Decision-making under uncertainty in short-term electricity markets

In the course of the energy transition, the share of electricity generation from renewable energy sources in Germany has increased significantly in recent years and will continue to rise. Particularly fluctuating renewables like wind and solar bring more uncertainty and volatility to the electricity system. As markets determine the unit commitment in systems with self-dispatch, many changes have been made to the design of electricity markets to meet the new challenges. Thereby, a trend towards real-time can be observed. Short-term electricity markets are becoming more important and are seen as suitable for efficient resource allocation. Therefore, it is inevitable for market participants to develop strategies for trading electricity and flexibility in these segments. The research conducted in this thesis aims to enable better decisions in short-term electricity markets. To achieve this, a multitude of quantitative methods is developed and applied: (a) forecasting methods based on econometrics and machine learning, (b) methods for stochastic modeling of time series, (c) scenario generation and reduction methods, as well as (d) stochastic programming methods. Most significantly, two- and three-stage stochastic optimization problems are formulated to derive optimal trading decisions and unit commitment in the context of short-term electricity markets. The problem formulations adequately account for the sequential structure, the characteristics and the technical requirements of the different market segments, as well as the available information regarding uncertain generation volumes and prices. The thesis contains three case studies focusing on the German electricity markets. Results confirm that, based on appropriate representations of the uncertainty of market prices and renewable generation, the optimization approaches allow to derive sound trading strategies across multiple revenue streams, with which market participants can effectively balance the inevitable trade-off between expected profit and associated risk. By considering coherent risk metrics and flexibly adaptable risk attitudes, the trading strategies allow to substantially reduce risk with only moderate expected profit losses. These results are significant, as improving trading decisions that determine the allocation of resources in the electricity system plays a key role in coping with the uncertainty from renewables and hence contributes to the ultimate success of the energy transition

Mitigation of the Inefficiency in Imbalance Settlement Designs using Day-Ahead Prices

The design of electricity imbalance pricing mechanisms is internationally controversial. Policies on whether to permit virtual trading for market participants and whether, or how, to impose penalty incentives on the imbalance volumes vary widely. Furthermore, market designs vary depending whether the imbalance prices are obtained directly from real-time trading or based upon the offer and demand functions from the day-ahead energy markets. This paper develops an analytical framework for evaluating designs for imbalance settlement mechanisms and we have selected the Japanese electricity market, which has undergone several revisions in its imbalance mechanism, as a good example to assess such variations. We develop a predictive approach for the imbalance volumes and price densities using two-step quantile regressions and derive a new trading optimization for a virtual trader’s arbitrage position. We construct supporting models to estimate prediction errors for renewable power and demand as drivers of imbalance volume. The empirical analysis reveals that even in a mechanism with imbalance penalties based upon day-ahead reference prices, virtual trading may still be beneficial to market participants as well as to the system operator. We also find that greater market transparency is crucial for increased benefits. The insights generalize beyond the Japan case study

Management of local citizen energy communities and bilateral contracting in multi-agent electricity markets

ABSTRACT: Over the last few decades, the electricity sector has experienced several changes, resulting in different electricity markets (EMs) models and paradigms. In particular, liberalization has led to the establishment of a wholesale market for electricity generation and a retail market for electricity retailing. In competitive EMs, customers can do the following: freely choose their electricity suppliers; invest in variable renewable energy such as solar photovoltaic; become prosumers; or form local alliances such as Citizen Energy Communities (CECs). Trading of electricity can be done in spot and derivatives markets, or by bilateral contracts. This article focuses on CECs. Specifically, it presents how agent-based local consumers can form alliances as CECs, manage their resources, and trade on EMs. It also presents a review of how agent-based systems can model and support the formation and interaction of alliances in the electricity sector. The CEC can trade electricity directly with sellers through private bilateral agreements. During the negotiation of private bilateral contracts, the CEC receives the prices and volumes of their members and according to its negotiation strategy, tries to satisfy the electricity demands of all members and reduce their costs for electricity.info:eu-repo/semantics/publishedVersio

Short-term Risk Management for Electricity Retailers Under Rising Shares of Decentralized Solar Generation

