Functioning of flow-based market coupling

in CWE + role of TSOs

GUEST LECTURE KULEUVEN
Ir. Andreas Tirez – Director CREG
Ir. Alain Marien – Chief Advisor CREG

2 March 2022

Context
Basics on flow-based market coupling
TSOs discretionary actions and their impact
Recent evolutions
Pending Issues
Conclusions












 Abbreviations

• CWE: Central-West Europe (BE, NL, GE, AT, FR)

• DA: day ahead
• FBMC: flow-based market coupling
• Fmax: maximal capacity on a transmission element (in MW)
• Fref’: reference flow, flow on a transmission element before market coupling (in
MW)
• FRM: flow reliability margin (safety margin) (in MW)
• NEP: net export position
• NRA: national regulatory authority (BE: CREG)
• PTDF: power transfer distribution factor
• RAM: remaining available margin: capacity on a transmission element that can be
used by the DA FBMC (in MW)
• TSO: transmission system operator (BE: ELIA)

Context
Day-ahead Flow Based Market Coupling in Central West Europe
(DA FBMC in CWE)
• 2007: MoU on the implementation of a CWE DA FBMC
• 2015 (8 years later!)
• Conditional approval of the CWE DA FBMC methodology, 15 action points
listed in a Common CWE NRA position paper
• Go-live of the CWE DA FBMC
• First results successful, followed by drop in CWE cross-border exchanges
• 2015 - 2017: Monitoring shows CWE DA FBMC performance below
expectations and reveals impact of TSO discretionary actions
• 2017: CREG study on the impact of CWE TSO discretionary actions on the
design and functioning of CWE DA FBMC (published in English on CREG
webpage)
• 2018: several measures leading to an significantly improved DA FBMC

Context
Contrary to what was expected during the parallel runs, a significant drop
in CWE cross-zonal exchange was observed after the introduction of FBMC.
5000
4535 4553
4389 4409
4500 MW -615 MW
4018
4000 3828 3794

3500

3000

2500

2000

1500

1000

500

0
2011 2012 2013 2014 2015 2016 2017
CWE-DA CWE DA + LT

Evolution of annual average CWE cross-zonal exchange during congested hours

5
 Zonal Net Positions (MW) / Total CWE exchange (MW)

2000
4000
6000
8000

-8000
-6000
-4000
-2000
0
201101
201103
Context

201105
201107
201109
201111
201201
201203
201205

NEP NL
201207
201209
201211
201301
201303

NEP FR
201305
201307
201309
201311
201401
201403
201405
201407

NEP DE/AT/LU
201409
201411
201501
ATC

201503
201505
What happened three months after the go-live?

NEP BE
201507
5643

201509
201511
FBMC

201601
201603
201605
201607
XB-vol CWE

201609
Evolution of monthly average CWE cross-zonal exchange

201611
201701
201703
201705
201707
2781

201709
5093

201711
201801
201803
5359

6
Inefficient market coupling leads to higher price spreads – day ahead
2017

7
Inefficient market coupling leads to higher price spreads – 1 year ahead
2007-2017

8
Context
Basics on flow-based market coupling
TSOs discretionary actions and their impact
Recent evolutions
Pending Issues
Conclusions












 FBMC concept

Transmission network Bidding zones

TSOs Market
Grid security Maximize social welfare

Maximize Social Welfare

While
Guaranteeing grid security

10

FBMC - uncongested case

NEP BE
Market clears
inside the flow
based domain

Social Welfare function

< Market Participants

NEP NL

Flow based domain

< network constraints by the TSOs

11

FBMC - congested case

NEP BE
Market clears
on a network
constraint

Active constraint

NEP NL

Flow based domain

< network constraints by the TSOs

12

How is the flow based domain built?

And how can it change hour by hour?

