Electricity Market Integration Research Articles

CONVERGENCE OF WHOLESALE ELECTRICITY PRICES ACROSS EUROPEAN MARKETS: ARE WE THERE YET?

European electricity market integration has been a research focus, especially after the third electricity directive emphasizing the internal market. Electricity markets are characterized by immediate consumption with storage and transmission constraints, leading to unique price dynamics. Price convergence in European markets can lead to competitive pricing, advocating market integration. This research examines whether European wholesale spot electricity prices converge. Prior literature uses sigma and beta-convergence to test price convergence. We have examined the stochastic convergence of prices across 19 European nations from 2013 to 2021 utilizing monthly data. For this analysis, we employed LM tests incorporating trend breaks grounded on the RALS regression framework. RALS-LM tests are more powerful than linear tests when structural breaks and nonnormal errors are present. LM and RALS-LM unit root tests with two trend breaks resulted in rejection of the unit root hypothesis for all countries, suggesting relative wholesale prices are stationary. Thus, shocks to relative prices are transient, supporting price convergence at the wholesale level. This result should be considered carefully as it contradicts the results from recent literature that examines retail electricity prices using beta- sigma- and club convergence. The policy implications of this finding can provide a foundation for establishing policies that promote a harmonized and integrated European electricity market.

Quaternary Law in EU Electricity Regulation: Stretching Meroni too Far?

In the European electricity sector, the delegation of rule-making has literally reached the next level. Socalled ‘methodologies’, legally binding rules developed between private electricity companies and specialized regulatory agencies, constitute a vast and growing body of ‘quaternary law’. The methodologies and their unique features raise numerous interesting questions for scholars of EU law, but they remain severely underresearched. This is regrettable, since the methodologies illustrate another pressing issue related to the delegation of rule-making: the fuzzy legal boundaries to delegation. These follow from the European Court of Justice’s (ECJ’s) non-delegation, or Meroni doctrine, which however seems to be subject to a creeping maceration. As the methodologies show, the resulting legal uncertainty encourages ever-bolder models of delegation, raising grave constitutional concerns. At the same time, the methodologies illustrate a need for delegated rule-making in technical sectors, such as electricity. The argument of this article is that the ECJ should therefore revise the Meroni doctrine to restore legal certainty with respect to delegation, while also respecting the requirements of regulatory reality. This article discusses possible approaches and proposes a starting point for a ‘Meroni doctrine 2.0ʹ. Meroni doctrine, non-delegation doctrine, tertiary law, quaternary law, electricity market integration, ACER, Clean Energy Package, European network codes and guidelines, terms, conditions and methodologies

Dynamic volatility connectedness in the European electricity market

Since the 1990s, one of the energy policy objectives of the European Union (EU) has been to create a single, integrated European electricity market. This study uses a broad set of European electricity markets to answer the question whether volatility connectedness is higher in geographically closer markets or whether all markets are integrated. This question is particularly relevant now, at a time of high volatility of energy commodity prices, which can affect energy security in Europe. Our empirical analysis examines volatility connectedness in 26 European electricity markets between 1 August 2007 and 23 February 2022 using the time-varying parameter vector autoregressive model (TVP-VAR) based on the extended joint connectedness method (Balcilar et al., 2021). Furthermore, the impact of volatility of determinants of electricity prices on volatility connectedness in European electricity markets since 2016 is assessed.The results reveal that volatility connectedness between markets, i.e., the integration of European electricity markets, increases. Connectedness within geographically closer markets is observed mainly in the initial periods. However, since 2016, regional connections have increased, which is accompanied by interregional connections. This is particularly evident in the recent period –characterised by high volatility of electricity and energy commodity prices. However, when the impact of volatility of electricity price determinants on volatility connectedness is removed, especially since 2021, the results are slightly altered and indicate lower volatility connectedness in the European electricity markets. The role of the main net transmitters or net receivers does not change, while the role of the other markets changes or strengthens/weakens. Inter-regional connectedness is not as strong, which means that volatility connectedness occurs mainly in the markets from the same region.

Merging cross-border flow optimization techniques for performance maximization.

Both FARCROSS and TRINITY EU research projects aim to increase cross-border electricity flow and regional cooperation. The integration of SmartValve and T-SENTINEL systems offers benefits such as enhancing grid security and reliability, managing thermal constraints, and maximizing utilization of existing infrastructure. The combined system can achieve a more efficient and less costly coordinated network security process, increase cross-border capacities, and promote regional electricity market integration, benefiting the local communities with significant CO2 emissions avoidance and reduced electricity prices. Overall, the integration of SmartValve and T-SENTINEL can provide significant improvements in flexibility, making cross-border connections more robust and adaptive to the evolution of the electrical power industry.

