy Systems SW Advisory 9 . i. l i N New JJersey M Maryland) l d) Timeline for key markets Spot Day Long term Bilaterals/Forwards D ahead Day h d Spot (RTM) Ancillary Serv Information • PJM also includes elements of Option 3 and Option 4.Option 2: Technical DAM E Examplel PJM (P (Pennsylvania.

g bids are g gen.Option 2: 2 PJM Technical DAM Feat Features res • Because of p physical y scheduling. unit-based • MO forecasts most loads and buys on their behalf • Aim of DAM is to provide a feasible schedule and prices for th whole the h l d day: • Start-up times and costs • Maximum and minimum ((Pmin)) technical operating p g levels • Energy limits over the day • Network limitations • Provision for AS/reserves • MW differences at spot time settled at a real time market (RTM) price. analogous to RTD and RTX prices in WESM Intelligent Energy Systems SW Advisory 10 .

MIP) • S Settlement ttl t is i based b d initially i iti ll on energy price i profile. compensation is paid • PJM runs a “reliability reliability market” market after the main DAM • PJM runs a capacity market to ensure plant availability • PJM also supports simple energy bids and self commitment of units. RTM has fewer time-dependent constraints • A mathematical optimisation is performed for the whole day to get the DAM schedule and prices • Many times larger than current WESM (whole day by hour.Option 2 2: PJM Feat Features res • As near as possible. fil b butt if allll costs are not covered over the day. not single hour) and more complex (mixed integer program . as well as bids from non-physical traders (tagged) Intelligent Energy Systems SW Advisory 11 . the same market model for DAM and RTM is used.

Difference is simpler bids and lack of side payments. Intelligent Energy Systems SW Advisory 12 .Option 3: Compulsory Financial DAM Example: E ample Spanish Market Timeline for key markets Spot Day Long term Bilaterals/Forwards Day ahead Spot/intra-day AS/Reserves Information Note similarity of timeline to technical technical.

• All available production units must participate in this market as sellers if not linked to a bilateral contract • Buyers y on the dailyy market are last resort resellers. the market is not nodal (but could be) • Bids are based on energy but may include “conditions • these conditions are resolved in the market clearing gpprocess with a heuristic that avoids side payments • There are also six intra-day markets with similar rules to the day ahead..Option 3 3: Spanish Market Feat Features res • Most transaction are carried out in the daily market.. direct consumers and non resident retailers registered as buyers. ahead that allow inconsistencies to be resolved Intelligent Energy Systems SW Advisory 13 . • Technical constraints and reserves are resolved. resellers.

Option 4: Optional Financial DAM Example: ample Nordpool (Scandinavia) (Scandina ia) Timeline for key markets Spot p Dayy Long g term Bilat/forwards Day ahead Also supports continuous intra-day trades Spot/intra-day Spot merges with intra-day AS/Reserves Less relevant in Nordpool (hydro) I f Information ti Long term contracts could close out in either spot or day ahead Intelligent Energy Systems SW Advisory 14 .

weekly. quarterly and annual contracts contracts. for delivery of power the following day • Elbas is an intraday market for trading power operated by Nord Pool Spot • Operates p continuously y up p to spot p time ((hour ahead)) • Increasingly important as renewables penetrate the market Intelligent Energy Systems SW Advisory 15 .Option 4 4: Nordpool (Scandinavia) (Scandina ia) Feat Features res • Nordic region longer term financial forward contracts are traded through a commodities exchange • The contracts have a time horizon up to six years. • The system price calculated by Nord Pool Spot (Elspot) is used as the reference price for the financial market • The day-ahead market. is the main arena for trading in the Nordic region. monthly monthly. Elspot. covering daily weekly daily.

Option 4 4: Nordpool (Scandinavia) (Scandina ia) Feat Features res • Elspot operates with both buyers and sellers undertaking trades equally • Today there are around 360 buyers and sellers (called members) on Elspot. day placing a total of around 2000 orders for power contracts on a daily basis • The contracts are for energy and take account of network constraints and inter-tie ramping limits • “Block bids” are also supported • M May span more than th one time ti period i d and dbbe ““allll or nothing” thi ” • Combining heuristics with optimisation delivers schedule and pricing that avoids the need for side payments • Reserve arrangements also provided for Intelligent Energy Systems SW Advisory 16 . Elspot Most of them trade every day.

