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Analysis of the Transferability of PJM‘s Market Design to the German Electricity market

Analysis of the Transferability of PJM‘s Market Design to the German Electricity market. IAEE 2011, Stockholm. Katrin Schmitz Prof. Dr. Christoph Weber. Agenda. Introduction Structural differences and similarities between PJM and Germany and implications for Nodal Pricing

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Analysis of the Transferability of PJM‘s Market Design to the German Electricity market

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  1. Analysis oftheTransferabilityofPJM‘s Market Design tothe German Electricitymarket IAEE 2011, Stockholm Katrin Schmitz Prof. Dr. Christoph Weber

  2. Agenda • Introduction • Structuraldifferencesandsimilaritiesbetween PJM and Germany andimplicationsfor Nodal Pricing • Productionconventionaland RES • Intermeshednetworks • Cross-borderFlows • CongestionFrequency • Conclusion

  3. 1. Introduction and Key questions • Germany leadsthewayto RES productiongrowth • Congestionmanagementhasbecome a seriousissue not only in the German but in the European electricitygrid • PJM‘s LMP market design assolution? • Key structuralindicatorsImplicationsfor Production „Efficiency“ ofNodalPricing Intermeshed Networks = Gains in Efficiency vs. Implementation Costs Cross-border Flows Congestion Frequency

  4. 1. Whatis Nodal Pricing? • Nodal pricing = mostefficientcongestionmanagementtool • Example LMP = Marginal Costs* + Congestion + Losses * PJM: System Marginal Price (SMP) • Exceedingoftransmissioncapacity • Over-capacity : PriceA↓ • Toomuchload : PriceB↑ • Investment incentivesfor • newgenerationcapacity • upgradeoftransmissioncapacity Transmission capacity: 500MW A A B B 700 MW B

  5. Agenda • Introduction • Structuraldifferencesandsimilaritiesbetween PJM and Germany andimplicationsfor Nodal Pricing • Productionconventionaland RES • Intermeshednetworks • Cross-borderFlows • CongestionFrequency • Conclusion

  6. 2.1 Generation Mix (I) • Bothdominatedby fossil fuels: (PJM) 60% vs. 58% (Germany) • Germany  higherpartof RES-production  Much higher RES-share in installedcapacity (5% vs. 35%) Datasource: 2010 BMWI Energiedaten Deutschland Stand 07092010, table 22 Datasource: 2009 state of the market report, p.178 • PJM: 693.3 TWh Germany: 596.8 TWh

  7. 2.1 Generation Mix (II) RES-Production • Possibleproblems in distributionnetwork • (due tochangeofflowdirection) • Currently: Nodal Pricing onlyimplemented in transmissionnetwork • Fluctuatingfeed-in • Updatingday-aheadplanningand real-time planningisneeded Future development? PJM: gas-firedplants↑ increasingfocusofgovernment on renewableintegration Germany: RES ↑ (Offshore-Wind)

  8. Agenda • Introduction • Structuraldifferencesandsimilaritiesbetween PJM and Germany andimplicationsfor Nodal Pricing • Productionconventionaland RES • Intermeshednetworks • Cross-borderFlows • CongestionFrequency • Conclusion

  9. 2.2 Surface PJM: 453,811 km² Germany: 357,124 km² Source: 2008 State ofthemarketreport, Appendix I p. 439 Source: www.bhkw-forum.de (14.06.2011)

  10. 2.2 Intermeshednetworks (I) • All indicatorsshownohugestructuraldifferencesbetween PJM and Germany • The degreeofintermeshingasmeasuredbytheaveragelinelengthbetweentwobusesisabout 20 % higher in PJM than in Germany * Lengthof all transmissionlines/surface) ** onlytransmissionnetwork, not distributionnetwork; All numbersonlyrefertothetransmissionnetwork – not thewholenetwork

  11. Agenda • Introduction • Structuraldifferencesandsimilaritiesbetween PJM and Germany • Productionconventionaland RES • Intermeshednetworks • Cross-borderFlows • CongestionFrequency in PJM marketareaand Germany (Europe) • Conclusion

  12. 2.2 Cross-border flows Differencesbetweencommercialandphysicalflows!  fluctuating RES-feed-in, forecasterrorsand plant outages • Commercial exchanges vs. cross-border flows • Deviations have negative impacts on efficiency of LMP market areas: • Impacts on LMPs, FTRs and system operations • Poorly understood impacts in non market areas • Gaming themarket • Redispatch isneeded • 5.2 % as a whole • On specificinterfacesmuchhigher! • (e. g.NYISO/NYIS: -17%) • Germany • -23% as a whole

