Introduction to Market4RES Questionnaire

This questionnaire has been drafted in the context of the European Project ‘Market4RES’, which is aimed at providing recommendations on the developments to take place in short and long term electricity markets driving a successful and efficient integration of large amounts of RES generation in the long term.

Within this project, Work Package 3 focuses on the conceptual assessment of design options for the developments to take place in short and long term markets. Options here selected as most promising should be further investigated in WP5 of our project with the help of quantitative models to determine which deserve being proposed for their implementation.
A Workshop on the first findings of the analysis conducted within WP3 of the project took place in Brussels on the 24th of June. There, the project team presented their preliminary conclusions on preferred, or most promising, design options, together with those that should be disqualified as contenders because they had some serious drawbacks. Arguments for the selection of best, and worst, design options were provided.

This questionnaire represents a logical continuation of our Workshop and is aimed at collecting useful feedback from relevant stakeholders like you on a set of issues related to the design of markets that we believe are specially critical and controversial, or disputable. Topics to discuss have been arranged into a reduced number of blocks related to main aspects of the functioning of markets both in the long and the short term.

We count on your participation to provide us with very valuable information to take into account in our final analysis and conclusions. If you feel like answering only a specific part of the questionnaire because this is more the most related to your field expertise, do not hesitate to do so. We also encourage you to disseminate this within your institutions looking for complementary expertise.

Many thanks on behalf of WP3 team within the Market4RES project.

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    Part V: REPRESENTATION OF THE NETWORK IN MARKETS

    A) Network representation objective

    The representation made of the network in electricity markets must allow the consideration of main constraints related to the existence of the network that are shaping system operation. These can be of two main types: network congestion and losses. Implementing a network model within markets that is reflecting, accurately enough, network constraints should result in market prices corresponding in each point of the network to the local marginal supply cost of electricity. At the same time, simplifying to the extent possible the representation made of the network should provide some benefits, like the reduction of the complexity, an increase in transparency, of the energy dispatch; or the increase in the liquidity of markets. In order to achieve this objective, a set of options for the representation of the network have been defined. A list of the follows: * Nodal Pricing: it involves the application of a separate short term marginal cost of supply in each node. All network constraints are considered. * Zonal Pricing: defining a set of zones that reflect congestion in the grid so that a uniform price of energy is applied in each zone. Currently, zonal pricing is applied in Europe, with most zones being coincident with countries. However, we are considering here a redefinition of zones so that these, as just mentioned, manage to appropriately reflect congestion. * Hybrid Zonal Pricing: this is a variant of the zonal pricing scheme whereby one or more zones are defined within each control area so that zones defines are compatible with political and administrative borders (also those borders defined traditionally in electrical systems). A example of this is the scheme applied in the Nordic countries. * Single Node Dispatch: this is the traditional networkless dispatch. Implementing it at European level would imply having a single price applied all over Europe. *Average Zonal Pricing: under this scheme, first, a fully-detailed representation of the network is considered when computing the energy dispatch. Then, the price applied to non-flexible load within each of a set of zones defined (the same as for a zonal pricing scheme) is computed as the average of the nodal prices in this zone. Flexible Load and Generation is earning a price equal to their bid in the market (pay as bid pricing).
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    As already mentioned, defining price zones that reflect active constraints effectively conditioning the dispatch is necessary to produce an efficient and feasible dispatch. The pattern of congestion and losses in the system, together with the topology of the grid, may affect the viability of the definition of price zones, i.e. whether it is possible to define a reduced number of areas so that congestion in the system, and losses, limit transfers of power taking place among these zones, but not transfers of power occurring within each zone.
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    B) OTHER CONSIDERATIONS

    As mentioned above, the computation of efficient prices out of the application of a network model that reflects system congestion must be made compatible with achieving a sufficient level of liquidity in markets that limits to the extent possible, the exercise of market power by local generators.
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    Bidding zones may need to be updated with a change in the topology of the network (construction of new lines) or changes in the distribution and operation profile of demand and generation in the system. This may be necessary in order to have, at all times, zones that are reflective of local marginal supply costs.
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    Discrimination is another aspect to take into account when assessing options for network models. Some systems have claimed that applying different prices to different consumers within each country, or local system, especially if these are households, is unfair discrimination that should be avoided. The same might also be applied to generation (different generators within a country earning different prices based on their location is unfair).
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