Power Economics in Liberalised Electricity Markets

Power Economics in Liberalised
Electricity Markets
Lecture at Aachen University of Technology
- 5. lecture, chapter 3.2.3 to 3.3 -
Dr.-Ing. Jochen Kreusel
3. The Liberalised Electricity Market

3.2 Tasks within the Different Market Roles
3.2.3 The Competitive Market (cont’d)
3.3 Market Communication
3.4 Literature to Chapters 3.2.3 to 3.3
Power Economics
in Liberalised Electricity Markets T5_03_E.ppt / p1 / 03-07-04
3.2 Tasks within the Different Market Roles
Discussed in chapter 3 so far

• basic principles of privatisation and liberalisation of electricity markets
• important market roles (in general)
• overview of international examples
• first introduction to different market organisations
• service market
– system operator
– network operator and meter data provider
– main task: reliable market functions
– scheduling, meter data provision, settlement
• competitive market: generation. wholesale, power exchanges, OTC clearing
Today
• competitive market (cont’d): ESP, balance circles
• market communication
Power Economics
3.2.3 The Competitive Market
3.2.3.4 Energy Service Provider
Tasks of wholesale
• providing a competitive cost basis (supply management for ESP)
• managing the market risk
⇒ managing the „stochastic“ risk!
Tasks of the energy service provider
• sale of electrical energy and needed services to end consumers
• securing revenues and profit based on given costs (sales, own staff)
• feedback of market information to supply management (wholesale)
Requirements
• strong sales control process
– which target customers?
– which customer mix?
– which target profitability?
• combination of all cost and price information before closing deals
⇒ managing the „deterministic“ risk!
Power Economics
fig. 3.43: examples for ESP brands in Germany
Power Economics
high weather insensitive

high portfolio volatility
low overheads
contracts
account
tariffs management
volume
well informed
sales
buyer
low
unsophisticated portfolio
buyer volatility
weather sensitive - high
low volatile demand overheads
low high
no. of sites
fig. 3.44: differences between retailing to mass customers and to commercial and industrial customers
Power Economics
product
controlling
definition
trading books
energy end
supply manage-
ment (wholesale)
service sales
custo-
provider
market prices, sales forecast mers
billing
shipping
• schedules
• meter data
C&I customers
mass consumers
fig. 3.45: work process of an energy service provider common
Power Economics
Energy service provider: tasks in sales and marketing
Planning
• which customers? ⇒ mix of load profiles
• how much volume? ⇒ coverage of fix costs, accuracy of planning
Sales process
• commercial and industrial customers
– individual contracts
– individual products (contract parts)
– profitability must be ensured individually per contract!
• mass customers
– systematic contacts (e. g. advertisements), cross-selling
– standard products
– profitability analysis within the planning process
• load forecast to avoid use of expensive balancing energy
– C&I customers: preferably historical data
– mass customers: standard load profiles according to the definition of the network
operator (method, profiles)
Power Economics
Energy service provider: customer and cost structure
customer
control area 1 control area 2

distribution network 1.1 distribution network 2.1
site 1.1 site 1.2 site 2.1 site 2.2

... ...
MP 1.1.1 ... MP 1.1.n MP 1.2.1 ... MP 1.2.n MP 2.1.1 ... MP 2.1.n MP 2.2.1 ... MP 2.2.n
MP: metering point
fig. 3.46: general structure of an energy service provider's customer
Power Economics
Energy service provider: customer and cost structure
subject source cost type no. of cost terms

energy supply variable 1 per customer
management/
wholesale
balancing energy balance circle(s) variable 1 per control area and customer
use of system network operator variable 1 per distribution network and
customer
meter data provision network operator fix (per metering 1 per distribution network and
point) customer
energy service energy service fix 1 per customer
provider provider
table 3.11: structure of an energy service provider's costs, if offering full service
Power Economics
Energy service provider: shipping and billing
Shipping
• enrolment and registration:
– registration at network operator (if not done already)
– sending of request for change of supplier to network operator
– tracking of objections
– handling of own objections
• schedule submission (regularly):
total schedule per control area must be submitted to balance circle
Billing
• reception of meter data
• reception and control of use of system bills from network operators
• reception and control of balancing energy bills from balance circles
• distribution of balancing energy to customers
• billing of customers according the services they have contracted
Power Economics
3.2.3.5 Balance Circles
System Operator ∼ control capacity,

(Control Area Operator, spinning reserve
Balance Circle Coordinator) ∼ (own or contracted)
n ESP1 n station1
sched BC1 ≠ ∑ sched ESP1,i + ∑ sched station ,i
i= 1 i =1
n ESP1 n station1
real BC1 = ∑ real ESP1,i + ∑ real station ,i
i= 1 i =1 single buyer market for
balancing energy
BC 1 BC 2
retail market for
schedESP1,1
balancing energy
real ESP1,1
ESP 1.1 ... ESP 1.n ∼ ...

