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MARKET ALTERNATIVES FOR CENTRAL ASIA
AND EXPECTED BENEFITS FROM REGIONAL
TRADE
ALMATY, KAZAKHSTANFEBRUARY 11-12, 2020
Pho
to: C
reat
ive C
om
mo
ns
SESSION 5 – INTERNATIONAL EXPERIENCES
2/12/2020`1 2
TABLE OF CONTENTS
• SOUTHERN AFRICA POWER POOL
• CENTRAL AMERICA
• EUROPEAN UNION
• NORTH AMERICA POOL
▪ Although there are a large number of countries that trade electricity
with their neighbors, there only a few organized regional electricity
markets that allow bilateral and centralized (short term) trading of
electricity. These market are described in this presentation.
▪ Additionally, there are several regional markets in process of (slow)
formation.
▪ These ongoing and successful markets are the international references
for CAREM, the market model alternatives proposed are, to some
extent, inspired by the markets described in this presentation
3
OBJECTIVES
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SOUTHERN AFRICA POWER POOL
• 12 SADC Member Countries
• 16 SAPP Members
• 280 Million people
• Installed Generation Capacity 62 GW
• Available Generation Capacity 47 GW, hydro in North and thermal in South
• Planned Generation 2015-19 is 23,585 MW
• Peak Demand - 55 GW
• Consumption - 400TWh
• 22 HV interconnections (29 single circuits)
• 9 (out of 12) countries interconnected
• 5.2 TWh of exports for the member states from April 2013 to March 2014 (3.6% of energy consumed in the Power Pool)
• The cumulative transfer capacity amounts to 7000 MW
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INTRODUCTION TO SAPP
SAPP KEY FACTS
DR CongoTanzania
ZambiaAngola Malawi
Zimbabwe
MozambiqueBotswanaNamibia
aSouth Afric Lesotho
Swaziland
CROSS BORDER LINKS AND AVAILABLE
TRANSMISSION CAPACITY
SAPP was created in 1995 with the following Objectives:
• To cooperate and coordinate in the planning and operation of the
electricity business in SADC
• Facilitate cross border electricity trading in SADC
• Promote regional cooperation in power projects development
(Generation and Transmission Infrastructure Development) –
economies of scale
• Increase Access to Electricity in Rural Areas
• Ensure that the region Attracts Investment for large energy intensive
electricity users (attractive tariff)
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SAPP MAIN OBJECTIVES
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SAPP MARKET DEVELOPMENT
EVOLUTION
10
▪ Bilateral contracts
INITIALLY
FIRST PHASE
▪ Bilateral contracts
▪ Short-Term Energy Market (STEM) - 2001
▪ Post STEM (Balancing Market) – 2002
▪ Day-ahead Market (DAM) – 2009
▪ Post Day Ahead Market (PDAM) - 2013
▪ Bilateral contracts
▪ Day-ahead Market (DAM)
▪ Forward Physical Market s (MA &WA)
▪ Intra Day Market
▪ Balancing Market – under development
▪ Financial Markets – under development
CURRENT PHASE
Market
evolu
tion
Participants can only trade directly on the SAPP market upon:
• Having been licensed or given permission by the host country to
undertake cross border trading
• Acceptance as a Market Participant by SAPP Executive Committee
• Being party to a TSO connected to a SAPP Control Area and having
arrangements for Balance Responsibility
• Signing the SAPP Market governance documents
• Have at least two trained Traders
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CONDITIONS TO TRADE IN THE SAPP - MTP
• Trading arrangements mutually agreed between bilateral parties
– Volumes and Prices are the key parameters
– Transmission path to be secured in advance
– Bilateral parties directly invoice and settle each other
• Can be firm or non firm
– Firm contracts; Generally not interruptible – hence there is
reliability premium
– Non firm contracts; Are interruptible with notice. If notice given,
no penalties
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BILATERAL TRADING IN SAPP – KEY FEATURES
• Market for secure, effective and non-discriminatory trade of electricity:
• Trading to be concluded daily for delivery next day
• Forward bidding up to 10 days
• Participants submit bids (purchase) & (sale) offers
• Closed market – only market operator and participant know the details of the bid / offer
• Price discovery
• Provides a neutral reference price
• Open and competitive market
• Provides platform to manage demand & supply fluctuations
• Gives price signals to policy makers
• Stable & Liquid market will give investor confidence
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DAM MAIN FEATURES
All Transmission equipment used for wheeling is identified in Country C
TRANSMISSION WHEELING IN SAPP
Country C
Country
A
100 MW
100 MW
Country B
Horizontal network of the country
SAPP agreed to the following Transmission Capacity Allocation Criteria:
• On the Trading Day, Firm Transactions (from bilateral and competitive
markets) will be given priority ahead of Non-Firm Transactions
• On the Delivery Day, Emergency Energy transactions will be given
priority ahead of all trades (bilateral contracts & competitive markets
trades)
• On the Delivery Day, Non-Firm bilateral transactions will be given
priority ahead of IDM
• Transmission capacity created through flows of earlier markets
(counter flows) will be utilized in the calculation of Available
Transmission Capacity (ATC) on the Trading Day for each of the
markets
TRANSMISSION CAPACITY ALLOCATION
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
Total traded Energy Bilaterally traded energy
SOME NUMBERS
1 27 10 23 84
508
1,059 1,023
2,129
-
500
1,000
1,500
2,000
2,500
0.00
2.00
4.00
6.00
8.00
10.00
SAPP achievements in the area of electricity trading are:
• Allowed variable costs reduction. The large volume of matched but not traded energy during some years suggests important further potential savings.
