Renewable Energy Integration: Quantifying the Value of Market Design Karsten Neuhoff, David Newbery, Christian von Hirschhausen, Benjamin Hobbs, Christoph Weber, Janusz Bialek, Frieder Borggrefe, Julian Barquin, Christian Nabe, Chris Dent, Francisco M. Echavarren, Rodney Boyd, Thilo Grau, Friedrich Kunz, George Papaefthymiou, Hannes Weigt 34 th IAEE International Conference, Stockholm, June

2Karsten Neuhoff Projected installation of new generation capacity Source: EMPLOY-RES Studie

Current Landscape 3 Cross-border Physical Flows – 28 March 2011, 09:00-10:00 (source: Naturally evolved into 29 separated, individual regions with 38 TSOs - 300,000km transmission lines Mosaic means TSOs charged with security in their region only…

4Karsten Neuhoff Based on: Borggrefe and Neuhoff 2010: Balancing and Intraday Market Design – Options for wind integration

Generation technologies mix used in the models. Distribution of the aggregate wind in- feed for the 2008 (H) TradeWind scenario and the respective snapshots.

Comparison of selected actual market prices for power products for Wednesday 16 January 2008 (bars) and simulated prices

No wind Source: Model results from the Intelligent Energy Europe project Re-shaping Zones for zonal pricing do not match national borders

Max wind Suitable zones in congested network can change hour by hour And zones with similar price change with wind output Source: Model results from the Intelligent Energy Europe project Re-shaping

Distribution of branch loads (as a fraction of capacity) for the analysed high wind scenario

Congested Lines are within and between EU Countries Transmission not allocated within market – TSO have to buy back capacity -> inefficient, costly and creates opportunities for gaming. TSO not informed about state of the European power system –make very conservative use of transmission lines –lack of information exchange main cause for black-outs

Respecting loop flows... Karsten Neuhoff11 Source: P. Bonnard, 2003 IEEE Trans. Distr. Conf

Calculating Transfer capacity Definition + Net transfer capacity (NTC) + Transmission Reliability Margin (TRM) = Total Transfer capacity (TTC) Calculation of TTC How much G increase in A can meet D increase in B, while keeping G,D fixed for other countries (i) scaling G (ii) scaling G<= G (iii) merit order

EU-wide volume weighted prices from DRESDEN model.

Results: Nodal Pricing Study We compared a nodal design to two zonal pricing approaches – with Madrid Comillas and Dresden Technical Universities.

AEP / Dayton / ComEd Integration into the PJM Market Change in Transmission Interconnector flows Source: Erin T. Mansur and Matthew W. White, “Market Organization and Efficiency in Electricity Markets,” March 31, 2009, Figure 2,pg 50, discussion draft, (available at ). (based on presentation by Andy Ott, PJM) Key Study Conclusions: Bilateral Trading could only achieve 40% of the efficiency gains of LMP- based market Incremental benefit of LMP Market Integration = $180 Million annually, Net Present Value over 20 yrs is $1.5 Billion

Savings - € billion per annum

(i) Integration with domestic congestion management (ii) Joint allocation of international transmission rights (iii) Integration with day ahead energy market (iv) Integration with intraday/ balancing market (v) Transparency of congestion management Bilateral transmission rights auction No Joint multi- country auction of NTC rights NoYesNo Multi-region day-ahead market coupling (zonal pricing) No (only at zonal level) PossibleYesNo Nodal pricingYes PossibleYes Source: Congestion Management in European Power Networks: Criteria to Assess the Available Options, Neuhoff, Hobbs, Newbery Multiple dimensions of congestion management