station 1.1
fig. 3.47: business environment of balance circles
Power Economics
Business purpose of balance circles
! n ESP nstation
K balance , BC = Min < ∑ Kbalance, ESP ,i + ∑ Kbalance,station ,i
i=1 i =1
with: K balance costs of balancing energy
The balance circle may submit another, better schedule to the balance
circle co-ordinator than the total of the schedules submitted to him. This
requires, of course, profound customer knowledge as basis for the load
forecast:
n ESP n station
sched BC ≠ ∑ sched ESP ,i + ∑ sched station ,i
i =1 i= 1
Power Economics
Balance circle: work process
Before operation
• collection of schedules of all ESPs and generators in the balance circle
• submission of resulting schedule and of transit schedules to other control
areas to the balance circle coordinator (system operator)
After operation
• collection of meter data of all ESPs and generators
• forwarding of aggregated meter data to the balance circle coordinator
• receiving and checking of balancing energy bill
• invoicing of balancing energy from the customers (ESPs and generators)
Note: Most big ESPs operate at least one balance circle per
control area themselves.
Power Economics
Interaction of balance circles with generators
• before operation: reception of schedules

– schedule requested by generator
– potential changes requested by the system operator
– balance
• after operation: settlement based on meter data, possible cases:

– commitment fulfilled: compensation of operational changes only
– differences to commitment: payment of balancing energy to system operator
– special case: requested differences
Power Economics
16 target not met: 6
target exceeded:
charged with price for compensation for feeding in
15 balancing energy (high) 5 energy (low)
balancing
operational
14 4
change
capacity (MW)
balance (MW)
13 3
submitted
12 2 schedule
planned use of balancing energy sold
11 (not forbidden, although 1 capacity
usually not reasonable) target
10 0 schedule
real
9 -1 generation
balance
(plan)
8 -2
1 5 9 13 17 21
time
fig. 3.48: balancing of a generator
Power Economics
Interaction of balance circles with ESPs
• before operation: reception of schedules

– load forecast (for latter comparison with meter data)
– balance (as basis for billing of balancing energy, moreover as input for reserve
planning of system operator)
• after operation: updating of balance based on meter data, billing of

balancing energy
Power Economics
11 deviation from schedule => compensation
5 for balancing
energy (usually low), payment of schedule supply to
too much bought generator
=>10
compensation for 4
deviation from schedule
balancing energy, open supply
=> purchase of balancing
payment
9 to generator 3
energy schedule
contracts
capacity (MW)
balance (MW)
8 2 load schedule
metered
7 1 consumption
purchase
6 0 balance (plan)
deviation from schedule and too
high purchase => compensation
5 -1
and payment for balancing energy,
results in reduced payment
4 -2
1 5 9 13 17 21
time
fig. 3.49: balancing of an ESP
Power Economics
Communication tasks in liberalised energy markets: exchange of

• offers and price information
• contracts
• schedules
• meter data
• bills
Requirements for market communication

• accessible for all market participants
• for all market participants equal
• efficient ⇒ electronic
Power Economics
Development in Germany
• no definitions in the beginning
– individual agreements
– use of available standard software (Microsoft Office tools)
– high administrative effort
– high quality risk
• next step: definition of the system operators (DVG companies) for
schedules to be submitted to them: EXCEL format (KISS), e-mail
• VV II plus [1] for the first time addressed this issue (end of 2001)
Target
• use of EDIFACT standard
• as already in Scandinavia, Denmark and the Netherlands
Power Economics
EDIFACT
• electronic data interchange for administration, commerce and transport
• UN recommendation
– since 1987 supported by all relevant standardisation committees and institutions
(ISO 9735)
– accepted world wide
– independent from industry branch
Industry specific requirements are covered by EDIFACT compliant

sub-sets
• CEFIC for the chemical industry
• EANCOM for consumer products
• EDIBDB for building industry
• EDIFICE for electrical industry
• EDIFURN for furniture industry
• EDIEL for electricity industry
Power Economics
EDIFACT: Technology
• EDIFACT is a data syntax on application level
• EDIFACT does not define transmission media
• examples for transmission media
– floppy disk
– Internet
Power Economics
establishment connection termination
interchange interchange interchange
function groups
UNA UNB < > UNZ
messages
UNG < message message message message > UNE
UNH < data segment data segment data segment data segment > UNT
TAG simple data element composite data element
code value
value
comp D/E comp D/E
value
fig. 3.50: basic structure of an EDIFACT data transfer (example see [2])
Power Economics
area of application message content