Assessment Criteria for Day--ahead Approaches Day SW Advisory 17 .

A Assessment t Criteria C it i ffor D Day-ahead Day. energy storage limits and other inter-temporal constraints? temporal limits Managing network risk Does the DAM option provide facilities that to enable market participants to manage locational (network) price risks. Aspect Considerations Facilitating unit Does the DAM option enhance the ability of market participants to 1 commitment make good unit commitment decisions in the WESM? Managing g g energygy and Does the DAM option p enhance the abilityy for p participants p to manage g 2 other (technical) inter.h dA Approaches h No. Does the DAM option facilitate / encourage greater demand-side 4 side participation? Facilitate contract trading Does the DAM option provide facilities to enable market participants 5 on a day-ahead day ahead basis to engage in trading in / out of their contract positions to manage financial risk? Mitigating market power Does the DAM option reduce opportunities for market participants to 6 in the spot market exercise market power in the RTM? Intelligent Energy Systems SW Advisory 18 . and 3 adequately support unit commitment decisions when network constraints are likely to bind? ? Supporting the demand.

A Assessment t Criteria C it i ffor D Day-ahead Day. Aspect  Considerations  Improving ancillary service  Does the DAM option enhance procurement and management of ancillary  dispatch process services.h d Approaches A h (2) No. while giving adequate comfort to the SO who is responsible for  7 maintaining system security? Providing support for  Providing support for Does the DAM option function adequately where there are significant Does the DAM option function adequately where there are significant  8 renewable energy levels of intermittent renewable generation? Management of standby or  Does the DAM option enhance the management of standby generators  9 reliability must‐run  used for reliability or power system security?   generators  Consistency with the  Is the DAM option consistent with the broader WESM design principles  WESM’s design philosophy (decentralised decision‐making)? 10 Would it be necessary to rework a number of fundamental design choices  as part of introducing the DAM? Implementation issues and  What would be the implementation cost?  What aspects of the existing  11 cost  market systems and infrastructure would be impacted?   Transition issues  What issues must be resolved to transition from the present  12 arrangements to new arrangements that include a DAM option? arrangements to new arrangements that include a DAM option? Intelligent Energy Systems SW Advisory 19 .

Comparative Evaluation SW Advisory 20 .

procurement a Yes. 10 Shorter gate closure Yes Not applicable Not applicable Yes 11 Better day ahead Central Limited as SO Helpful Helpful information to facilitate requirement manages intra-day Intelligent Energy Systems generator planning and SWunit Advisory operations 21 commitment decisions . Optional Fin. spot adjust spot adjust time time. procurement and reserves at dispatch/spot day ahead with day ahead with at dispatch/spot time time. Compulsory Compulsory Fin. Change ahead information Technical DAM DAM with intra.Da ahead approach . DAM w. procurement Yes. intra-day only day trading trading 1 Pmin and must offer rule Solved indirectly by Solved directly by Solved indirectly by Solved indirectly intra-day bid whole day-ahead intra-day trading by intra-day change scheduling trading 2 Shorter dispatch interval Yes Yes Yes Yes 3 Changing the values and Yes Yes Yes Yes priorities of some of the CVCs 4 Set a market price cap and Bidding not Bidding Bidding Bidding not floor for the WESM constrained within constrained within constrained within constrained within day the day the day day 5 Local PENs Yes Yes Yes Yes 6 Automating MRRs and no Yes Yes Yes Yes PENs for CVCs 7 Include key elements of Yes Yes Yes Yes DU’s sub-transmission in the MNM 8 Improving MRU Reduce with other Dealt with in the Reduce with other Reduce with other arrangements for payment recommendations whole day recommendations recommendations and interaction with WESM schedule 9 Co-optimisation of energy Yes.Phase 1 & 2 iss Day issues es No. Design or Implementation Improved day. procurement a Yes.