13
 How is the flow based domain built?
Set of Critical Branches – Critical Outages (CBCO)
NEP A
For each CBCO: For each CBCO:
Physical loading resulting
from cross-zonal exchange
Sum(NEPz*PTDFz)
(in N-1 condition)
≤ ≤
NEP B Available capacity RAM

Next slides:
1. PTDFz= zonal Power Transfer Distribution Factors (MW/MW)
2. RAM = Remaining Available Margin (MW)
3. CBCO - selection

14

1. Zonal Power Transfer Distribution Factor (PTDFz)

Network Bidding zones

Generation shift keys (GSKs) Zonal Net Exchange Position (NEPz)

Assumptions on locational distribution of Inside a bidding zone, no locational

generation as a response to a change in NEP information of market bids
For each network element: PTDF z,h = Σ GSKn PTDFn,h

15
2. Remaining Available Margin (RAM):ideal situation

RAM
Fmax

Each TSO determines for its CBCOs

• Fmax (MW): Thermal line capacity

! RAM = Fmax

16

2. Remaining Available Margin (RAM): actual #1

RAM

Fmax

Fref’

TSOs determine for each CBCO:

• Fmax (MW): Thermal line capacity
• Fref’ (MW): Reference flows

! RAM (MW): Fmax –– Fref’

17

Origin of reference flows: Commercial exchanges

in the « base case »
Domestic trade

Market coupling starts from a

« zero-balanced basecase » PL

Each TSO defines… CZ

NL DE/AT/LU
- Load forecast SL

BE HU
+ Production forecast

= Zero-balanced base case

FR

Schematic view of current bidding zone configuration in CWE and CEE

18
Origin of reference flows: Commercial exchanges in the « base case »
« Domestic
flows »

Corresponding physical flows PL

« Loop flows » CZ
NL DE/AT/LU
SL

Wind generation in BE HU
northern Germany to
demand in southern
Germany creates high level
of loop flows through FR
Belgium (average 900 MW)
Priority access

19
2. Remaining Available Margin (RAM): actual #1

RAM

Fmax

Domestic trade
Fref’
gets priority
access

(2) Reference flows get priority access

• Fmax (MW): Thermal line capacity
• Fref’ (MW): Reference flows

! RAM (MW): Fmax– Fref’

20

2. Remaining Available Margin (RAM): actual #2

RAM

To account for
forecast errors
Fmax
FRM & locational
uncertainty

Fref’

TSOs determine for each CBCO:

• Fmax (MW): Thermal line capacity
• Fref’ (MW): Reference flows
• FRM (MW) : Flow Reliability Margin
! RAM (MW): Fmax – Fref’ - FRM
21

 2. Remaining Available Margin (RAM): actual #3

RAM
To account for
Remedial Actions
FAV (negative value)
Fmax and for grid
FRM security (positive
value)
Fref’

TSOs determine for each CBCO:

• Fmax (MW): Thermal line capacity
• Fref’ (MW): Reference flows
• FRM (MW) : Flow Reliability Margin
• FAV (MW): Flow Adjustment Value
! RAM (MW): Fmax – Fref’ – FRM - FAV

22

3. Selection of CBCOs

RAM

FAV
Fmax
FRM

Fref’

TSOs determine for each CBCO:

Also some internal lines are • Fmax (MW): Thermal line capacity
considered as • Fref’ (MW): Reference flows
Critical Branches – Critical Outages • FRM (MW) : Flow Reliability Margin
(‘Internal CBCOs’) • FAV (MW): Flow Adjustment Value
! RAM (MW): Fmax – Fref’ – FRM - FAV
23

 Overview
Construction of Flow Based domain
Sum(NEP*PTDF) < RAM for all CBCO’s in the CBCO-set
With PTDFz the zonal power transfer distribution factor
PTDFz = GSK PTDFn
And RAM the available capacity for cross-zonal exchange:
RAM = Fmax – Fref’ – FRM – FAV

! The Flow Based domain depends on TSO inputs

1. Defintion of GSKs in the basecase
The Flow Based domain is
2. Selection of the set of CBCO’s
constructed in D-1 for each
3. For each CBCO: Line capacity (Fmax) individual hour.
4. For each CBCO: Reference flows (Fref’)
Hourly CBCO data are
5. For each CBCO: Flow Reliability margin (FRM)
published daily on JAO.
6. For each CBCO: Flow Adjustment Values (FAV)

24

Context
Basics on flow-based market coupling
TSOs discretionary actions and their impact
Recent evolutions
Pending Issues
Conclusions












Impact of TSOs collective discretionary actions
PRICE SPIKES LINKED TO IMPORTANT LOOP FLOWS

CURRENT CWE FB DESIGN does not limit loop flows and gives them priority grid
access. This reduces capacity for import and export.

