European Power Exchange Research Articles

Contract durations in the electricity market: Causal impact of 15 min trading on the EPEX SPOT market

The European Power Exchange (EPEX) introduced two new products in 2011 and 2014 which reduce the delivery duration of electricity from 1h to 15min intervals. These changes to the market design aim to better reflect the intermittent power generation from renewable energy sources. However, little is known about trading in shorter intervals and its impact on the existing market. As a remedy, our evaluation first shows that the market has quickly adopted the new 15min contracts. Second, we estimate a Bayesian structural time series, which measures a causal decrease of electricity prices. Depending on the model specification, our results indicate that the reduction can be as high as 28% for existing hourly contracts subsequent to the introduction of 15min trading. Third, the use of 15min contracts coincides with intermittent power generation, as it incentivizes renewable energy providers to offer additional electricity. Altogether, our findings suggest that 15min trading is used to balance the intra-hour volatility of renewable energy sources. Consequently, this presents a blueprint for policy-makers, who can attain similar price reductions and larger feed-ins from renewable energy sources without direct costs in all countries with high shares of renewable energy sources.

Energiepark Mainz: Technical and economic analysis of the worldwide largest Power-to-Gas plant with PEM electrolysis

The following paper is an analysis of the operating experiences during the initial phase of the 6 MW PEM electrolysis project “Energiepark Mainz”. The paper is divided into a technical and an economic evaluation. The technical evaluation contains the calculation of the efficiency of the Power-to-Gas plant based on the total power consumption, as well as the energy utilization factor. The economic evaluation analyses the different options of electricity procurement for the electrolysis. The three options, electricity purchase at the European power exchange, excess electricity from a direct marketing company, and participating in the control reserve market have been analysed. One first outcome shows, that economic feasibility can mainly be improved through participation in the secondary control reserve market.

Can Biogas Plants Contribute to Lower the Demand for Power Grid Expansion?

AbstractFor a stable power grid operation, the appropriateness of several technical parameters is required like voltage bands, transformer and cable loading, losses during operation, and back‐feeding of power into higher voltage level grids. Biogas plants can operate in a flexible mode and in this way influence the above‐mentioned parameters. By using real grid data, different scenarios of flexible biogas plants and their effects on grid related technical parameters are analyzed. Results show that the flexible operation of biogas plants can achieve improvements on such parameters compared to their operation solely orientated at an optimum at the European Power Exchange (EPEX Spot SE). In this way, flexibly operated biogas plants can reduce the need for grid expansion.

Erweiterung der Flexibilität von Biogasanlagen – Substratmanagement, Fahrplansynthese und ökonomische Bewertung

Since the amendment of the German Renewable Energy Act (EEG) in 2012 as well as in the current version (EEG 2014) the parameters for the expansion of renewable energies aim for a stronger market integration of those. Thereby, biogas plants represent a promising option to produce demand-driven energy to compensate differences between energy demand and energy supply caused by irregular sources (e. g. wind and solar). The contribution focuses on the economic assessment of the flexible biogas production by specific feeding in comparison to continuous gas production against the background of a flexible conversion of biogas into electrical power. The required additional demand for gas storage capacity of a model biogas plant is determined by combinations of different feeding regimes and by three optimised power generation schedules. Subsequently, a cost-benefit analysis is conducted to assess the substrate management economically. The developed methodology is especially designed for existing plants and is used for assessing a multi-factorial substrate management as flexibility option. The results show that substrate management is increasingly appropriate to reduce the additional demand for gas storage especially for longer-term planning horizons (above 12 h) regarding schedule organisation. Moreover, the flexible operation allows generating higher marketing revenues on the European Power Exchange (EPEX Spot SE) at low additional costs.

Negative price spikes at power markets: the role of energy policy

In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects.

Negative Price Spikes at Power Markets: The Role of Energy Policy

In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects.

Experimental study of phase change materials for photovoltaic modules: Energy performance and economic yield for the EPEX spot market

Cooling of photovoltaic (PV) devices increases voltage and power output, but in standard applications, cooling measures are only beneficial if the associated costs are lower than the cumulative profit. A technical and economic analysis of a passive cooling measure based on phase change materials (PCMs) is conducted here. Three PV modules, one standard reference module and two equipped with PCMs, are studied experimentally. Although both have the same melting temperature, one of the PCMs has a significantly higher thermal conductivity and a lower heat storage capacity than the other. The analysis of the present experimental data considers the energy price variation at the European Power Exchange (EPEX) spot market during the day without considering any costs. Because additional power is supplied before noon for PCM charging, favorable results are observed during this period. However, higher operating temperatures of the PV modules occur later in the day due to the thermal insulation effect of the PCM layer attached to the back side of the modules. In total, this results in a negative economic yield on most days. The PCM with a higher thermal conductivity had significantly lower temperatures after charging and a corresponding higher yield.