  13. Agenda • Introduction • Structuraldifferencesandsimilaritiesbetween PJM and Germany andimplicationsfor Nodal Pricing • Productionconventionaland RES • Intermeshednetworks • Cross-borderFlows • CongestionFrequency • Conclusion

  14. 2.4 Congestionfrequency • Nodal pricingleads „only“ tohigherefficiency in hourswithbottlenecks • Low congestednetwork lowergains in efficiencyas in a highlycongestednetwork * Germany: redispatcheventhours = sumoverredispatch per TSO ** Germany: costsforredispatch, PJM: withoutexlicitcongestioncharges

  15. 2.4 Congestioneventhours • Significantlyhighercongestion in PJM area • Durable Bottlenecks: • Congestionofsometransmissionlinesover 30 % of a year • Congestedhoursof a year: 94 % PJM vs. significantlylowerhourswithredispatch in Germany • Main driverforlineadditions in PJM fornext 5 years: reliability • Congestioneventhours ≠ Redispatch eventhours: • Forecasterrors • Anticipatoryredispatch (n-1 criterion) • Reconfigurationofnetworkthroughswitchingoperations • Noconsiderationofredispatcheventswithin a TSO zone •  Howcanthisbe? Despitebroadstructuralsimilarities?

  16. 2.4 Total CongestionCosts • Much higher total congestioncosts in PJM • Due tomuchmorecongestioneventhours • SimilaraverageCongestionCosts per Congestion Event Hour?  not comparable • Expectation: LowerCongestionCosts in LMP market • Difficultinterpretationofcongestioncosts!

  17. 2.4 Dynamic efficiencyIndicator: ActualandSimulated PJM System Congestioncosts • Future resultsincludemajorbackboneupgrade • Not developmentofactualcosts but comparisonbetweenactualand „BAU costs“ indicatesdynamicefficiency Source: based on (2007-2010, PJM) RTEP; (2007-2010, PJM) State ofthe Market Report Actualcosts 2008 = „BAU costs“ Actualcosts 2009 & 2010 < „BAU costs“

  18. 3. Conclusion • High structuralsimilaritybetween PJM and Germany but differences in degreeofintermeshingofnetwork • But: Significantlymorecongestion in PJM • Fundamental problems in PJM‘sbackbonenetworkleadtosignificantlyhighercongestioneventhours • Potential of Nodal Pricing in PJM muchhigherthan in Germany • Implementationoflocationalpricing in Germany onlydoesn‘tmake sense (due todeviations in cross-borderflows) • Nosolutionforupcomingproblems in German distributionnetwork ImplementationCosts > Gains in Efficiency

  19. Thankyouforyourattention! Anyquestionsorremarks?Contact:Katrin Schmitz (researchassistantandPh. D. student)University of Duisburg-EssenChairfor Management SciencesandEnergy EconomicsUniversitätsstr. 1245117 Essen, Germanykatrin.schmitz@uni-due.de

  20. Overviewof Data sources (I)

  21. Overviewof Data sources (II)

  22. Literature (I) • (2006, PJM) State ofthe Market Report • (2007a, PJM) State ofthe Market Report • (2008a, PJM) State ofthe Market Report • (2009a, PJM) State ofthe Market Report • (2010a, PJM) State ofthe Market Report • (2007b, PJM) Regional Transmission Expansion Plan • (2008b, PJM) Regional Transmission Expansion Plan • (2009b, PJM) Regional Transmission Expansion Plan • (2010b, PJM) Regional Transmission Expansion Plan • (2010c, PJM) Base Residual Auction Report 2010-2011 • (2010d, PJM) Base Residual Auction Report 2013-2014 • (2010e, PJM) Base Residual Auction Report 2014-2015

  23. Literature (II) • (2004, Entsoe) Cross-borderexchanges on meshed AC power systems • (2010, Entsoe) Ten-Year Network Development Plan • (2009, Bundesnetzagentur) Monitoringbericht 2008 • (2010, Bundesnetzagentur) Monitoringbericht 2009 • (2011, Bundesnetzagentur) Bericht zu Netzzustand und Netzausbau

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