Regulating Power Market (RPM) Review Study - High-level Summary
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Regulating Power Market (RPM) Review Study High-level Summary Bonn / Oosterbeek 07.10.2013
PURPOSE AND SCOPE OF STUDY
ANALYSIS OF CURRENT RPM
ANALYSIS OF CHALLENGES OF IMPROVEMENT
DESIGN REGARDING
FUTURE RPM DESIGN OPTIONS OPTIONS
ATTRACTIVENESS AND EFFICIENCY
•Design framework for system •Exchange options with •Potential RPM Improvements
balancing neighbouring systems •Evaluation of RPM improvement
•The current Nordic RPM •Settlement period options
•Attractiveness of the RPM •Common Market Interface •Improvements regarding use of
•Quantitative Analysis •Impact of FRR-A on RPM RPM for balancing and
congestion management
RPM Review Report Chapter Summary | 07.10.2013 2
Summary of findings
RPM adequacy
Qualitative part
Observation
Qualitative framework provided to be used in further assessment on long term adequacy
Conclusion
Recommendation to use the framework for the assessment on long term adequacy
Quantitative part
Observation
Positive RPM participation incentive, although relatively small in Norway and Sweden
Incentive to avoid harmful imbalance, although relatively small in Norway and Sweden
For 2012 indications were found of RPM volume shortages, to be investigated and validated
Conclusion
Not conclusive for whole RPM as DK data was not provided and results need to be validated with the TSOs.
Recommendation
Recommendation to complete quantitative analysis with missing data.
Recommendation to investigate and validate the results
RPM Review Report Chapter Summary | 07.10.2013 3
Summary of findings
Recommended RPM product improvements
Project group agreed on the following options should be implemented
Resting time mark
Lower bid size
Harmonization of minimum duration of bid activation to set prices
Electronic activation instruction
“Consultant view” in addition
Publish imbalance forecasts
Timing of implementation needs to be further investigated.
Other options should be further investigated:
Check the need
Check the contribution
RPM Review Report Chapter Summary | 07.10.2013 4Summary of findings
Increase efficiency (lower costs) by
Exchange standard product with neighbouring markets. Based on same time period and
according to minimum NCEB characteristics
Seems feasible with Poland and the Baltics
Seems feasible in one way with the Netherlands. due to pricing issues
Not feasible yet with Germany due to lack of TSO mandate
Recommendation to proof feasibility with a pilot project (ENTSO-E pilot)
Product definition
Operational concept including conversion tool
Pricing
Explore feasibility of demand side response outside RPM
To avoid transaction costs and further increase attractiveness to support system balance
“Consultant view” in addition
Implementing imbalance netting also on DC cables. Pilot project on DC recommended to proof
feasibility first
RPM Review Report Chapter Summary | 07.10.2013 5PURPOSE AND SCOPE OF STUDY
ANALYSIS OF CURRENT RPM
ANALYSIS OF CHALLENGES OF IMPROVEMENT
DESIGN REGARDING
FUTURE RPM DESIGN OPTIONS OPTIONS
ATTRACTIVENESS AND EFFICIENCY
•Design framework for system •Exchange options with •Potential RPM Improvements
balancing neighbouring systems •Evaluation of RPM improvement
•The current Nordic RPM •Settlement period options
•Attractiveness of the RPM •Common Market Interface •Improvements regarding use of
•Quantitative Analysis •Impact of FRR-A on RPM RPM for balancing and
congestion management
RPM Review Report Chapter Summary | 07.10.2013 6DESIGN FRAMEWORK FOR SYSTEM BALANCING
System balancing covers the TSO processes to maintain frequency. Apart from the technical processes to
maintain the frequency and the specifications of these reserves, the market design around these processes as
well as the reference framework for this market design are significantly taking influence on the result of the
balancing process.
Design Framework
Nordic RPM covers the need for FRR-M reserves for all TSOs in the Nordic integrated power system.
The Nordic power system consists of the Nordic synchronous power system and the Western-Danish
subsystem, which is connected to the UCTE synchronous power system.
Design Criteria
For this study, the efficiency objective is to minimize the total costs for the TSOs of procuring and activating
RPM reserves by meeting the following sub conditions:
quality targets for system balancing,
network security and congestion management, and
sharing reserves from the RPM.