European day-ahead electricity market clearing model

Following the latest directives, the European Union promoted the integration of local/national electricity markets into one multi-area market, thus allowing the optimal exploitation of the scarce interconnection transmission capacity. In this paper, the authors present a mathematical formulation that explicitly incorporates nearly all market products and transmission constraints currently appearing in the European Power Exchanges (PXs). The proposed clearing model incorporates an optimization problem, formulated as a mixed integer linear programming model, and is solved within an iterative algorithm for the handling of paradoxically accepted block and minimum income orders.

Complex supply orders with ramping limitations and shadow pricing on the all-European day-ahead electricity market

Power suppliers potentially have several complicated economic and technical characteristics which can make their daily trading quite difficult on European power exchanges (PXs). The generally considered answers to this predicament are the invention and subsequent introduction of specific supply order types. The integration process of European PXs is ongoing, and the proposed common market is specified to incorporate a particular set of complex supply order types, some of which consider the case of bidders with binding load gradient conditions. A computationally efficient market clearing formulation is presented to implement these orders according to original specifications by bringing over useful elements e.g. shadow prices from American PXs.

Intraday Markets for Power: Discretizing the Continuous Trading?

A fundamental question regarding the design of electricity markets is whether adding auctions to the continuous intraday trading is improving the performance of the market. To approach this question, we assess the experience with the implementation of the 3 pm local auction for quarters in Germany at the European Power Exchange (EPEX SPOT) in December 2014 to assess the impact on trading volumes/liquidity, prices, as well as market depth. We discuss further opportunities and challenges that are linked with a potential implementation of an intraday auction

Negative Price Spikes at Power Markets: The Role of Energy Policy

In Germany, substantial drops in wholesale power prices have become a regular phenomenon. While such price drops have far-reaching implications for the functioning of the power market, their underlying determinants remain poorly understood. To fill this gap, we propose a Markov regime-switching model to investigate low-price events at the European Power Exchange. Our analysis focuses on the role of energy policies that promote renewable energies and have led to significant reductions of nuclear capacities after the Fukushima accident. We find that high electricity infeed from renewable sources increases negative price spike probabilities, while the decommissioning of nuclear plants under the Nuclear Moratorium had an opposing effect. Simulations of market outcomes under different energy policies indicate that reaching ambitious renewable energy targets increases the frequency of low-price events and compromises the financial viability of conventional generation units, while a nuclear phase-out or an increase in storage capacities mitigates these effects.

Price elasticity of demand in the EPEX spot market for electricity—New empirical evidence

This paper provides estimates for the price elasticity of demand in the European Power Exchange (EPEX) day-ahead market for electricity. An institutional change in the year 2010 allows us to use wind speed as an instrumental variable for hourly spot market prices in order to deal with potential endogeneity problems. The average price elasticity of demand covering the years 2010–2014 is about −0.43 and our results point to a decline in its absolute value over time.

Efficient modeling and forecasting of electricity spot prices

The increasing importance of renewable energy, especially solar and wind power, has led to new forces in the formation of electricity prices. Hence, this paper introduces an econometric model for the hourly time series of electricity prices of the European Power Exchange (EPEX) which incorporates specific features like renewable energy. The model consists of several sophisticated and established approaches and can be regarded as a periodic VAR-TARCH with wind power, solar power, and load as influences on the time series. It is able to map the distinct and well-known features of electricity prices in Germany. An efficient iteratively reweighted lasso approach is used for the estimation. Moreover, it is shown that several existing models are outperformed by the procedure developed in this paper.

Computationally efficient MIP formulation and algorithms for European day-ahead electricity market auctions

• We provide a new MIP formulation of the European day-ahead electricity market problem, avoiding complementarity constraints and auxiliary variables. • We also derive a Benders decomposition procedure with locally strengthened cuts. • Computational tests are carried out on real data provided by main European power exchanges. • Both approaches are very powerful, depending on the type of the instance. We consider the optimization problem implementing current market rules for European day-ahead electricity markets. We propose improved algorithmic approaches for that problem. First, a new MIP formulation is presented which avoids the use of complementarity constraints to express market equilibrium conditions, and also avoids the introduction of auxiliary continuous or binary variables. Instead, we rely on strong duality theory for linear or convex quadratic optimization problems to recover equilibrium constraints. When so-called stepwise bid curves are considered to describe continuous bids, the new formulation allows to take full advantage of state-of-the-art MILP solvers, and in most cases, an optimal solution including market prices can be computed for large-scale instances without any further algorithmic work. Second, the new formulation suggests a Benders-like decomposition procedure. This helps in the case of piecewise linear bid curves that yield quadratic primal and dual objective functions leading to a dense quadratic constraint in the formulation. This procedure essentially strengthens classical Benders cuts locally. Computational experiments using 2011 historical instances for the Central Western Europe region show excellent results. In the linear case, both approaches are very efficient, while for quadratic instances, only the decomposition procedure is appropriate. Finally, when most orders are block orders, and instances are combinatorially very hard, the direct MILP approach is substantially more efficient.