26
 Impact of TSOs collective discretionary actions
MORE DIFFICULT INTEGRATION OF RENEWABLES
EXAMPLE: SITUATION OF 1TH OF MAY 2017

• In the CWE region, 9000

8000
80

exchanges can go 7000

6000
60

>10000 MW 5000
4000
40

• High wind-infeed in DE 3000

2000 20

• Exchanges limited to 1000

0 0
2300-3700 MW when -1000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
-2000 -20
prices were very -3000
-4000
-40
negative in Germany -5000
-6000
• Origin: loop-flows and -7000 -60
-8000
internal critical -9000 -80

branches BE DE/AT FR NL DAM BE DAM NL DAM FR DAM DE

CURRENT CWE FB DESIGN, with the current configuration of bidding zones, does not
allow the maximisation of energy produced by renewables

27

 Overview of active cross-border CBCO’s

FAV of 300 MW applied by
Amprion non-stop during 18
months limited FBMC in 27% of
congested hours

High level of loop

flows (having
priority access)

28
Data 2015 - 2016

 Overview of active internal CBCO’s

Lines with RAM below 8% - added
by Amprion after the parallel runs
limited FBMC in 37% of hours RAM
below 10%

High level of loop

flows and domestic
flows (having
priority access)

29
Data 2015 - 2016

30
Impact of TSO individual discretionary actions
EVENTS NOVEMBER 2016
Simulations performed by ELIA on CREG’s request
• Scenario 1: Application of winter limits (Fmax +20%) on Amprion CBCOs,
• Scenario 2: Removal of the internal lines added after go-live and removal of
positive FAV values on the four interconnection lines between Amprion and
Tennet NL area,
• Scenario 3: Use of PSTs on Belgian-Dutch border to keep the D-2 loop flows
expectations through Belgium below 500 MW, if possible.
CWE Day Ahead Net Position [MW] CWE Day Ahead Prices [€/MWh] CWE vol Max Price Spread
BE DE FR NL BE DE FR NL MW €/MWh
Ref -1231 3192 -2077 115 62,4 38,2 65,2 42,9 3694 29,3
Scenario 1 -1258 3862 -2794 190 61,9 39,2 62,6 43,6 4372 28,4
Scenario 2 -1269 4202 -3155 222 62,6 39,7 61,9 43,8 4697 29,1
Scenario 3 -1194 2867 -1686 14 62,6 37,8 66,2 42,4 3360 30,3

Scenario 2: Monthly averaged CWE cross-border trade would have been 4697
MW instead of 3694 MW (+1003 MW or +27%).
French import increases by 1078 MW and the French-German price spread
decreases by 4,8 €/MWh.

31

 3. Impact of TSO discretionary actions

BELGIAN – GERMAN PRICE SPREAD

Amprion added internal critical branches just after the FBMC go-live. This single TSO
discretionary action has increased the average price spread between Belgium and
Germany over 2015 – 2016 by almost 2€/MWh.

Source: CWE TSOs, CWE Consultative Group meeting Brussels, February 28th, 2017

32
Key messages

TSO PLAYS AN ESSENTIAL ROLE IN THE PRICE FORMATION

• And have a large degree of freedom and responsability
• CWE DA FBMC results are not good enough
• Current approach is not compliant with EC Regulation 714/2009

EVOLUTION OF NRA POSITION ON FBMC

• High expectations at the start of FBMC
• NRAs shared major concerns
• Market participants started questioning FBMC

33

Improvements
Several measures taken in 2018 leading to an
improved FBMC
• Increasing pressure on TSOs in CWE: common understanding of problematic situation
➢ High level meetings in 2017 with NRAs and EC (DG ENER) discussing solutions
1. Obligation to give minimum 20% of RAM on transmission lines

➢ End of April 2018 implementation; political pressure on TSOs in October 2018 due to non-
compliance of min20%RAM by German TSOs possibly leading to shortages in Belgium
2. Increase of Belgian import limit to 5500 MW (now 6500 MW, going to 7500 MW)

➢ In June 2018, Belgian TSO increases import limit from 4500 to 5500 MW
3. Zone split of DE/AT on 1 October 2018 following Acer decision

➢ All flows resulting from exchange from DE to AT are now put in competition with other
exchanges between countries in CWE => lower loop flows

35

Impact of measures – 20% min RAM

! Since 26 April 2018 CWE TSOs apply the 20% min RAM patch as short-term
measure to address the problem of lack of cross-zonal capacity.
2,500
Hours Will this help?