Simulating Generalised Locational Marginal Pricing for Power Markets in East Africa

There is an enormous opportunity for adopting a wholesale electricity market under locational marginal pricing. Besides ensuring competition and accounting for network congestion, the price signal reflects a space-time electricity economy. This paper examines the prospects of introducing a single East African electricity market in five selected partner states. It reports on a pioneering effort to simulate the coupling of power markets, estimate locational marginal prices, and determine the economic benefits of cross-border power trade and competition across these five countries. The nodes representing the primary power systems in these five countries are simulated in an optimal power flow model using optimisation software GAMS. The total welfare of electric power market integration is estimated at $ 4.8 million/hr, representing a welfare gain of $ 2.6 million/hr, thus, net total welfare increases by 118%. The simulation also investigates the implications for locational prices and power flows under constrained and unconstrained scenarios. To secure the benefits of an integrated electricity market, it is vital to pursue significant institutional restructuring, a robust transmission infrastructure, and the harmonisation of energy policies.

Energy market integration: Harmonizing tariff recourse policies in East Africa

This study uses pattern-matching to analyze the tariff recourse policies employed by East African Community (EAC) countries to cushion the distortionary effects of high tariffs. We describe the various tariff recourse policies adopted across the EAC domestic markets and assess their level of regional harmonization given the different market structures each member state operates. We found a sharp disparity in the tariff recourse policies adopted across the EAC. We recommend that EAC countries prioritize reforms that create linear market liberalization and competition growth as part of an overall strategy for accelerating electricity market integration.

Complex energy-reserve orders for generators with income and ramping restrictions on European electricity markets

Electricity market integration is an ongoing process in the European power sector. One of its important development areas concerns the integrated, combined trading of different power system products such as energy and control reserves. However, the complicated technical and economic characteristics of generators pose challenges for simple energy-reserve offers. Our solution approach is to unify them with complex orders. The latter have been introduced to represent special generator characteristics on the currently operating European energy-only market. The unified order type is designed to keep all the advantageous properties and functionality of its predecessors. Similarly to simple energy-reserve offers, the decision between energy and control reserve products takes opportunity costs into account. This is a necessary property of optimal capacity allocation. The non-convex fixed costs of suppliers are represented using Minimum Income Conditions and Scheduled Stop Conditions while their ramping limits are handled by Load Gradient Conditions. All three of these components belong to complex orders originally. The resulting new model can be formulated in a single convex Mixed Integer Quadratic Program, and it is fully compatible with European market rules. The viability and adequacy of the proposal are demonstrated using numerical case studies.

The Electricity Market in Greece: Current Status, Identified Challenges, and Arranged Reforms

The approach of an integrated electricity market is widespread across Europe, since such a market structure has numerous benefits for both the grid and consumers. The current structure and the related policy framework of the electricity markets adopted within the European countries is based on a benchmark model, the so-called Target Model, which describes a reference energy market framework. In this paper, a comprehensive overview of the legislative effort and the resulting Target Model is provided, aiming to set the basis for the description of the adopted electricity markets in Europe. In a second stage, the current status of the Greek electricity market that operates under the Target model scheme is given via the analysis of the involved submarkets, i.e., the forward market, the day-ahead market, the intraday market, and the balancing market. An intricate case study of the Target Model operation in the Greek electricity market within a day of operation is examined, which actually completes the former description. Within the case study, the Greek electricity market is further investigated for its efficiency and the impact on the obtained electricity prices from the first day of the Target Model implementation, which took place in November 2020, and, finally, today is analysed. The results show an overall successful implementation and satisfactory performance of the Target Model in Greece, with an important main result being the reduction of prices in the balancing market and the increase of the intraday market liquidity. However, several challenges are identified and described in detail, while at the same time measures for their confrontation are proposed in order to improve market operation and fully exploit the benefits of the Target Model.