Residual demand models for strategic bidding in European power exchanges: Revisiting the methodology in the presence of a large penetration of renewables

In the deregulated framework in place in most power systems, a significant part of the energy is traded through auctions on day-ahead markets where agents submit bids to either buy or sell energy. When defining a bidding strategy, generators usually resort to models that anticipate and simulate agent interactions. The residual demand curve (RDC), a well-known approach to representing competitor behaviour, enables generators to formulate effective oligopolistic strategies.One way to estimate and build an RDC is to use information available about other agents’ bids on previous and comparable days as a reference. This basic approach to market modelling has proven useful in the past in European power exchanges. In the current context, however, characterised by substantial market penetration on the part of non-dispatchable renewable resources, the suitability of this method of RDC building may need to be tested.This paper first analyses how the results of day-ahead auctions on European power exchanges have been affected by the growing penetration of renewable energy. It then questions both the use of RDC as an approach in this changing context and the aforementioned simplified estimation method to compute these curves. The discussion is illustrated with empirical evidence from the Iberian market.

EU spot prices and industry structure: assessing electricity market integration

PurposeThe aim of this paper is to assess the state of spot price convergence between several European electricity day‐ahead markets.Design/methodology/approachThe concept of a fully integrated market is developed through the arbitrage relationship in which spot prices at one location should equal spot prices at another location plus the price of transmission. Accordingly, neighbouring markets are analysed to measure the relevance or their respective interconnecting and transmission constraints. Exploratory data approach is used and results are discussed, namely by correlation analysis.FindingsThis paper empirically shows that price differences have decreased during the analysed period, suggesting that integration between markets might be rising. The correlation analysis indicates very few relationships between these continental European power exchanges, what makes us to anticipate continuing difficulties in the building of a single electricity market. Nevertheless, there is some evidence for local integration and some price convergence. Only France and Germany appear to be relatively integrated with higher correlation coefficients, compared to the other cases. In respect to the other markets, this correlation analysis demonstrates that price variations in several locations do not affect prices in the neighbouring locations. Spain appears to be poorly integrated with the other locations as might be expected by its peripheral position and limited cross‐border transmission capacity.Originality/valueThe paper assesses electricity market integration in the context of European Union spot prices and industry structure.

Correlation of Electricity Prices in European Wholesale Power Markets

The time series of daily mean electricity prices which have been formed in European Power Exchanges are analyzed in this article. The objective of this work is to characterize the degree of correlation between prices in wholesale power markets, which are defined as environment where electricity generators and distributors deal. In a competitive environment these prices can be determined by supply and demand functions and are influenced by various factors such as fuel prices, temperature, wind speed, precipitations, CO2 and economic growth. As electricity prices have specific and unique characteristics, such as seasonality and highly volatile wholesale prices, they are motivated to use an appropriate time series model to study the relationship between prices in different European marketplaces. Considering this, additive regression model was used in order to estimate the relationship between prices in European wholesale markets. Correlation and regression analysis proved that bulk prices of electricity in Europe are heavily related but there are first initial steps of such correlation, although market design is similar among countries and there is an increase in spot market volume, where liquidity and foreign trade take place. Price analysis showed that wholesale prices in Finland, Sweden and Norway are lower than in other European power markets. It is not surprising, because the large proportion of energy is generated in hydro plants. On the other hand wholesale prices are very volatile in Germany, France and as it was seen prices started to rise since the beginning of 2005.

Power exchange options

In this paper we present pricing results for an option to exchange the value of one asset raised to a power ( S 1 α 1 ) for the value of another asset raised to a power ( S 2 α 2 ). We refer to such options as power exchange options since they simultaneously generalize results for both the Fischer–Margrabe-type option to exchange one asset for another and power options. We explicitly solve for the price of the European power exchange option under the assumption of risk-neutrality. We also use our results to price options paying the best or worst of powers of two assets. Finally, we establish sufficient conditions for the equivalence of the pricing problems of the American and European power exchange options.

Eastern and Western European policy on electricity infrastructure, interconnections and electricity exchanges

This paper focuses on the present and future state of the electric power sector, future development of European power systems interconnections and power exchanges, cooperation, and direction of reforming the industry. It discusses the deregulation process and experience in Scandinavia, electricity infrastructure in Hungary, challenges to the German electricity system as part of the western European interconnected system of the Union for the Coordination of Protection and Transmission of Energy (UCPTE), extension of European interconnections to the Black Sea and central African countries, together with the development of a Trans-European synchronized power system as seen from the East. It also examines the current situation and policy of Russia, Ukraine, Belarus, and Moldova taking into account the recently created new independent states (NIS).