Electricity retailers face increasing uncertainty due to the ongoing expansion of unpredictable, distributed generation in the residential sector. We analyze how increasing levels of households\u27 solar PV self-generation affect the short-term decisionmaking and associated risk exposure of electricity retailers in day-ahead and intraday markets. First, we develop a stochastic model accounting for correlations between solar load, residual load and price in sequentially nested wholesale spot markets across seasons and type of day. Second, we develop a computationally tractable twostage stochastic mixed-integer optimization model to investigate the trading portfolio and risk optimization problem faced by retailers. Through conditional value-at-risk we assess retailers\u27 profitability and risk exposure to different levels of PV self-generation by assuming different retail tariff schemes. We find risk-hedging trading strategies and tariffs to have greater impact in Summer and with low levels of residual load in the system, i.e. when the solar generation uncertainty affect more the households demand to be served and the wholesale spot prices. The study is innovative in unveiling the potential of dynamic electricity tariffs, which are indexed to spot prices, to sustain a high penetration of renewable energy source while promoting risk sharing between customer and retailer. Our findings have implications for electricity retailers facing load and revenue risks in wholesale spot markets, likewise for regulators and policy-makers interested in electricity market design

Decision Support For Demand Response Triggers: Methodology Development and Proof of Concept Demonstration

Project Final Report prepared for CIEE and California Energy Commissio

Tulevaisuuden säätötavan suunnitteluperiaatteet Suomen sähköjärjestelmässä

The Nordic synchronous power system has come to a situation in which the operational security is challenged due to the reformation of the power system, which especially concerns the electricity production palette. In addition, European regulation has set demanding requirements with tight deadlines for the European TSOs regarding system operation and balancing. In order to tackle the challenges and to comply with the regulatory obligations, the Nordic TSOs have concluded a cooperation agreement, which defines the roles and responsibilities of the TSOs concerning the future Nordic balancing cooperation. The upcoming modifications, which relate to market solutions and power balance management, engender questions on how the changes affect the Finnish power system balancing and how the system should be balanced in the future. This thesis includes a literature review and an empirical research. The literature review creates an overview of the current Nordic power system balancing. In addition, it introduces the key elements of the future Nordic balancing cooperation. The empirical part analyses quantitatively and qualitatively the influences of the upcoming changes on the power system balancing and whether the changes promote proactive or reactive balancing design. According to the findings, Fingrid should exercise reactive power system balancing in the future. The upcoming changes will increase the responsibility of the market participants to control their own balance in a more accurate manner closer to real time. In addition, various forecasts and plans related to the forthcoming balancing periods are likely to become less reliable in the future, which shakes the foundations of proactive balancing performed by Fingrid. Thus, proactive balancing actions of the TSO could result in flawed outcomes and inefficient balancing performance due to, for instance, counter activations. Furthermore, some examples within EU area have shown that the introduction of reactive balancing design is likely to reduce the volume of system imbalances and the amount of balancing product activations. Despite the benefits, reactive balancing requires further research from the congestion management point of view as power grid conditions may set limitations on the balancing design.Pohjoismainen synkronijärjestelmä on tullut tilanteeseen, jossa järjestelmän käyttövarmuus on haasteiden edessä sähköjärjestelmässä tapahtuvien muutosten, etenkin tuotantorakenteen uudistuksen, seurauksena. Lisäksi eurooppalainen lainsäädäntö on asettanut vaativia tavoitteita kireillä käyttönottoaikatauluilla eurooppalaisille kantaverkkoyhtiöille. Selviytyäkseen haasteista ja noudattaakseen eurooppalaista lainsäädäntöä pohjoismaiset kantaverkkoyhtiöt ovat solmineet yhteistyösopimuksen tulevasta pohjoismaisesta tasehallinnasta. Sopimus määrittelee pohjoismaisten kantaverkkoyhtiöiden tehtävät ja velvoitteet sähköjärjestelmän tasapainottamiseen ja yhteistoimintaan liittyen. Tulevat muutokset, jotka koskevat markkinaratkaisuja ja tasehallintaa, synnyttävät kysymyksiä siitä, miten muutokset vaikuttavat Suomen sähköjärjestelmän tasehallintaan ja miten tasapainottaminen tulisi tulevaisuudessa hoitaa. Tämä diplomityö koostuu kirjallisuuskatsauksesta ja empiirisestä tutkimuksesta. Kirjallisuuskatsaus luo kokonaiskuvan siitä, miten sähköjärjestelmän tasapainottaminen nykyisin hoidetaan Pohjoismaissa. Lisäksi se tuo esille keskeisimmät muutokset, joita pohjoismaisen tasehallinnan ja yhteistoiminnan tulevaisuuteen liittyy. Empiirinen osuus tutkii kvantitatiivisesti ja kvalitatiivisesti tulevien muutosten vaikutusta sähköjärjestelmän tasapainottamiseen ja tukevatko muutokset proaktiivista vai reaktiivista säätötapaa. Työn tulosten mukaan Fingridin tulisi toteuttaa reaktiivista sähköjärjestelmän tasapainotusta tulevaisuudessa. Tulevat muutokset kasvattavat markkinaosapuolten vastuuta kontrolloida omaa tasetta tarkemmin lähempänä käyttöhetkeä. Lisäksi ennusteet ja suunnitelmat, jotka liittyvät tulevien tasapainotusjaksojen ennakointiin, ovat todennäköisesti epäluotettavampia tulevaisuudessa, mikä heikentää Fingridin toteuttaman proaktiivisen säätötavan lähtökohtia. Sen vuoksi kantaverkkoyhtiön toteuttama ennakoiva säätötapa voi johtaa virheellisiin lopputuloksiin ja heikentää tasapainotuksen suorituskykyä esimerkiksi vastasäädöistä johtuen. Lisäksi esimerkit EU:n alueella ovat osoittaneet, että reaktiivisen säätötavan käyttöönotto todennäköisesti vähentää sekä sähköjärjestelmän tasepoikkeamia että säätöä varten akti-voidun energian määrää. Hyödyistä huolimatta reaktiivinen säätötapa tarvitsee vielä lisätutkimusta verkon hallinnan näkökulmasta, sillä sähköverkon tilan huomioiminen voi asettaa rajoitteita säätötavalle

