1. Intraday role in investment and capacity expansions
This case study, titled “Intraday Role in Investment and Capacity Expansions,” explores the critical influence of intraday markets on investment decisions within the power sector, focusing on the challenges posed by the inherent unpredictability of Variable Renewable Energy Sources (VRES). As global capacity for VRES expands, driven by both economic factors and climate change mitigation efforts, understanding the dynamics of intraday trading becomes essential. This study addresses a significant gap in existing literature by developing a stochastic capacity expansion model that integrates both day-ahead and intraday market stages, offering new insights into how forecasting errors impact investment strategies.
The research utilizes a novel approach by incorporating a two-stage market model within the capacity expansion framework to account for the uncertainties brought by VRES. By comparing three distinct cases—a traditional model without market sequencing, a model including both day-ahead and intraday markets, and a deterministic version of the second case—this study quantifies the effects of forecasting errors on investment decisions. The analysis reveals that including market sequencing escalates total system costs and alters investment patterns significantly, highlighting the decreased role of intermittent energy sources and increased reliance on flexible generators.
The findings indicate a substantial shift in investment strategies due to the introduction of forecasting errors. There is a notable reduction in investments in intermittent sources by 10% and an increase in flexible generation by 40%, suggesting a major recalibration of future power systems towards more adaptable solutions. The study also predicts a reduced role for energy storage, suggesting it has been overvalued in scenarios that do not account for VRES variability. Furthermore, the analysis stresses the importance of transmission as a flexibility provider, essential for balancing the discrepancies between forecasted and actual energy availability.
This research underscores the necessity of incorporating short-term uncertainties into long-term planning processes to prevent costly miscalculations and ensure reliability. The deterministic models, which neglect these uncertainties, tend to underestimate system costs and fail to provide viable solutions under varying conditions. These insights are crucial for policymakers and industry stakeholders aiming to enhance the robustness and sustainability of power systems amidst increasing shares of renewable energies. The case study not only contributes to academic discourse but also aids practical decision-making in energy market design and infrastructure investment.
Related Publications
2. PhD appointed in PowerDig
As part of the PowerDig project, our appointed PhD students have developed the following case studies.
Coordinated Trading Strategies for Battery Storage in Reserve and Spot Markets
By Paul E. Seifert
Renewable energy sources supersede controllable power plants in the electricity system but are dependent on weather conditions, intensifying the system’s inflexibility issues. Recent cost reductions allow battery storage to be included in the solution space for providing balancing services, reducing the need to hold (conventional) balancing capacity available in the future. However, integrating battery storage into the electricity markets is challenging since battery storage requires revenue stacking from different markets to be economically feasible.
Our work presents important base research on the application of operations research methods for coordinated bidding of a battery storage operator across markets. Time coupling constraints and the high dimensionality of consecutive decisions following the scheduling of markets make it challenging for a storage operator to navigate the decision to bid optimal quantities to the individual markets. We extend the literature on a combination of Day-Ahead, Intraday, and Frequency Containment Reserve markets with four-hour decision intervals. Particularly, the Frequency Containment Reserve has received little attention in the literature so far.
We process forecasts from historical time series and calculate an optimal revenue policy with Stochastic Dual Dynamic Programming to cope with the high dimensionality of the problem. Our method works with a small amount of training data, so we can calculate profitable trading strategies based on 2022 data despite recent changes in market design and the dislocations of prices caused by the energy crisis in Europe. We analyze the additional value by coordinating the markets and find that at the chosen resolution of four hours, the FCR market dominates the other markets. However, in a price-adjusted scenario where we account for the low cycling of the spot markets, a value of market coordination of up to 12.5% can be found.
Local Network Coordination – A Market Design for Trading Electricity Grid Congestions
By Paul E. Seifert
Getting new grid access permits is an increasing challenge for Norwegian grid customers due to a shortage of transmission system capacity. Necessary grid reinforcements require long lead times and are not expected to ease the situation in the short term. New connections’ load profiles must fit the existing infrastructure or face rejections for grid access otherwise, with severe consequences for industrial development.
Grid managers have to ensure capacity limitations are at all times. Curtailment to mitigate overloading is also part of the management measures but does not encourage demand-side participation. We advocate for a combination of congestion management by utilising local flexibility markets. Congestions from day-ahead clearings are processed by the grid operator and delegated to local flexibility markets that span over locations based on the status of the grid. These ease or resolve the issue at the cost of an added local price component. Compared to nodal markets, grid operators, generators, and flexibility providers stay in full control of their respective assets, and private information is not shared. Flexibility is rewarded and eases stress on the grid operators, which in turn can allow for more grid connections.
Related Publications:
Coordinated Trading Strategies for Battery Storage in Reserve and Spot Markets
3. PreFlex – Flexibility markets and Intraday markets
The “PreFlex – Flexibility Markets and Intraday Markets” case study introduces a pioneering approach to the daily capacity market designed specifically for intermittent generation units like Wind Power Producers (WPPs). The focus of this study is on the development of a market framework known as the PreFlex market, which allows WPPs to contract flexibility directly from Distributed Energy Resources (DERs) through aggregators. This market structure is crafted to operate in two crucial stages: initially, alongside the day-ahead market where WPPs procure flexibility capacity from DERs, and subsequently, parallel to the intraday market where this capacity is activated to correct predictive generation errors.
