Novel market designs & KPIs I NSTITUTO DE I NVESTIGACIÓN T ECNOLÓGICA Stakeholder Kick-off Workshop, IEE-Market4RES Brussels, Luis Olmos, Pablo Rodilla, Pablo Frías, Camila Fernandes

2 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Need for this task and main objectives The deployment of large amounts of RES generation must be compatible with the integration of European electricity markets This requires implementing some market developments not considered in the European Target Model, which are aimed at: – Encouraging enough firm generation capacity to back-up RES-E generation – Allowing new generation to be installed where it is more efficient – Increase the flexibility of the system to adapt to changes in operation imposed by RES-G Then, WP3 aims to: – 1) Identify main market developments that are pending and main design options for them – 2) Provide indicators able to measure the performance of market design options in achieving the aforementioned objectives Interaction with stakeholders is central to success

3 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April WP3 in Market4RES WP2 Opportunities, challenges and risks for RES-E in a European integrated electricity market with full target model implementation WP5 Modeling of electricity market design & Quantitative evaluation of policies for post 2020 RES-E targets WP6.1 WS1: Implementation Target model WP6.2 WS2: Implementation Novel designs Short term markets WP6.3 WS2: Implementation Novel designs Long term markets WP3 Novel market designs & KPIs WS1: Short term objectives ( ) WS2: Long term objectives (post 2020 ; ) WP4 Appropriate new market instruments for RES-E to meet the 20/20/20 targets

4 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Structure of WP3: main tasks Market developments proposed are classified according to the time frame of market operation they are relevant to: – Task 1: Market developments affecting the design of long-term markets – Task 2: Market developments affecting the design of short-term markets Once market design options to analyze have been identified, we turn on to measuring the performance of the former – Task 3: Assessment of market options (KPIs) Analyses are to be performed in close cooperation with stakeholders – Task 4: WP3 expert workshop and follow-up consultation event

5 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.1: Long-term markets (CRM) Capacity Remuneration Mechanisms (CRM) are here to stay – After decades of strong opposition, several European countries are now implementing some kind of CRM – National flawed and uncoordinated designs can impede to seize all the opportunities that cross-border electricity exchanges can offer Objective of this task – How to further develop CRM national designs to enhance regional electricity market performance Divided in three subtasks – General design principles of CRMs – Participation of RES-E in CRMs – Cross-border trading of capacity

6 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.1: Long-term markets (CRM) General design principles of CRMs – Identify the most relevant design elements – Define a reference CRM design – How to deal with a context of massive penetration of RES-E The role of flexibility The role of demand response Participation of RES-E in CRMs – Evaluate the potential participation of RES-E in CRMs – How to evaluate the contribution of RES-E Cross-border trading of capacity – One of the hot topics as regards the Internal Electricity Market – How to ensure that no barriers to cross-border trading exist

7 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.2: Short-term markets Main pending developments related to the need to: – Better represent operation constraints; – Provide more flexibility; – Allow the participation of RES-G and L – Representation of the network – Concerns the granularity level of the network model considered – The network model should allow the representation of congestion occurring in the grid… while keeping it a simple as possible – Options that can be considered include nodal pricing, zonal pricing, hybrid zonal pricing – Timing of short term markets – Coping with uncertainty introduced by RES generation requires getting markets closer to real time – Options are: complementing or replacing day-ahead with intraday or close-to-real-time markets, or hybrid solutions

8 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.2: Short-term markets – Bidding protocols – Trade-off between the level of flexibility of bids, and therefore dispatch efficiency, and the complexity of the dispatch algorithm – Range of options from simple constraints like minimum revenues or block bids, to very sophisticated ones able to reproduce the unit commitment problem – Participation of RES-E generators and demand in short- term markets – Participation in energy markets: Imbalance settlement design Impact on balancing requirements Appropriate design of intraday markets – Participation in AASS markets Current rules preventing RES-G and L from participating in markets Definition of operation situations where provision of AASS is justified

9 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.3: Definition of KPIs Measuring the performance of proposed market developments is needed to choose the most appropriate options  KPIs must be defined KPIs can be classified according to the challenge they relate to Thus, KPIs that may be considered could include: – Attracting generation capacity and its availability: fuel security; short- term peak demand security; long-term generation adequacy; etc. – Integration and well functioning of the market: trading volume and market prices – Increasing market flexibility: Level of load balancing; Ramp rates of residual demand; Predictability of renewable output – Cost reflectivity of price zones: PTDFs of congested line w.r.t. intra- zonal transactions; Homogeneity of nodal prices within price zones – Profitability of RES-E generation: level of interaction of market with ETS

10 Novel market designs & KPIs - Luis Olmos Market4RES Kick-off Stakeholder Workshop, April Work package 3 task description Task 3.4: Expert workshop and consultation Once options to address deficiencies of the TM are identified, stakeholders will be consulted on: – whether these are the most promising design options – whether performance indicators proposed to assess them are appropriate Consultation will take place through two channels: – Expert workshop – Consultation process: a consultation document will be addressed to market agents, TSOs, and regulators – Feedback to be used to fine-tune designs and KPIs considered MARCH 2015 BRUSSELS MAY 2015 EUROPE

Novel market designs & KPIs