In general, consistence and robustness of a balancing market design will increase the attractive of a market
place.
Following criteria needs to be fulfilled to have natural market incentives to be balanced:
Imbalance energy should on average be more expensive than wholesale market energy
Control energy should on average be more expensive than wholesale market energy
Control energy should on average not be more expensive than imbalance energy
RPM Review Report Chapter Summary | 07.10.2013 7THE CURRENT NORDIC REGULATION POWER MARKET
Although the Nordic RPM market is largely harmonised, the product definition, the selection procedure, the
pricing rules and the TSOs procedure of activation show some deviations.
The following summarizes the harmonized framework details
Harmonized DK | FI | SE | NO
RPM Activation Single buyer auction
General selection is based on price order
Product resolution 1hour
Marginal pricing rules
Own hourly market price
Pre-contracting All 4 TSOs have pre-contracting capacities, while rules and procedures are deviating
Pre-contracting only for upward regulation
TSOs put the resources on the RPM
Sharing of capacities via NOIS list
Activation Procedure Activation time is 15min after instruction
Full level delivery at specific set-time
Activation is done less than 45min before next hour of operation and for one hour
Congestion RPM bids used for this type of purposes do not set the market price of RPM
Management Usage Bids are paid based on pay-as-bid
Ex-post, when setting the price for RPM and settling with providers, the TSOs have the
discretion to choose which of the bids activated during an hour were activated for
congestion management and which for normal regulation
RPM Review Report Chapter Summary | 07.10.2013 8THE CURRENT NORDIC REGULATION POWER MARKET
The following summarizes the difference in the framework details
Differences DK FI SE NO
Product Allow BRPs to pool Request for faster Flexibility activation Request for faster
Definition units within the ELSPOT activation is possible time activation is possible
bidding areas with out Allow BRPs to pool Request for faster Allowance of demand
any specification on the units within the ELSPOT activation is possible side to specify a certain
location of the unit bidding areas but BRPs Minimum bid size resting time
need to specific the below 10MW, in SE 4 Allow BRPs to pool
location of the unit which is 5MW units within the ELSPOT
bidding areas but BRPs
need to specific the
location of the unit
Bid Selection Treatment of Commercial bids are Bid selection is not Treatment of
commercial and non- activated before the dependent only on the commercial and non-
commercial bids units that are pre- lowest price but the bid commercial bids
equally contracted or owned by activation time and/or equally
the TSOs bid size plays a role Bid selection is not
Commercial bids are dependent only on the
activated before the lowest price but the bid
units that are pre- activation time and/or
contracted or owned by bid size plays a role
the TSOs Fast activation (< 5 min)
bids with large volumes
to bring frequency back
to nominal value is
possible
RPM Review Report Chapter Summary | 07.10.2013 9THE CURRENT NORDIC REGULATION POWER MARKET
The following summarizes the difference in the framework details
Differences DK FI SE NO
Pricing Minimum activation Minimum activation Minimum activation Minimum activation
duration 10min duration 1min duration 1min duration 10min
Separate pricing for Separate pricing for
activated pre- activated pre-
contracted units contracted units
Requirement Only BRP can be active BRP and also BSP can Only BRP can be active Only BRP can be active
on the RPM be active on the RPM on the RPM on the RPM
(to help smaller players
to participate)
BSP needs agreement
called balance power
market agreement
Activation Electronic Manually activation Manually activation Manually activation
communication to all processes typically via processes typically via processes typically via
BRPs phone phone phone
RPM Review Report Chapter Summary | 07.10.2013
10ATTRACTIVENESS OF THE RPM
In case of an active RPM players with no investment costs and willingness to take part in the RPM, the
capacity payment are necessary to ensure adequacy if
1. players are risk averse,
2. transaction costs to bid are high, and
3. there is idle but needed capacity.
However even with the fulfilment of these conditions its not possible to deduct that capacity payments
are necessary, since
Players may have a vested interest in bidding into the RPM to decrease the imbalance price and thus reduce their imbalance
risk.
According to the TSO/BRP interviews, conditions 1 and 3 seem to be already fulfilled for the Nordic
RPM.
Hence, a key variable to decide on the need for capacity payments is the level of transaction costs. If
the transaction costs for bidding into the RPM are high then capacity payments are necessary if we
ignore the incentive of players to lower the imbalance price.