This case study is particularly relevant in the context of the Norwegian power market, providing a detailed examination of how such a market framework can reduce the reliance of WPPs on the less liquid intraday markets by enabling them to manage their forecast errors more effectively. The proposed PreFlex market allows WPPs to activate the contracted DER flexibility as real-time approaches and actual production discrepancies become evident. This capacity market model not only aims to decrease median system imbalances but also seeks to maintain the cost of balancing reserves, despite their dependency on peak system imbalances which are consistent.
Employing a two-stage stochastic optimization model, the study performs a comprehensive analysis to assess the practical implications and benefits of introducing a flexibility market for DERs. This includes an evaluation of how much DERs could earn by participating in the PreFlex market, providing a quantifiable incentive for DERs to offer their flexibility services. The analysis uses real-world data to illustrate potential improvements in system stability and economic efficiency, emphasizing the strategic value of DER flexibility in enhancing the robustness of power systems against forecast errors.
The operational mechanics of the PreFlex market are meticulously detailed, noting that DER flexibility can be contracted daily and activated in a timeframe that aligns closely with the day-ahead market bidding phase. This arrangement ensures that the flexibility is available precisely when needed, just before real-time market conditions are confirmed. The study highlights the strategic positioning of the PreFlex market relative to existing Nordic wholesale and balancing markets, marking a significant advancement in market design tailored to the unique characteristics of the Norwegian energy landscape.
Related Publications
4. TSO-DSO coordination
Transition of the smart distribution grid requires coordination between different actors, including system operators of various levels (TSOs, DSOs) and end-users. Their roles and impacts on the transition remain relevant during the process.
We modeled how end-users could participate and contribute to flexibility services on the transmission power network in Norway, in particular during redispatch, with coordination between TSO and DSOs considered.
To model the interactions among distribution power networks and the transmission power network in an entire nation, electricity demand of end-users are disaggregated from zonal data into a high spatial resolution of 10 by 10 kilometers. Distribution power networks are also modeled under the same spatial resolution.
We found a small but consistent benefits in cost reductions with the inclusion of end-user flexibility during redispatch. The operation of the system is also less stressed during peak load hours due to end-user’s participation. Lastly, if cost reductions from end-user flexibility are redistributed as incentives towards the same end-users, they can enjoy the non-negligible reduction of their electricity bills.
It is worth noting that with the current framework of redispatch near real time in Norway, end-users need to balance their SOC change due to redispatch in the energy-only markets if they are using batteries of EVs for flexibility. So if an end-user provides positive redispatch with their BESS or EVs, they will need to recharge their assets afterward in the EOM. This dynamic can be observed clearly in the results of the model.
Related Publications
Effects of end-user participation under a TSO-DSO coordination scheme for Norway
5. Wind Power Producers bidding intraday markets
The case study titled “Wind Power Producers Bidding in Intraday Markets” explores the strategic dynamics of auction-based intraday trading platforms set to be introduced in the Nord Pool market in 2024. This new market framework is designed with three distinct bidding gates, which close at different times before the energy delivery to accommodate various market needs and provide wind power producers, among others, with multiple opportunities to adjust their bids based on the latest market and weather forecasts. The first gate closes at 15:00 the previous day covering all 24 hours of energy delivery, the second at 22:00 also covering all 24 hours, and the third gate closes at 10:00 on the delivery day, but only covers the last 12 hours.
This case study specifically investigates the operational strategies of a large Wind Power Producer (WPP) in Norway within this new trading framework. The research focuses on the optimal bidding strategy for the WPP considering potential market power usage. By simulating a multi-stage optimization problem, where each stage represents a gate of the new intraday market, the study aims to identify how WPPs can strategically influence market prices and respond to the inherent uncertainties of wind generation and market demand.
The complexity of the bidding strategy is further explored through a bilevel optimization model. The upper level of the model represents the profit maximization goals of the wind producer, while the lower level aims to maximize social welfare by ensuring efficient market clearing and equitable price setting. The model includes stochastic elements such as wind generation forecasts, market price predictions, and varying bids and offers from other market participants, which all influence the strategic decisions of the WPP.
Moreover, the case study addresses the integration of the transmission network to evaluate inter-zonal transmissions between Norway’s five bidding zones (NO1 to NO5), which are cleared simultaneously. This aspect is crucial for understanding the spatial distribution of bids and the impact of transmission constraints on market outcomes. For simplicity and to reduce computational demands, the model considers a two-stage discrete intraday market, in contrast to the proposed three-stage system by Nordpool.
This research not only provides insights into the strategic behavior of a major wind producer in a revamped market structure but also contributes to broader discussions on market design and policy making in energy markets. The findings are expected to help policymakers and market operators understand the implications of auction-based intraday trading on market stability, price formation, and the integration of renewable energy sources into the grid.