• Minimized the impact of load shedding as a result of trading
• Provides trading opportunities that incentivize investment in generation and transmission in the region, also taking advantage of the synergies between generation mix potentials in different countries.
Besides
• Governance documents revised to accommodate other players in the SAPP and to allow for the creation of a competitive market
• Developed its own trading platform for the competitive markets
• Developed a mechanism to handle energy imbalances
• Provides a learning curve for other regional electricity markets
KEY ACHIEVEMENTS OF SAPP
• Political support is a necessary condition
– Critical especially with sovereign countries like in the SAPP. Inter-governmental agreements gave positive support to the launching of the SAPP. But the extent to which this support still exists is unclear, at least in some of the countries. For instance, the delay by the isolated members in developing interconnections clearly represents a (lack of) political decision.
• Design simple and effective Power Pool Governance and Operational Rules
– The simple but effective legal and institutional framework, based on the organization and responsibilities allocated to SAPP, has been a success factor for trade development.
– SAPP progressively developed regulations that work for trading, settlement, wheeling tariffs, disputes resolution, etc.
• Attract new players and focus on infrastructure planning
– The dominance of one market player and the Incapacity to attract new investors and develop alternative energy sources lead to the capacity crisis of 2014-2016.
– The absence of an adequate integrated transmission system to evacuate the power and trade it regionally was another key factor that limited the development of the regional mix.
• Transmission Capacity remuneration is key
– Clear and consistent rules on how to allocate and compensate network owners are required. Regional transmission projects may not necessarily be required by the respective countries where the lines would transit, but are needed mainly for regional transactions
• A fairly developed grid interconnections allowed starting trading immediately to the decision to create SAPP
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KEY LESSONS
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CENTRAL AMERICA
CENTRAL AMERICA MARKET
Regional Resources
•Hydro
•Geothermal
•RES
•No oil-gas-coal reserves
Six countries
• Guatemala
• El Salvador
• Honduras
• Nicaragua
• Costa Rica
• Panamá
Guatemala is connected to
Mexico
SIEPAC Project, key for the market, built a
220kV transmission system connecting the
6 countries
ELECTRICITY SECTOR ORGANIZATIONS
Distribution Trading Generation Transmission
Costa Rica No No No No IPP No
El Salvador Yes Yes All Yes Thermal (50%) No
Guatemala Yes Yes All Yes Thermal (60%) No
Honduras Partial No No No IPP (35%) No
Nicaragua Yes Yes All Yes Thermal (75%) No
Panama Yes Yes All Yes All No
Current Status
PrivateWholesale
MarketReforms
.
One of the main successes of this regional market has been to allow countries with very
different organizations of their electricity sectors, to work together with minor
legal/regulatory harmonization
The six countries participate in the
regional market
EOR is the Regional System and Market Operator
that runs the 7th market
GU
Market
ES
Market
HO
SystemNI
Market
CR
System
PA
Market
THE CONCEPT OF THE SEVENTH MARKET
• The MER constitutes the seventh market, superimposed over the existent markets in the six countries.