RPM Review Report Chapter Summary | 07.10.2013 11QUANTITATIVE ANALYSIS
The quantitative analysis was intended to quantify attractiveness, efficiency and effectiveness of the Nordic
RPM by the use of quantitative indicators.
As a consequence of incomplete data and lack of time to investigate and validate results with the TSOs, the
quantitative analysis is not complete and no definite conclusions can be made at this state.
Due to this it is recommended to proceed the analyses and in particular to analyse on seasonal/quarterly
base.
Main observations
Average imbalance as a fraction of available FRR-M capacity indicates that total volume of
accessible RPM bids even on country level may
not always be adequate from a system control perspective.
Total unused but accessible bids in a group of bidding zones compared with the remaining
imbalance of the bidding zone indicates shortages for some days in March 2012.
RPM Review Report Chapter Summary | 07.10.2013 12QUANTITATIVE ANALYSIS
Main observations
Average hourly market imbalance shows a shift in
pattern over the observation period. This pattern
differs per country.
Hourly market imbalance
Controller effectiveness analysis indicates a far from
effective energy balance control. Note that if power
balance control is perfect, energy balance control
would also be perfect and all dots would occur on
the X-axis.
Controller effectiveness
RPM Review Report Chapter Summary | 07.10.2013 13QUANTITATIVE ANALYSIS
Main observations
Average RPM income is positive for all
system imbalance situations.
The participation in the Nordic RPM market
for Nordic market participants with an
average RPM income of 14 €/MWh.
Less attractive than participation of domestic
participants in the Dutch or German RPM
where the average RPM income has been
between 45 and 60 €/MWh respectively.
Average RPM income for BSPs in NO, SE and FI (over the period
2011-2012)
RPM Review Report Chapter Summary | 07.10.2013 14PURPOSE AND SCOPE OF STUDY
ANALYSIS OF CURRENT RPM
ANALYSIS OF CHALLENGES OF IMPROVEMENT
DESIGN REGARDING
FUTURE RPM DESIGN OPTIONS OPTIONS
ATTRACTIVENESS AND EFFICIENCY
•Design framework for system •Exchange options with •Potential RPM Improvements
balancing neighbouring systems •Evaluation of RPM improvement
•The current Nordic RPM •Settlement period options
•Attractiveness of the RPM •Common Market Interface •Improvements regarding use of
•Quantitative Analysis •Impact of FRR-A on RPM RPM for balancing and
congestion management
RPM Review Report Chapter Summary | 07.10.2013 15EXCHANGE OPTIONS WITH NEIGHBOURING SYSTEMS
Based on the draft Network Code on Balancing and the Nordic situation the following observations are
made:
For the forming of a common merit order with any TSO, sufficient comfort must be reached on the level of a
harmonized balancing market design.
This involves the following prerequisites
1. a coordinated activation function for all the involved TSOs, and
2. a harmonisation of products to standard products including the pricing of bids, settlement of bid activation,
the imbalance pricing and settlement.
If any of these prerequisites are missing or not sufficiently fulfilled, two other options remain:
1. Imbalance netting: this imposes no conditions to harmonized market designs so this option should from this
perspective be implemented on all external Nordic borders as soon as possible. Although the concept of netting
within synchronous systems is well-known and applied today (IGCC as in Germany with NL and DK W), the
concept of automatic imbalance netting between synchronous systems is not well-known.
2. TSO-TSO exchange of balancing products: This is linked to mainly four challenges: TSO mandate to exchange
and control product delivery; product standardisation; pricing of exchanged products and imbalance pricing. On
top of this, for exchange of reserve capacities cross-border transmission capacity access must be pre-agreed
during contracting.
We consider here any activation of exchange based on the integration of a foreign bid ladder with the RPM
on the Nordic side and integration of the RPM with the foreign bid ladder on the foreign side as a mirrored
common merit order. In this mirroring, foreign bids would not be visible if cross-border capacity is not
available or if the bid is already activated on any side.
RPM Review Report Chapter Summary | 07.10.2013 16SETTLEMENT PERIOD
As a 15 min settlement period is under review for Nordic power system, the identified options were evaluated
regarding the impact on it.
