Energy despite being associated to human progress since its dawn, endorses a great intrinsic challenge, its management. In European markets, these management lays on two main actors: the market operator (MO) and the System Operator (SO).
The market operator acts as a central procurement chamber where a marginalist price auction for each hour of the day and the 365 days of the year is done. In those auctions, markets participants (MP) will be able to offer its available energy and/or might buy the energy for its portfolios. The MO realizes every day through the diary market, in whom about 80% of the total energy for the next day is negotiated, the working programme which depicts the results of the marginalist auction algorithm. This algorithm does not differentiate between technologies, only prices and volumes. The diary market closes at 12h of day D – 1, and through the day D-1 and the day D, the OM allows to adjust the forecast of buying/production, with the aim to produce a working programme with the minimum amount of deviation possible with late reality, either through intra diary sessions and or the intra diary continuous market.
Figure1: Spanish intra diary market sessions
Source: OMIE
The system operator is the guarantor of the correct operation of the network. One of the main tasks of the SO, will be to match the real-time generation and consumption curves together with the working programme received from the MO after the validation of its feasibility by the SO:
Figure2: Demand curve for the day 04/04/2023 at 15: 20h.
Source: Redei
The system operator, such in this case the Spanish Red Eléctrica, has its forecast of the energy demanded (24.563 MW) and receives the energy programmed by the Iberian market operator OMIE (24.292 MW). Once the time of delivery arrives, it must adjust the energy programmed to the actual energy (23.5959 MW) both in terms of contributing or subtracting energy from the system.
In markets with high presence of renewables on the energy mix, such as the Spanish with a 42%, due to its main marginalist price configuration, whenever renewable peaks productions are found, the so-called “duck curves” can be observed:
Source3: Price curve for the 13/04/2023.
Source: OMIE
The necessity to match production and demand curves in an environment with increasing implementation of renewables in the system creates a challenge for the SO and the following question: what tools does the SO have to manage deviations between generation and demand?
Generation Management
The SO has tools to compensate the energy pending supply through generation via:
- Secondary regulation: the authorized MP to act as balancing suppliers (BSP) submit to the SO their offers composed of energy blocks and enter an auction, led by the SO, in which if they are assigned, they will receive the price resulting from this auction according to three settlement concepts: secondary regulation band allocation, variation of the available band in real time and net effective energy provided.
- Tertiary regulation: BSPs will be able to bid to the SO with their maximum power variation to be raised or lowered for time ranges of at most 15/30 min and must be maintained for the same time range.
Currently and within the regulatory framework of the REPower EU program, Europe has set a target of 45% renewable energy in the energy mix by 2030. This target will add a high percentage of annual energy in a non-modulable way, see for example the difficulty in managing a photovoltaic farm totally dependent on solar radiation.
For the past two years, Europe has been suffering from severe droughts due to climate change which makes it difficult for hydro to contribute to balancing services, being the most modulable and manageable renewable technology.
As an example, the electrical configuration in the isolated system of the island of El Hierro in the Spanish archipelago of the Canary Islands, which uses hydropower to manage its energy demand, is shown:
Figure4: Electrical configuration in El Hierro
Source: Reve, web
The configuration used allows taking advantage of the orography of the terrain through the construction of a wind farm, two water reservoirs accompanied by a hydroelectric power plant and a pumping station in order to take advantage of wind generation to pump water to the upper reservoir and when power generation through hydropower is needed, it can be employed the potencial energy accumulated in higher latitudes. Thanks to this configuration, the island of El Hierro benefits from very high values of renewable production in its energy mix, around 82%.
Demand Management
Balancing schemes have historically been provided through energy generation, either by providing more energy or reducing the amount available. With the increase of renewable energies % in the mix in interconnected systems, arises the necessity to act not only on the energy generation side, but also on the energy demand side.
Although incipient, active demand response service options are beginning to emerge in many markets such as Portugal, France, and Spain:
In Portugal it is led by the Portuguese System Operator, REN, and is managed by the “Mercado de Banda de Reserva de Regulaçao”, in which a regulation reserve band is applied for consumption units > 4 MW and which are obliged to participate in tertiary reserve markets.
Annual auctions are applied with subsequent activations where the bid must be respected and penalties for non-compliance are promoted. For 2022, 304.4 MW were allocated at a reserve price of 20 €/MWh.
In the French case, they consist of a national procedure approved by the French Ministry of Energy, in which a capacity is allocated to demand facilities that will subsequently be obliged to bid in balance. For 2023, 8.011 MW were contracted.
The new service created for the Spanish system is also based on a system of demand-specific auctions provided through the Scheduling Units that would function as demand aggregators and thus be able to offer their flexibility. This mechanism will be of annual allocation and activations by rotating shifts according to the needs of the SO.
In the active demand response service created by REE, a variation of active power to be increased (reduction of consumption) is requested, which can be carried out by a scheduling unit with an activation time of less than or equal to 15 minutes and which can be maintained for up to 3 hours
In the first auction held in 2022, only 497 MW were awarded, in a market with 250 TWh of peninsular consumption for 2022, and the resulting remuneration price was 69.97 €/MW assigned.
The massive entry of non-modulable renewables planned for the coming years in the EU REPower plan, together with the difficulties in obtaining fossil fuels such as gas and/or coal exacerbated since the war in Ukraine, suggest that demand flexibility tools will become increasingly important in the coming years.
Dr. Alejandro Hernández/ Senior Energy Consultant