2,000
In 2017, 46% of all active CBCOs
had less than 20% RAM.
1,500
Of these, 64% were Amprion
lines.
1,000

500

0
Distribution of active CBCOs
Elia Tennet DE TransnetBW Amprion RTE Tennet NL
by TSO & by RAM in 2017
<10% RAM 10 à 20% RAM 20 à 30% RAM 30 à 40% RAM +40 %RAM
Source: CWE TSOs, CREG

36

Impact of measures – 20% min RAM

! Since 26 April 2018 CWE TSOs apply the 20% min RAM patch as short-term
measure to address the problem of lack of cross-zonal capacity.

How is this achieved?

Fmax

RAM
Application
FAV of negative
FRM FAVs

Fref

RAM of active CBCOs in % of Fmax and the applied FAVs since the
implementation of the 20%minRAM.
Source: JAO, CREG postprocessing

37

Impact of measures – 20% min RAM

• split DE/AT on 1/10 => lots of virtual critical branches
• 20% min RAM: guaranteed, also thanks to political pressure

38

Impact of measures – BE import limit

• On 26 December 2018 hour 19, Belgium imported up to 5196 MW, a
new record => increase of import capacity to 5500 MW useful
• High imports leading to lower price spreads with neighbours

39

 Impact of measures – zone split DE/AT

• Split of DE and AT => during price spikes in BE + FR: no export from DE to AT! => no
transit flow through BE => more import capacity for BE + FR
• Before split: export DE=>AT would have continued => at least 400 MW more loop flows
=> less import capacity for BE + FR => even higher prices in BE + FR
➔ with zone split: FBMC can function more as it should: transactions generating the
highest welfare get the scarce capacity

40

Impact of measures

• Overall, functioning of FBMC in CWE significantly improved in

2018-2019, leading to more XB exchange (during congested hours)

41

More efficient market coupling leads to lower price spreads – day

ahead 2007-2019

42
More efficient market coupling leads to lower price spreads – 1 year ahead
2007-2019

43
 FBMC improved and extended

➔ With new EU Regulation 2019/943, overall RAM-target of 70%

➔ GE and NL will follow a linear path to this goal, to be reached by the end of 2025
➔ BE applies 70% RAM since 1 January 2020, with some derogations (mostly for
loop flows generated by other countries)

➔ FBMC extended to Eastern-Europe in coming months

44

 Impact of structural re-dispatch on flows

Re-dispatching « Domestic
flows »
= increase production in South
+ decrease production in North PL
=> “pushing back” domestic flow
CZ
NL DE/AT/LU
Re-dispatching decreases
domestic flow, but hence also SL
the loop flow.
If re-dispatching is structural, BE HU
this action can be foreseen =>
impact on flows can also be
« Loop
foreseen => should be taken
FR flows »
into account in DA capacity
calculation (“using the best Priority access
available forecast”)

45



Volume of Re-dispatching in Germany

• These data have been used to calculate the impact of re-dispatching on the
zonal price
• New CREG-study on “Best forecast of remedial actions to mitigate market
distortion”

46

Estimation of the impact on the price signal

• By removing the units re-dispatch down, we shift the German supply curve to the left
and increase the zonal clearing price
• Applied to the months of October 2018 till end February 2019, this gives an average of
6,15 €, and 7,8 € only for the hours with re-dispatching!
• It is assumed here, for simplicity reasons, that volumes of cross-zonal trade are not
affected by the price increase in Germany

47

CONCLUSION
Take home messages
• Several flaws in CWE day-ahead flow-based market coupling (DA FBMC)
design identified in the CWE NRAs decision in 2015, have not been resolved.
In 2015-2017, low RAM and high loop flows getting priority access to the
grid, leading to price spikes on the day-ahead market.
• Increased pressure on CWE TSOs in 2017 + several measures taken in 2018
leading to a significantly improved DA FBMC in CWE.
• Regulation 2019/943: 70% minRAM
• Improvements go slow, but are possible: try to understand the complexity
of power markets, analyze the data and keep the pressure on
• Don’t forget the TSO: this monopolist has a very important role in market
functioning and price formation => next battle on re-dispatching

49