• Agents (Market participants) of the six countries are allowed to participate of the MER
• Regional institutions
• CRIE (regulatory)
• EOR (SO&MA)
• Countries can preserve local regulations, with the changes necessary for compatibility with regional codes.
• Regional firm contracts, the basis for trading and expansion
• Spot market (DAM) for short term optimization and balancing
• Regional Wheeling tariffs, compatible with national transmission charges
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MAIN CHARACTERISTICS OF THE REGIONAL MARKET
• Regional grid (RTR): SIEPAC + existing connections between countries + national lines allocated to regional operation + regional expansions
• Expansion of the regional grid: planned and market based
• Nodal prices
• Firm and financial congestion rights allocated in auctions
• Market
• Bilateral contracts (firm contracts with firm rights have dispatch priority)
• Spot
• Day Ahead (non binding)
• Real time balance• Mutual support in emergencies
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MAIN CHARACTERISTICS OF THE REGIONAL MARKET
• National SO&MO dispatch national markets
• After national dispatches, MPs present bids to the MER,
• EOR clears the MER, and informs national SO&MO,
• National SO&MO adjust national dispatches to include regional
transactions
• National SO&MO takes responsibility to maintain the scheduled flows in
the interconnectors
• Deviations are settled by the EOR
2/12/2020 23
DAY AHEAD MARKET FUNCTIONING
• Political support is a necessary condition
• All the countries involved in the process of creation of the MER. Big
support (financial and technical) from the Interamerican Development
Bank)
• No need to modify internal regulations and organization, only
minor changes
• Design effective although not too simple. Power Pool Governance
and Operational Rules
• The effective institutional framework, based on the CRIE and EOR
has been a success factor for trade development.
• The implementation of the market rules was progressive, allowing MPs
and EOR to be aware of the advantages of an efficient design.
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KEY LESSONS
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EUROPEAN UNION
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THE EUROPEAN ELECTRICITY MARKET
Most of Europe Countries
interconnected and trading on
common rules
The EU is progressively
harmonizing its national and
regional electricity markets, to
form a single market that
benefits more than 500 million
people.
The absence of restrictions on
electricity trade between
European countries, except for
the availability of cross-border
capacity, allow the
development of the greatest
market in the world
• Electricity can be traded on different types of wholesale markets:
• In a power exchange or multilateral trading platform, market
participants submit generation and demand bids. The market is
cleared once per predefined time period and a single market price is
determined.
• In bilateral over-the-counter (OTC) trading, a generator and
consumer agree on a trade contract by directly interacting with each
other. OTC trading can take the market price published by the power
exchange as reference price.
• In organized over-the-counter (OTC) trading, market participants
submit generation and demand bids to a market platform which is
cleared continuously; one market player can bilaterally accept the bid
of another market player, resulting in different prices for each trade.
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ENERGY TRADING IN EUROPE
• Price Coupling of Regions (PCR) is the project of European Power
Exchanges to develop a single price coupling solution to calculate day-
ahead electricity prices across Europe respecting the capacity of the
relevant network elements on a day-ahead basis.
• A key component of PCR is the developing one common algorithm. The
common algorithm, called EUPHEMIA, calculates day-ahead
electricity prices across Europe, and allocates cross border transmission
capacity on a day-ahead basis.
• PCR is an important step towards a harmonized electricity market through
market coupling in Europe; seven European electricity exchanges
(APX-ENDEX, Belpex, EPEX SPOT, GME, Nord Pool Spot, OMIE and OTE)
developed the joint price coupling. The common goal of the power
exchanges is the best possible calculation of electricity prices and the
efficient utilization of cross-border allocations.