but by restricted Possibly power in the spot within-day bidding within-day bidding market Intelligent 7 Energy Systems Improving ancillary Yes. Technical DAM 3. managed Can achieve Can achieve and other inter. with intra- intra-day adjustment day adjustment. Compulsory 4. no demand-side demand-side demand-side centralised contracts supported. procurement a Yes. iteratively without centrally but limited iteratively with iteratively and temporal limits financial lock-in by what is supported financial lock-in voluntarily with financial lock-in if desired. but by restricted Yes.Comparative Comparati e E Evaluation al ation on Broad Criteria No Issue 1. procurement a Yes. 3 Managing network Neither day ahead or Yes. the DAM Yes trading on a day makes not allowance contract makes not ahead basis for participant allowance for preferred level of participant preferred cover level of cover 6 Mitigating market No Yes. 2. day adjustment. but not long risk long term without term without FTRs term without FTRs term without FTRs FTRs 4 Supporting the Demand and price Day ahead Day ahead Day ahead demand-side projections with contracting for contracting for contracting for sensitivities only. Optional ahead Information Financial DAM with Financial only intra-day intra day trading DAM with intra intra-day day trading 1 Facilitating unit Can achieve Yes. procurement at22 service dispatch dispatch time day ahead day ahead dispatch time . the DAM contract No. supported. with intra. but not long Yes. Improved day. 5 Facilitating contract No No. but limited supported. SWprocurement Advisory at Yes. but at cost of Can achieve Can achieve commitment iteratively without SO control within the iteratively with iteratively and financial lock-in day financial lock-in voluntarily 2 Managing energy Can achieve Yes. but not long Yes.

Compulsory 4.MO forecasts of non.Comparati e E Comparative Evaluation al ation on Broad Criteria (2) No Issue 1. if voluntary DAM WESM design technical DAM run by MO is seen as philosophy hil h d decentralised. Improved day. MO forecasts of non- for renewable dispatchable dispatchable dispatchable dispatchable energy generation required generation required generation required generation required 9 g Management of Implement p Phase 1 Can be enforced in Provides contract Provides contract standby or must and 2 the DAM with support for unit support for unit run generators recommendations compensation commitment commitment 10 Consistency with Yes No Partially. 2. t li d 11 Implementation New MMS with Radical re-design of Not as complex as A modest incremental issues and cost some optional market requires new technical DAM but still design addition and additions. Optional Financial ahead Information Financial DAM with DAM with intra-day y only intra-day trading trading 8 Providing support MO forecasts of non. more so than Yes. much more complex 1 MMS 12 Transition issues Additional training to New contract New contract Trading facility can be improve trading skills settlement reference settlement reference designed into new required price required price MMS Intelligent Energy Systems SW Advisory 23 . MO forecasts of non. plus market rules and a radical change cost relative to Option training etc. Technical DAM 3.

Conclusions and Possible Strategy SW Advisory 24 .

Energy Systems Intelligent SW Advisory 25 .Conclusions Concl sions • Compulsory Technical and Financial markets would be a radical change in market philosophy toward central control • Phase 1 recommendations will be a large improvement relative to present problems • Cost/benefit of a change to a centralised market not possible because current market operations p p do not p provide a reasonable benchmark • But MMS costs likely to be much greater • H However. pricing and settlements • . th the new MMS could ld make k provision i i ffor an optional or compulsory financial DAM • relativelyy simple p to do because of many y common features with dispatch scheduling.

PEMC should commit to the recommendations of Phases 1 and 2 of this study 2. The MMS tender should be written to specify a system that is as open and maintainable as much possible in-house at PEMC (so inevitable changes can be made easily Intelligent Energy Systems SW Advisory 26 . 3. demonstration andd ttraining i i systems t ffor allll or partt off the th proposed d new arrangements including Phase 1 and 2 recommendations and p possible DAM.Possible Strateg Strategy 1. PEMC should develop or commission trial.

If it turns out that participants see little value in a DAM at that time. a review should determine whether there is a case to roll out a DAM. the DAM need not be rolled out. After 12 months of operations under the new arrangements. The new MMS should be rolled out with Phase 1 and 2 improvements and co-optimised ancillary services. Th WESM rules l should h ld bbe adjusted dj d to reflect fl this hi strategy Intelligent Energy Systems SW Advisory 27 .Possible Strateg Strategy (2) 4. possible DAM rollout ll t should h ld b be deferred. 6 The 6. d f d 5.

Discussion SW Advisory 28 .