Option Impact of 15 min settlement period
Resting time mark potentially increases need for this option
Block bids potentially increases need for this option
Lower bid size may add more very small bids
Imbalance price should reflect system scarcity (min
less deviation between momentary and average scarcity
duration of activation to set price)
Minimum contractual duration time (guaranteed
payment according to assumed minimum activation chance of getting fully activated during whole period increases
duration)
15 min bids becomes feasible with 15 min settlement period
Minimum physical duration of activation (additional
need would reduce due to higher chance of getting fully activated during
price condition on bid: minimum income from
the whole period
activation)
Gate closure closer to real-time potentially more gates (up to 4x more)
if the update frequency is fixed then there is no impact, if it is related to
Real-time balancing information
the settlement period, the update frequency increases
Publish imbalance forecasts some impact on data requirements for forecasting
Publish bid ladder volumes and prices (ex ante) more data to be published
Directly activated RPM reserves no
Electronic activation instruction would be required because of increased number of activations
RPM Review Report Chapter Summary | 07.10.2013 17COMMON MARKET INTERFACE
A cost/benefit analysis for a common market interface was not performed during this project.
Contribution of common market interface
1. to increase the efficiency of the RPM market, and
2. to have a higher exchangeability with neighbouring systems.
Since in the longer term benefits could be reached and the common market interface could serve as a pilot for the
future European common market interface for FRR/RR markets. In the shorter term no direct benefits or drawbacks in
terms of efficiency or exchangeability are expected.
Stakeholders have varying expectations from a common market interface depending on their own market
perspective. Their expectations are about
1. huge benefits to the market,
2. an integrated interface for both intraday market and RPM,
3. an uniform communication interface, and
4. and some do not think it will bring many benefits.
Due to this, it is recommended to review in co-operation with stakeholders the need for a common market
interface in the context of the need for a Nordic common system. Such a Nordic common system could
provide central services to the TSOs and the market for e.g. the bidding into RPM, access to the common
bid ladder, an algorithm to optimally select bids for the six RPM demand processes, area imbalance price
calculation, settlement of activated RPM bids and BRP imbalances and finally, transparency.
In this context it is also relevant to look into similar developments on the continent where coordinated TSO
processes for capacity calculation and allocation have been and are being developed and supported by
central service providing entities.
RPM Review Report Chapter Summary | 07.10.2013 18IMPACT OF FRR-A ON RPM
Current Situation
The Nordic synchronous power system stands at the dawn of an integration of automatic generation control
with the manual activation of frequency restoration reserves.
Recently an automatic generation control system for the Nordic synchronous area was installed with
improvements to frequency quality as a result.
FRR-A reserves were contracted for the goal of a pilot project in the first place, not for the goal of meeting
agreed quality criteria. As the FRR-A market development takes place in another project which is still on-
going, guiding principles for the review of FRR-A and RPM integration were considered premature by the PG
and are not identified here.
Dutch / German Experiences from a integration of both markets
For dimensioning of total FRR-A + FRR-M two approaches are applied. Either based on a single fault
incident (NL) or on a probabilistic analysis of all incidents in the system that can occur within the TSO
responsibility window (DE).
Balance responsibility for the Dutch and German TSOs cover current and next program time unit (PTU).
Self-dispatch reaction of the market is stronger in NL than in DE due to stronger energy balancing
incentives. Therefore the Dutch TSO can take a certain market share into account when covering for
dimensioning requirements.
FRR-A dimensioning is an engineering issue. FRR-A dimensioning can be derived from statistical analysis of
open loop ACE (if at least 5 minutes average values of frequency and flows are available).
Most important aspects that could be of interest for a possible Nordic FRR-A / FRR-M integration are:
1. The marginal pricing of balancing energies over all activated FRR-A / FRR-M bids.
2. The surcharge on imbalance pricing in case of saturation of available bids.
3. The activation of FRR-A bids in an energy price merit order.
RPM Review Report Chapter Summary | 07.10.2013 19PURPOSE AND SCOPE OF STUDY
ANALYSIS OF CURRENT RPM
ANALYSIS OF CHALLENGES OF IMPROVEMENT
DESIGN REGARDING
FUTURE RPM DESIGN OPTIONS OPTIONS
ATTRACTIVENESS AND EFFICIENCY
•Design framework for system •Exchange options with •Potential RPM Improvements
balancing neighbouring systems •Evaluation of RPM improvement
•The current Nordic RPM •Settlement period options
•Attractiveness of the RPM •Common Market Interface •Improvements regarding use of
•Quantitative Analysis •Impact of FRR-A on RPM RPM for balancing and
congestion management
RPM Review Report Chapter Summary | 07.10.2013 20EVALUATION OF RPM IMPROVEMENT OPTIONS
PG and E-Bridge discussed and recommend the following options to implement.