Electricity Market Reforms for Energy Transition: Lessons from China

In response to the rising importance of the climate agenda, many countries have restructured their electricity markets to facilitate the utilization of renewable energy. China is an interesting case because it has expanded its utilization of wind and solar energy with unmatched speed. This review starts with an analysis of the 2002 reforms that uncoupled electricity production from transmission. The investigation covers the period leading up to the 2022 proposal, which aimed to build a nationally integrated electricity market. The analysis suggests that a careful alignment of incentives for key market players to produce and consume renewable energy is vital during the process of energy transition. The introduction of feed-in tariffs in 2009 for wind energy, which were subsequently extended to solar energy, stimulated a high growth in installed capacity. However, a high electricity curtailment rate resulted. Since 2018, the Chinese government has resorted to curtailment caps and renewable portfolio standards to increase the utilization of renewable electricity. After the announcement of the “dual carbon goals” in 2020, the Chinese government launched a series of reforms that aimed to nurture growth in the green electricity market and the formation of a nationally integrated electricity market. The removal of interregional trade barriers is a key element of China’s current electricity market reforms and will be crucial to determining whether China can achieve its climate goals.

Efficiency vs. equity as China's national carbon market meets provincial electricity markets

Emissions reduction in the electricity sector is critical in achieving China's carbon neutrality target. While a national carbon trading market that covers the electricity sector has been established, its effectiveness depends on how this sector evolves into being a more integrated market. This study evaluated the impact of China's electricity market integration on the cost-effectiveness of carbon pricing. An integrated (regional electricity market) and a segmented (provincial electricity market) market scenario were used to identify possible reform paths going forward. Using high-frequency datasets of the five southern provinces in 2018, we assessed the impact of electricity market integration on the abatement potential and cost-effectiveness of carbon pricing. We found that carbon prices need to be as high as 200 yuan/ton to begin achieving overall carbon reduction. In this context, the regional market is more cost-effective in reducing emissions than the provincial one, as the abatement costs are saved by around 60% compared to the latter under the same emission reduction targets. However, the regional market may also raise potential equity issues. The provincial-level distribution of carbon emission reductions, as well as the withdrawal of coal power, are more concentrated in the regional market than in the provincial one, which indicates an inequitable social-economic-environmental impacts of market integration. Our research findings would help to improve policymakers' understanding of the interaction between carbon pricing and electricity market reforms. This would then assist them in coordinating an effective design of both the carbon and electricity markets, in addition to supporting China's carbon neutrality target.

System Profit Improvement of a Thermal–Wind–CAES Hybrid System Considering Imbalance Cost in the Electricity Market

Studying a renewable energy integrated power system’s features is essential, especially for deregulated systems. The unpredictability of renewable sources is the main barrier to integrating renewable energy-producing units with the current electrical grid. Due to its unpredictable nature, integrating wind power into an existing power system requires significant consideration. In a deregulated electricity market, this paper examines the implications of wind farm (WF) integration with CAES on electric losses, voltage profile, generation costs, and system economics. Comparative research was done to determine the impact of wind farm integration on regulated and deregulated environments. Four randomly chosen locations in India were chosen for this investigation, together with real-time information on each location’s real wind speed (RWS) and predicted wind speed (PWS). Surplus charge rates and deficit charge rates were created to assess the imbalance cost arising from the discrepancy between predicted and real wind speeds to calculate the system economics. When the effect of imbalance cost is considered, the daily system profit shows a variation of about 1.9% for the locations under study. Customers are always seeking electricity that is dependable, affordable, and efficient due to the reorganization of the power system. As a result, the system security limit could be exceeded or the system might function dangerously. The final section of this paper presents an economic risk analysis using heuristic algorithms such as sequential quadratic programming (SQP), artificial bee colony algorithms (ABC), and moth flame optimization algorithms (MFO). It also discusses how the CAES is used to correct the deviation of WF integration in the real-time electricity market. Economic risk analysis tools include value-at-risk (VaR) and conditional value-at-risk (CVaR). The entire piece of work was validated using a modified IEEE 30-bus test system. This works shows that with a three-fold increase in wind generation, the risk coefficient values improves by 1%.

Economic Enhancement of Wind–Thermal–Hydro System Considering Imbalance Cost in Deregulated Power Market

