1 Intelligent Well Technology: Status and Opportunities for Developing Marginal Reserves SPE

Revisiting GenCo’s residual-demand-based methodologies for optimal day-ahead bidding in the context of European PX

Samuel Vázquez, Instituto de Investigación Tecnológica, Universidad Pontificia Comillas, Madrid, Spain, Phone: +34915422800,

Pablo Rodilla, Instituto de Investigación Tecnológica, Phone: +34915422800, <>

Carlos Batlle, Instituto de Investigación Tecnológica, also with the MIT Energy Initiative, Cambridge, MA, US Phone:+34915406306, <>

Overview

In many electricity systems, companies’ revenues greatly depend on their ability to sell in the day-ahead market the energy produced by their generating plants. With the objective of analyzing the problem of optimally defining the generator’s bidding strategy in the day-ahead electricity market many different modeling approaches have been developed so far. The fact that the vast majority of electricity markets have a far from perfectly competitive structure implies that often the quantity the market agent offers in the market affects the final resulting price. For this reason, from the point of view of an individual generation company, a well-knwon modeling approach entails representing the rest of the market in each hour by means of the residual demand curve (RDC). The RDC relates the system marginal price in each particular hour with respect to the quantity sold in that same hour by the company optimizing its strategy.

This curve can provide valuable insights to a generation company; however, in rigor, it is only well-suited to simulate the results of a simple auction clearing mechanism, that is, an auction design where agents are exclusively able to submit price-quantity pairs. In this paper we discuss the applicability of these residual-demand-based methodologies in the broader context of European PX markets, which are characterized for clearing with semi-complex mechanisms.

In the so-called simple auction scheme, the format of the offers does not explicitly reflect the generation cost structure (e.g. an offer component for the start-up cost) or imply any inter-temporal constraint. Instead, market agents submit simple offers/bids, which exclusively consist of price-quantity pairs representing the willingness to sell/buy the underlying product (one MWh in a certain time period of the day, e.g. an hour).

The common idea behind the design of semi-complex auctions is simply to introduce as few complex constraints as possible in the auction, so as to not to complicate the matching process in excess while at the same time removing the huge risk at which agents are exposed in the simple auction context. In practice, this trade-off has been achieved either by introducing some of the most relevant constraints (most difficult to be internalized), as it is the case with the ramp-up constraint (used in the Iberian day-ahead market) or by allowing some heuristic-based inter-temporal constraints in the offers format, in most cases not necessarily representing actual constraints or cost components, but rather a mixed effect of many of them. This is for example the case of the block-bids considered in Nord Pool .

The aim of the paper is first to discuss how the suitability of the residual-demand-based techniques in the context of semi-complex auctions may be further affected by the growing penetration of non-dispatchable, less predictable and intermittent energy resources (referred to as Variable Energy Resources, or simply VER). On the basis of the empirical evidence extracted from the MIBEL market, in which the VER penetration is already very significant, we show how the information gathered in the previous days, usual reference for the daily residual demand building, turns to be less and less reliable estimate of the market competitors behavior.

Methods

To do so, we first describe how this technique can be adapted in this particular context (semi-complex auctions with lots of VER). We test the methodology against real data for two different scenarios: one corresponding to the market conditions prior to the deployment of VER back in 2003 and another one placed at the other extreme, using market data from 2010.

Results

We illustrate how, as the amount of VER increases, the market price formation dynamics change dramatically. The effect that VER have had on the relevance of these semi-complex conditions is clearly illustrated in the figure below. The withdrawn energy in the day-ahead market stemming from the activation of the minimum income condition in a peak hour is depicted along with the evolution of daily wind productionfrom 2002 to 2010. As the installed capacity of VER in the MIBEL (namely wind, but also a significant amount of solar PV, around 4GW as for the end of 2010) has grown, the amount of energy discarded in the final market clearing due to the activation of semi-complex constraints has increased accordingly.

Figure 1.- Energy withdrawn as a consequence of the activation of the complex conditions

We have found that the short-term variability in the amount of offers removed due to the activation of complex conditions is high and has grown in parallel with the penetration of VER in the MIBEL. Figure 2 depicts this variability computed as the difference between the withdrawn energy in a peak hour of two consecutive days between years 2002 to 2010. The variation in daily wind energy is also shown.

Figure 2.- Short-term variation in withdrawn energy and wind production

Conclusions

We show how applying theRDC-based methodology may become a less suitable approach to support the daily bids building task of market agents when VER penetration is high. We have found that the short-term variability introduced by VER affects the suitability of RDC-based techniques.

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