Option PG common recommendation E-Bridge recommendation
Used in Norway today, so introduction
Consider implementation as a special product for balancing. Simple merit
should not immediately increase
order activation in combination with an "unavailable" mark during resting time
Resting time mark operationally complexity, if use
would suffice. If volume increases, a more sophisticated bid
increases from today, sophisticated
selection/activation tool may be required.
planning tools are necessary.
Harmonize to 1 MW
Min bid size is an exclusion mechanism implement in combination with an
conditional to implementation of
Lower bid size electronic activation instruction to the BSP and improvement of the operator
electronic activation instruction and
view on the bid ladder (so that the screen is not taken by many small bids).
adequate operator user interface.
Harmonize minimum duration of activation to set price to 1 min. This could
increase imbalance peak prices. This might increase the difference between
Harmonization of
imbalance price and day ahead price, especially during scarcity. This is a key
minimum
Do it, with consideration to peak design parameter in the balancing mechanism: if imbalance price does not
activation
pricing effects. increase with increased scarcity, this indicates that the market is indifferent to
duration to set
an increased scarcity situation as the imbalance risk is low. In the short run this
prices.
might be considered healthy for developing the market, in the long run this
does not provide any investment incentive.
Electronic
Do a costs/benefit analysis of the most promising options including costs of
activation This is a prerequisite for lower bid size.
electronic activation instruction where necessary.
instruction
Publication is not supported yet.
Imbalance forecasting at the four TSOs Publication of accurate imbalance forecasts in combination with bid ladder
Publish imbalance
is of a different quality today. volumes and prices increases awareness of imbalance risks. Prerequisite is that
forecasts
Harmonize the quality of this forecasts have sufficient quality and disclaimers and that imbalance price delta
(recommended by
imbalance forecasting by sharing the generally increases with expected imbalances (see 6.3.12). If this is not the
E-Bridge)
knowledge and improving the case, this has no effect on incentive to better plan balance in day ahead.
forecasting tools to a similar quality.
RPM Review Report Chapter Summary | 07.10.2013 21EVALUATION OF RPM IMPROVEMENT OPTIONS
Further PG and E-Bridge identified the following options, which shall be investigated by further
costs/benefits evaluations.
Option PG common recommendation E-Bridge recommendation
Consider introducing this to
The advantage of this option is that it enables a group of BSPs with small reserves
anticipate towards demand side
to aggregate to the level where they meet minimum bid size requirement.
Bid aggregation response. See BRG report on
Consider introducing this to anticipate towards demand side response.
challenges with the aggregator
Prerequisite is that bid activation should be allocable to BRPs.
role.
There is no direct benefit expected in terms of the total TSO costs of activated energy or the exchangeability. But the
Common Nordic market is asking for it and it could ease extensions. Consider implementation of a CMI in the context of other changes
platform to a Nordic common platform like e.g. the implementation of a harmonized automatic activation procedure or a
sophisticated activation algorithm. A common Nordic RPM platform could host this at lowest costs.
Harmonized bid There may be good reasons to not
selection harmonize between TSOs because Procedure at each TSO should be clear and transparent to the market: review
procedure of different operational description on transparency and publish.
(triggering points requirements. But the procedure Review bid selection/activation processes in detail and evaluate feasibility to
for decision to within each TSO should be clear harmonize given differences in operational challenges.
activate) and transparent.
Depending on expected volume which can be released, timing delay between the
SO and the connecting TSO and investment costs, this could be interesting. Also
consider contracting this kind of reserves as emergency reserves (already done
NO, FI, DK, SE: only consider if this
Directly activated today in NO, SE and FI on some units) and including additional mark-up on
adds volume without capacity
RPM reserves imbalance price if activated (not done today). In that way this product allows a
payment.
capacity payment for the necessary dimensioning coverage without impacting the
normal RPM market. With the mark-up, it could also improve the balancing
incentives.