Statistical Arbitrage and Information Flow in an Electricity Balancing Market

Motivated by the events following a natural experiment in 2015, when the market rules for electricity spot trading were changed in Britain, we analyse the operational effects of market participants responding to price incentives for spillage and shortage positions in a single price, real-time market. We develop an analytical model for optimal real-time decisions by generators and speculators based upon forecasts of the conditional distribution of the total system imbalance between instantaneous supply and demand. From this, we examine the effects of time delays in information transparency for the consequent statistical arbitrage positions. We backtested this model empirically to the Austrian system imbalance settlements process within the German/Austrian integrated market. Results suggest that permitting additional intraday flexibility from a physical generator or a non-physical trader can be beneficial for the agents themselves, the system operator and market efficiency

Risk Hedging Strategies in New Energy Markets

In recent years, two typical developments have been witnessed in the energy market. On the one hand, the penetration of renewable generations has gradually replaced parts of the traditional ways to generate energy. The intermittent nature of renewable generation can lead to energy supply uncertainty, which might exacerbate the imbalance between energy supply and demand. As a result, the problem of energy price risks might occur. On the other hand, with the introduction of distributed energy resources (DERs), new categories of markets besides traditional wholesale and retail markets are emerging. The main benefits of the penetration of DERs are threefold. First, DERs can increase power system reliability. Second, the cost of transmission can be reduced. Third, end users can directly participate in some of these new types of markets according to their energy demand, excess energy, and cost function without third-party intervention. However, energy market participants might encounter various types of uncertainties. Therefore, it is necessary to develop proper risk-hedging strategies for different energy market participants in emerging new markets. Thus, we propose risk-hedging strategies that can be used to guide various market participants to hedge risks and enhance utilities in the new energy market. These participants can be categorized into the supply side and demand side. Regarding the wide range of hedging tools analyzed in this thesis, four main types of hedging strategies are developed, including the application of ESS, financial tools, DR management, and pricing strategy. Several benchmark test systems have been applied to demonstrate the effectiveness of the proposed risk-hedging strategies. Comparative studies of existing risk hedging approaches in the literature, where applicable, have also been conducted. The real applicability of the proposed approach has been verified by simulation results