general UTILMD basic customer data, contract data
DELFOR schedules of energy delivery
billing and metering MSCONS metering data
REMADV detailed billing information
INVOIC billing of system services and energy
delivery
power exchange REQUOTE request for quotation
QUOTES quotation message
SLSRPT sales data report
auxiliary messages REQDOC request of information
APERAK application error and acknowledgement
CONTRL control information (confirmation)
table 3.12: EDIFACT messages in the liberalised electricity market [3]
Power Economics
ESP/balance circle DisCo/TransCo network

registration
(competitive market) (service market) customers

network connection
registration request
contract all real estate owners in network
all players in
check
the network
network access all electricity consumers in network
offer for use of system
contract
request to supply
ESP new customer 1, UTILMD
formal check ESP:
ESP: energy
energyservice
serviceprovider
provider
BC:
BC: balance
balancecircle
circle
correction qualified rejection, DisCo:
DisCo: distribution
distributionnetwork
networkoperator
operator
APERAK TransCo:
TransCo: transmissionnetwork
transmission networkoperator
operator
ESP new OK? TSO: transmission
transmissionsystem
systemoperator
enrolment
TSO: operator
N
Y
information, UTILMD (information)
ESP old information customer 1
clearing
rejection, UTILMD
ESP new objection?
Y
N
execution of change of supplier
fig.3.51: EDIFACT communication between network operators and energy service providers
(acc. [3])
Power Economics
ESP/balance circle DisCo/TransCo network

(competitive market) (service market) customers
enrolment
meter reading at
ESP old change of supply,
execution
ESP:
ESP: energy
energyservice
serviceprovider
provider
MSCONS
confirmation BC:
BC: balance
balancecircle
circle
ESP new DisCo:
DisCo: distribution
distributionnetwork
networkoperator
operator
TransCo:
TransCo: transmissionnetwork
transmission networkoperator
operator
notification, UTILMD TSO:
TSO: transmission
transmissionsystem
systemoperator
operator
BCnew BCold
operation (regularly)
ESP new
before
schedules, DELFOR
TSO BCnew
schedules, DELFOR
(request, REQDOC)
ESP new
meter data, MSCONS distribution of
request, REQDOC
after
BCnew meter data customer 1

meter data, MSCONS
TSO meter data, MSCONS
bill, INVOIC use of system bill, INVOIC
ESP new bill customer 1
fig.3.51: EDIFACT communication between network operators and energy service providers
(acc. [3], cont’d)
Power Economics
3.4 Literature to Chapters 3.2.3 to 3.3
[1] Bundesverband der Deutschen Industrie e. V. (BDI); VIK Verband der Industriellen Energie- und
Kraftwirtschaft e. V.; Verband der Elektrizitätswirtschaft - (VDEW) - e. V.; Verband der Netzbetreiber -
VDN - beim VDEW; Arbeitsgemeinschaft regionaler Energieversorgungs-Unternehmen -ARE - e.V.;
Verband kommunaler Unternehmen -VKU - e.V.
Verbändevereinbarung über Kriterien zur Bestimmung von Netznutzungsentgelten für elektrische
Energie und über Prinzipien der Netznutzung.
(Associations Agreement on Criteria for Calculation of Use of System Fees for Electrical Energy and
on Principles of Third Party Access.)
Berlin, Essen, Hanover, Cologne, December 13, 2001
[2] Overview of EDIFACT standard:
http://www.edifactory.de/edifact/edimain1.html, good introduction with links to further information
[3] März, W.
Standards for Data Exchange in Deregulated Energy Markets Based on the Internet.
IEC TC57, Oslo, June 14, 2001
Power Economics

Power Economics in Liberalised Electricity Markets

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Power Economics in Liberalised Electricity Markets

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Power Economics in Liberalised

Dr.-Ing. Jochen Kreusel

3. The Liberalised Electricity Market

Discussed in chapter 3 so far

fig. 3.43: examples for ESP brands in Germany

high weather insensitive

control area 1 control area 2

site 1.1 site 1.2 site 2.1 site 2.2

MP: metering point

fig. 3.46: general structure of an energy service provider's customer

subject source cost type no. of cost terms

System Operator ∼ control capacity,

ESP 1.1 ... ESP 1.n ∼ ...

Business purpose of balance circles

with: K balance costs of balancing energy

Interaction of balance circles with generators

• before operation: reception of schedules

• after operation: settlement based on meter data, possible cases:

Interaction of balance circles with ESPs

• before operation: reception of schedules

• after operation: updating of balance based on meter data, billing of

Communication tasks in liberalised energy markets: exchange of

Requirements for market communication

Industry specific requirements are covered by EDIFACT compliant

establishment connection termination

interchange interchange interchange

UNG < message message message message > UNE

TAG simple data element composite data element

comp D/E comp D/E

area of application message content

table 3.12: EDIFACT messages in the liberalised electricity market [3]

ESP/balance circle DisCo/TransCo network

(competitive market) (service market) customers

execution of change of supplier

ESP/balance circle DisCo/TransCo network

BCnew meter data customer 1

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