PG categorized other options as to be evaluated further, considered for further evaluation and ‚no go’.
RPM Review Report Chapter Summary | 07.10.2013 22CONCURRENT USE OF RPM FOR
BALANCING AND CONGESTION MANAGEMENT
Review the RPM activation processes regarding congestion and network security management processes:
First, coordination between the four network security management processes: each of these processes could at
different moments in time trigger a request activation.
Second, coordination between the two balancing processes:
While ENDK for DK W can activate bids earlier due
to a more accurate imbalance forecasting, the
imbalance forecasting quality in the Nordic
synchronous system is generally insufficient to Frequency control
apply equally early RPM bid activation. This could Nordic synchronous system
be optimized if the imbalance forecasting qualities
3 2
ACE control
can be more aligned and therefore the timings to DK-West
access RPM bids for balancing more harmonized.
CM/NSM
Review if the requesting times for activation should
RPM bid Norway
be extended to before ID gate closure
Concurrent access to the RPM bid ladder becomes ladder CM/NSM
an even more important issue when sharing bids Sweden
with another synchronous system. In that case as 1
CM/NSM
one prerequisite at least the RPM access timings Finland
should be aligned. Other prerequisites like a level
playing field in the RPMs should also be considered. CM/NSM
Third, coordination between all six RPM activation Denmark
processes: An optimal coordination could call for the Operational process overview of the RPM bid ladder
design and implementation of an integrated
optimization algorithm.
RPM Review Report Chapter Summary | 07.10.2013 23CONCURRENT USE OF
RPM FOR BALANCING AND CONGESTION MANAGEMENT
Improvements on transparency:
Review the existing TSO-TSO communication to enable real-time sharing of information on special regulation.
Communicate the special regulation designation of a bid to the market at the time of activation.
Make the operational concept on congestion and security management transparent to the market to ensure that
the reasons for special regulation are well understood. Train operators in applying this operational concept in a
consistent way.
Review on RPM pricing in relation to special regulation:
Review the special regulation bid designation problem against optimal allocation principles.
In particular,
For each direction of regulation, areas are categorized in sets of areas that have no congestion between any of the
areas in the set. RPM price in the regulation direction within each set are the same and equal to the price of the
marginal bid activated in the set.
Under this formulation, special regulation bids could only be designated if action and counteraction are within the
same area. Also on each congested border congestion revenues are collected being the price difference of the
marginally activated bids times the RPM flow over the congested borders.
RPM Review Report Chapter Summary | 07.10.2013 24FURTHER RECOMMENDATIONS BY E-BRIDGE
Exchange of balancing services:
Imbalance netting between synchronous systems:
develop concept with TSOs concerned
Exchange of balancing reserves (capacity contracts):
explore the business case with TSO concerned regarding capacity reservation and probabilistic approach, using
available remaining capacity only
Exchange of balancing energy:
Seems possible with the Baltics and Poland today on the basis of FRR-M as a standard product and a TSO-TSO
model: explore this further on the basis of the guideline standard product characteristics as elaborated on the next
sheet
RPM Review Report Chapter Summary | 07.10.2013 25GUIDELINE STANDARD PRODUCT CHARACTERISTICS BY E-BRIDGE
As a point of departure for standard product definition:
15 min activation and deactivation time
15 min activation duration, e.g. a 15 min product time resolution.
A single bid price for each 15 min period
For pricing, consider the following principles by reviewing against the NCEB requirements:
A foreign bid is selected and activated on the basis of the bid price but paid according to local BSP settlement
arrangements: pay marginal in pay marginal systems (where it thus can set the price), pay as bid in pay as bid
systems.
The imbalance pricing would depend on a design choice: incentive compatible pricing or real-time pricing
For an incentive compatible pricing the following principles could be considered:
Imbalance price on average higher than regulating power price
If border congested at market gate closure (ID) => RPM imbalance price should not be set equal to the RPM
price (which includes the foreign bid) but to the price of the highest bid that is activated excluding any
foreign bids
If border not congested at market gate closure => imbalance price should be set to the RPM price (that
includes the foreign bid)
For a real-time pricing, the imbalance price should be set equal to the RPM price, including the foreign bid.
RPM Review Report Chapter Summary | 07.10.2013 26You can also read
