imbalance costs of wind power – how to improve the market integration of wind power hannele...
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Imbalance costs of wind power – how to improve the market integration of wind power
Hannele Holttinen
Senior Research Scientist, Team leader
VTT TECHNICAL RESEARCH CENTRE OF FINLAND
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Contents
• Introduction• Bidding in the electricity markets, paying balance settlement
costs – case Nordpool• System net imbalances, balancing market and imbalance pricing• Balance settlement rules – one/two price system• Comparison on different balance settlement rules
• Imbalance payments depending on the wind penetration • Producers with single or distributed wind power• Balancing costs of wind power to power system versus
imbalance payments by the producers• Conclusions
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hour
Win
d p
ow
er
pro
du
ctio
n (
MW
h/h
) Prediction 14-38 h ahead
Wind power bidding to the electricity market
• Day-ahead market: 12-36 hours ahead bid at one go, as 24 hourly bids for the next day
• The predicted production amounts are bid to the market
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hour
MW
h/h
Production
Prediction 14-38 h ahead
Prediction errors cause imbalances
Every hour there is either a need to buy up-regulation or
a need to sell excess production at down-regulation price
Down-reg.
Up-reg.
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hour
€/M
Wh
Reg down
Reg up
Spot Helsinki
Each hour there is a cost for either up or down regulation - Example of hourly prices
Price difference to spot price has been on average
3 to 9 €/MWh in 2004-2008 (Finland price area of Nordic market)
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Imbalances of wind power combined with other imbalances give the system need of balancing
• System operators use up- or down-regulation (from balancing market) to balance the total aggregate of imbalances from loads and generators – system net imbalance and price of available regulation determines the price for each hour
• Hourly price for imbalances from the balancing market are used for balance settlement transparency
System net imbalance
Producer_1 imbalanceProducer_2 imbalanceProducer_3 imbalance……
Producer_7 imbalanceProducer_8 imbalanceProducer_9 imbalance……
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One and two price system for balance settlement
• Both systems treat the producers that contribute to system net imbalance the same (blue bars)
• How to treat the producers that do not contribute to the system net imbalance (white bars)
• two price system – gives them the spot price • one price system – gives them the balancing market price, extra
benefit as if they had actually bid to balancing market
System net imbalance
Producer_1 imbalanceProducer_2 imbalanceProducer_3 imbalance……
Producer_7 imbalanceProducer_8 imbalanceProducer_9 imbalance……
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System operator view
• Two price system – gives income from balance settlement • One price system – gives only enough to cover the imbalance cost
incurred, the extra money from the ”blue” producers are circulated to the ”white” producers
System net imbalance
Producer_1 imbalanceProducer_2 imbalanceProducer_3 imbalance……
Producer_7 imbalanceProducer_8 imbalanceProducer_9 imbalance……
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Imbalance pricing – system operator point of view
• System operators need income for keeping system balance• Regulation used from the balancing market• Maintaining instantaneous and disturbance reserves • Making the balance settlement process
• System operators can cover fixed costs from the tariff for all consumers (and producers), for example to cover the reserve costs
• Also imbalance prices can contain a fixed price component:• Fixed price €/MWh for all imbalances: for example 0.07
€/MWh in Finland (extra penalties are included in some systems)
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Imbalance pricing: wind power point of view
• Prediction errors large day-ahead (12-36 hours ahead):• One wind farm: ave 10-16 % of capacity (45-60 % of energy)• Distributed wind: average 6 % of capacity (28 % of energy)
(experience Denmark/Germany)• For 1-6 hours ahead, the prediction accuracy improves
• Errors reduced by trading after spot market (intra-day markets)
• Imbalance prices also used as an incentive for the market actors to keep their balance
• For wind power producers there is not much they can do but use state-of-the-art forecasting
• For wind power producers it is beneficial if fixed costs are allocated to all consumers (or all imbalances)
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Imbalance payments for wind power, one/two price system
• One price system starts to incur more costs first when penetration level increases and wind power starts to impact the system imbalances – wind and system imbalances to the same side more of the time
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50/50 43/57 35/65 26/74 17/83
share of prediction errors opposite/same side as system error
Bal
anci
ng c
ost €
/MW
h
one-price single wind farm
two-price single wind farm
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Producer with concentrated/distributed wind power
• One price system: at low penetration level not so much difference whether a small or large producer
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share of prediction errors opposite/same side as system error
Ba
lan
cin
g c
ost
€/M
Wh
one-price distributed prod.
one-price single wind farm
two-price distributed prod
two-price single wind farm
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0.7
0.8
43/57 35/65 26/74 17/83
share of prediction errors opposite/same side as system error
Ba
lan
cin
g c
ost
€/M
Wh
one-price 21 %
two-price 21 %
system cost
Comparison of imbalance payments and costs for the system
• More wind power will increase the up/down regulation needed, there will be additional cost from the balancing market (here: system cost)
• Both costs calculated with average up/down regulation prices, 2004
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Conclusions – how to improve market integration of wind
• One price system gives clear benefits at low penetration levels, and for small producers with concentrated wind power
• Balance settlement rules have a large impact for wind power• One-price system reflects the increase in system costs
• Imbalance payments increase with higher penetration levels, (for both one and two price systems)
• transparency –when costs directly from balancing market• Allocating system operator fixed costs in the tariff for all consumers
• As wind power producers have more imbalances than other producers or loads, it is beneficial for wind power that costs are allocated to all consumers and not in the payments of imbalances
• One price system means less income for the system operators• At higher penetration levels, largest errors from day-ahead forecasts should
be corrected before the hour of delivery• updated information from the prediction, intra-day markets
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