More intraday and cross-border trading helps wind

GERMANY: Electricity trading for same-day delivery has made big progress in recent years, benefiting not only the trading of wind energy, but also the whole electricity system.

Real-time… Nord Pool offers trading up to the time of delivery within Germany’s TSO regions

In Germany, the Nord Pool electricity exchange introduced continuous intraday trading right up to real-time delivery to customers within each of the four transmission system operator (TSO) areas - Amprion, Tennet, 50Hertz and TransnetBW — in February 2016.

Rival exchange Epex Spot will start continuous intraday trading within TSO regions until five minutes before physical delivery from June 2017, subject to successful testing.

For intraday trading across TSO regions in Germany, which involves various additional reporting and balancing operations that require extra time, the lead time to the point of delivery is down to just 20 minutes at Nord Pool, and 30 minutes at Epex Spot.

Within Europe, some countries have already created cross-border intraday markets. Since October 2016, there has been an integrated intraday market between Austria, Belgium, France, Germany, the Netherlands and Switzerland, where electricity can be traded up to one hour before delivery, according to Dutch TSO Tennet and Belgian counterpart Elia.

Cross-border project

Going one step further, power exchanges and TSOs from 12 countries are building a single intraday cross-zonal market solution based on a common IT system.

The first of three go-live phases of this Cross-Border Intraday Market initiative is scheduled for Q1 2018.

Trading up to as close to physical delivery time as possible allows traders to better balance supply with demand in their balancing pools and avoid the costly payments charged by TSOs for imbalance settlements if they fail to match supply with demand.

"Renewable generation is highly dependent on weather forecasts, and these are most reliable the closer we get to real time," said Wolfram Vogel, director of public and regulatory affairs at Epex Spot.

"With lead-time reduction, the marketers of renewables energy have the advantage of being able to make last-minute adjustments to their portfolio," he said. "Growing input from renewables - wind energy included - means higher variation in input. The shorter the lead time, the closer trading gets to optimal adjustment of the overall system."

Intraday trading can have knock-on effects that create "a virtuous circle", enthused Pietro Rabassi, director of Nord Pool central European markets.

"Trading right up to delivery reduces the risk of going into imbalance. Then, with increasing liquidity in late intraday trading, we may also see the imbalance settlement prices charged by TSOs go down - although not to the point where there is no longer an incentive to be balanced," he said.

The positive impact does not stop at potentially lower imbalance settlement prices. The amount of balancing reserve needed is also decreasing.

"There is a clear correlation — the more intraday trading is done, the less balancing power needs to be held by TSOs to iron out imbalances, thus reducing overall system costs," said Jan Aengenvoort, head of communication and market research at Next Kraftwerke, a certified power trader on various European energy exchanges.

The balancing power volumes put up for tender by TSOs are therefore shrinking despite the increase in renewables, Aengenvoort noted.

Living organism

To what extent conventional power stations supplying balancing power can be dispensed with is, however, a moot question. "It's a very complex system in which various factors can play a role.

It is therefore difficult to predict future developments for the physical balancing system," said Statkraft Markets, which markets electricity generated by roughly 9GW of wind capacity.

And market structures are continually developing. As Aengenvoort puts it: "The energy system is a living organism - some mechanisms thrive and others die away. It could be that when we have 80% renewables on the (German) system instead of 35% as at the moment, that we need another system - such as, for example, blockchain."