Studying the property of the combination of renewable energy sources in the existing power systems is of great importance, and especially in the case of deregulated systems. The uncertainty of renewable sources is the largest barrier to integrating renewable-energy-producing units into the existing electrical infrastructure. Due to its uncertainty, integrating wind power into an existing power system requires extra consideration. In this work, the impacts of wind farm (WF) integration and a pumped hydroelectric storage system (PHES) on the electric losses, voltage profiles, generation costs, and system economy in a deregulated power market were studied. A comparative study was performed to determine the impact of wind farm integration on regulated and deregulated environments. Four locations in India were chosen at random for this work, and we used the real-time statistics for the actual wind speeds (AWSs) and forecasted wind speeds (FWSs) for each chosen location. To determine the system economy, surplus charge rates and deficit charge rates were developed to evaluate the imbalance cost resulting from the mismatch between the predicted and actual wind speeds. Considering the effect of the imbalance cost, the system profit/day varies by an average of 1.6% for the locations studied. Because of the reorganization of the power system, consumers constantly look for reliable and affordable power that is also efficient. As a result, the system security limit may be breached, or the system may run in a dangerous state. Lastly, in this paper, an economic risk analysis is presented with the help of heuristic algorithms (i.e., artificial bee colony algorithm (ABC) and moth–flame optimization algorithm (MFO)), along with sequential quadratic programming (SQP), and the way in which the PHES is used to compensate for the deviation in the WF integration in the real-time electricity market is also presented. The value at risk (VaR) and conditional value at risk (CVaR) were used as the economic risk analysis tools. According to the work, with the increase in the wind generation, the system risk improves. The results show that, as the wind generation increases by three times, there is an improvement in the risk coefficient values by 1%. A modified IEEE 14-bus test system was used for the validation of the entire work.

Market integration in the Australian National Electricity Market: Fresh evidence from asymmetric time-frequency connectedness

Australian National Electricity Market (NEM) provides efficient and smooth electricity transmission via a unique integration mechanism of different Australian regional electricity markets. We, therefore, examined the asymmetric time-frequency connectedness across five physically interconnected Australian regional electricity markets in the NEM using daily wholesale price data from 17 May 2005 to 31 December 2020. Due to direct physical interconnections and close geographical vicinities, Australian regional electricity markets have more connectedness within the region than across regions. The results of deseasonalized data revealed high spillovers among electricity markets during a crisis event, periods of abnormal weather, and regulatory sanctions implied on the NEM, which the findings from previous studies have not fully captured. Meanwhile, seasonality-adjusted results using X 13-ARIMA method highlighted dominance of negative spillovers both in the short- and long-run. Moreover, reforms in electricity policies by the Australian government played a significant role in shaping the total spillover index. Our study offers fresh insights on the NEM and stipulates significant policy implications for NEM, which the Australian state and federal government, policymakers, investors, retailers, and power suppliers must consider.

A Risk Curtailment Strategy for Solar PV-Battery Integrated Competitive Power System

Power system networks are becoming more complex and decentralized with the foreword of deregulation in the global power sector. In this scenario, an independent system operator (ISO) is responsible for determining the appropriate actions to deliver stable and quality power to the customers connected to the network at the lowest cost without violating the system security limits. Violations of any security limit may result in system risk. The unstable and non-reliable system always has some drawbacks and is not desirable from the consumer’s point of view. A deregulated power market always keeps the consumer on the advantage side by giving stable, reliable, and less costly power. By using risk assessment tools, we identify the fault conditions and we try to minimize the risk by various uses of sequential programming methods. In this paper, a novel power system risk analysis and congestion management approach are introduced with considering meta-heuristic algorithms i.e., Slime Mould Algorithm (SMA) and Artificial Bee Colony Algorithm (ABC) in renewable energy integrated electricity market. The proposed power system risk analysis is constructed with the help of two risk valuation tools named Conditional-Value-at-risk (CVaR) and Value-at-risk (VaR). The higher negative value of VaR and CVaR represents the higher risk system and lower negative value or towards a positive value of VaR and CVaR denotes the less risk or stable system. The projected method has been experienced on the IEEE 14-bus test system and IEEE 30-bus test system to examine the usefulness of the meta-heuristic algorithm in system risk analysis under the deregulated environment. The importance of renewable energy integration in system risk curtailment has also been depicted in this work: basically, to measure the system’s risk, hence enhancing the system’s reliability and societal welfare. As a result, it will benefit both supply and demand-side participants.

EU electricity market integration and cross-country convergence in residential and industrial end-user prices

Despite significant efforts in market integration and regulatory harmonization, large heterogeneities in retail electricity prices across Member States still remain one of the main concerns of the European Union. Here, the cross-country convergence of households and industrial end-user electricity prices in the EU between 2008 and 2021 is investigated. Relying on the notion of club convergence, empirical findings reveal the existence of multiple clubs. The household and non-household market segments exhibit rather different paths in terms of price convergence. Domestic end-user prices show higher dispersion and heterogeneity across national electricity markets than industrial one. Differences across convergence clubs seem to be related with public intervention in the electricity end-user price setting, disparities in the range of household or industrial consumers under regulated end-user prices, and different criteria used among countries in defining energy components. Policy-wise, the club convergence analysis emphasizes the need of stronger cooperation for public intervention and regulation, while considering how end-user price setting can support the decarbonization of the EU electricity systems.

Electricity market integration and impact of renewable energy sources in the Central Western Europe region: Evolution since the implementation of the Flow-Based Market Coupling mechanism

The wholesale electricity markets in Europe are undergoing major changes. The pursuit of a major integration for the development of the Internal Energy market is the main driver of this transformation. In this context, the Central Western Europe region implemented for the first time in May 2015 a new and complex mechanism to manage cross-border capacity allocation in the frame of the day-ahead market: the Flow-Based Market Coupling. This paper is the first to consider recent data of the electricity market to develop a predictive model for identifying convergence and congestion situations in the Central Western Europe region. The occurrence of convergence or not is considered as a binary outcome to build a probit model. This model combines meaningful information about the electricity market features of the interconnected countries between 2016 and 2018, including for the first time data on renewable energy sources forecasts for this type of studies. The results of this study identify the major role that Germany and France play in the integration process. The estimated coefficients of the model show that the strong development of solar and wind power in Germany appears as an important driver of congestion in the Central Western Europe. In order to improve the benefits of market integration and the further development of the Internal Energy market, the results of this study encourage policy-makers to promote cooperation and coordination among all the actors involved in the electricity market and to pursue the expansion of the power grid to minimize the occurrence of congestion situations.

The EU’s Carbon Border Adjustment Mechanism and the Energy Community: Threat for Electricity Trade or Tool for Raising Climate Ambition and Electricity Market Integration

The EU’s Carbon Border Adjustment Mechanism and the Energy Community: Threat for Electricity Trade or Tool for Raising Climate Ambition and Electricity Market Integration

The cost of uncoupling GB interconnectors

The UK left the EU Integrated Electricity Market on 31/12/20 and with it access to Single Day Ahead Coupling that clears local and cross-border trades jointly – interconnectors are implicitly auctioned. The new Trade and Cooperation Agreement requires a replacement “Multi-region loose volume coupling” to be introduced before April 2022. Until then, interconnector capacity is allocated by an explicit day-ahead auction before the EU auction with nomination after the EU results are known. The article measures the risks posed by taking positions in each market separately and the resulting costs of uncoupling of GB's interconnector trade. It compares four forecasts of price differences under two sequencing of markets and explicit auction, determining traders' risk discounts for each. The current timing leads to lower mistakes on the direction of flows, arguing for retaining current timing. Competitive traders locking in their positions after the explicit auction (overstating costs as subsequent trading out of unprofitable positions is ignored) limit the total loss of interconnector revenue from uncoupling to €31 million/yr. The social cost of uncoupling is €28 million/yr, considerably below earlier estimates in the literature. Experience since uncoupling validates this finding.

Estimation and allocation of the benefits from electricity market integration in China

Market integration is a good choice during the electricity market reform, but its successful implementation depends on both the amount of benefits and the fairness of allocation mechanism. To provide guidance for a regional market design in China, this study develops an optimization model to simulate the power system operation results of an integrated regional market, and compares the actual operating costs with the optimized costs to obtain economic benefits from market integration. Three allocation mechanisms are designed to allocate the benefits. The market integration of China Southern Grid region in 2017 is employed as a case study and the major conclusions achieved are that: (1) The total economic gains from electricity market integration are US$ 5.34 billion, representing 16% of the actual operational cost in the China Southern Grid region. (2) Hydropower generation has the greatest impact on the integration benefits, while the capacity of cross-border transmission lines has the least impact. (3) The results of benefits allocation under the mechanisms of Equal share, Shapley value and Raiffa value vary substantially, and a good balance of the equity and feasibility is needed in designing the benefits allocation mechanisms. These obtained results confirm the fact that market integration will contribute to larger benefits with a fair allocation mechanism, thus deserving to be implemented during the current round of electricity market reform in China.

Measuring the impact of electricity market reform in a Chinese Context

This paper draws on international experience to examine how the ongoing power sector reform (PSR) in China since 2015 should be measured and assessed. We proceed by reviewing some relevant international reform experience and then applying this to the Chinese context. Thus we focus on some of the extensive previous literature which has documented reforms in cross-country and in single country studies. We pay particular attention to the European Union (EU) single electricity market, which is the largest integrated electricity market in the world. We also look at a social cost benefit analyses of UK electricity market reforms and how these might applied in a given Chinese province. We go on to examine the actual price impact evidence from two leading provinces – Guangdong and Zhejiang – on the overall price effect and on exactly how those price effects have been achieved. We then offer some insights from the extensive regulatory reporting by leading regulators on market performance that is relevant to PSR in China based on excellent annual reporting from the UK, Australia and the US.