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PRICE COUPLING OF REGIONS
The integration of the EU electricity market also involves balancing energy and ancillary services
• Key aspects involve: common gate closure, common settlement period (15 min), marginal pricing rule, contracts for procurement of capacity should not pre-determine energy prices, use of established methodologies for the allocation of cross-zonal capacity for the exchange of balancing capacity and the sharing of reserves, common rules for re-dispatching and countertrading cost sharing, separate procurement of upward balancing capacity and downward balancing capacity
• Common platforms are being developed for the exchange of balancing and ancillary services between TSOs:
• The IGCC platform for imbalance netting
• The TERRE platform for the exchange of replacement reserve
• The MARI platform for the exchange of Manually activated reserves
• The PICASSO platform for the exchange of automatically activated reserves
• The common platform for the procurement and exchange of frequency containment reserves
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BALANCING MARKET AND ANCILLARY SERVICES
• Method: based on measured flows, demand and estimated losses. TSOs
that host transits are paid by TSOs that generate them. Compensation
based on agreed “cost values” for infrastructure (LRAIC) and losses
(same as national values)
• Rationale: fully non transactional method
• It is a compromise between different positions and approaches to cost
calculation
2/12/2020 30
WHEELING CHARGES (ITC)
COMPENSATION
FOR
LOSSES
COMPENSATION
FOR
INFRASTRUCTURE
CONTRIBUTIONS
BY PERIMETER
COUNTRIES
CONTRIBUTIONS
BY ITC TSOS
RL and Cp are calculated on a yearly basis
Ri = 100 Meuro, Cp = 0.6 EUR/MWh (in 2018)
CITC = RL + Ri - Cp
RL
Ri
CP
CITC
ITC – THE FINANCIAL BALANCE
• The market is divided into bidding zones and is based on the assumption that
trading opportunities within those zones are unlimited (i.e. no congestion).
Trade between bidding zones is limited by the level of cross-border capacity.
That creates constraints on how much trade is technically feasible.
• TSOs need to anticipate uncoordinated flows and take measures to keep the
power system secure, by limiting the potential for cross-border trade. TSOs
also have to reschedule the output from power generation plants when the
market demand cannot be supplied due to grid limitations. Uncertainty about
cross-border capacity calculations (ATC) as a result.
• This treatment of cross-zonal trade, versus trade within bidding zones, is now
of particular interest to European regulators and policymakers. The zonal
market design, implicitly prioritizes internal trade over cross-border trade.
Review on how cross-border capacity is calculated, setting the limit on trade
between zones, could change the way Europe’s entire zonal market is
organized.
2/12/2020 32
ENERGY TRADING IN EUROPE
ISSUES
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NORTH AMERICA POOLS
At the highest level, the
network covering 48 states is
comprised of three major
interconnections functioning
predominantly independently
of one another with limited
exchanges of power between
them.
A country wide regulator
(FERC) for interstates energy
trading.
34
THE POWER SECTOR IN THE US
• States form Power Pools Managed by ISO/RTO
• Each of the ISOs/RTOs operates organized energy markets, such as day-aheador real-time (balancing) markets.
• A number of the ISOs/RTOs also operate organized capacity markets.
• The design of each of those markets is undertaken by each particular ISO/RTO,following some general criteria established in the Standard Market Design,issued by FERC. The common feature is that each auction for an applicableproduct (energy, capacity or certain ancillary services) is designed to produce amarket clearing price that is paid to all sellers that clear in the auction.
• Concerning transmission, RTOs
– provide non-discriminatory access to transmission lines to sellers andpurchasers of electricity and eliminate rate “pancaking” (charging multipletransmission fees for one transaction)
– coordinate regional planning for new transmission lines.
(*) ‘ISO’ is used for coverage of one state while ‘RTO’ for a multi-state region
POWER SECTOR ORGANIZATION AND POWER POOLS
The U.S. market for electricity is
trifurcated:
1. More than half the country is
served by competitive markets
(run by ISOs/RTOs) covering
~60% of electricity traded in the
country
2. Almost half is served by state-
regulated, vertically integrated
utilities controlling generation
and transmission.
3. The rest, a much smaller portion,
consists of government-owned
and customer-owned utilities.
There is no single national
electricity wholesale market in
the US.
ISOs and RTOs
• The PJM Interconnection
operates a competitive
wholesale electricity market
and manages the reliability
of its transmission grid.
• PJM provides open access to
the transmission and
performs long-term planning.
In managing the grid, PJM
centrally dispatches
generation and
coordinates the movement
of wholesale electricity in all
or part of 13 states
• PJM’s markets include
energy (day-ahead and real-
time), capacity and ancillary
services.
EXAMPLE – PJM
MARKETS IN PJMEnergy market Ancillary Services market
◼ The Energy Market consists of Day-Ahead and Real-
Time markets:
◼ The Day-Ahead Market is a forward market in
which hourly Locational Marginal Prices (LMPs)
are calculated for the next operating day based
on generation offers, and demand bids.
◼ The Real-Time Market is a spot market in
which current LMPs are calculated at five-
minute intervals based on actual grid operating
conditions
◼ PJM operates two markets for ancillary services –
regulation and synchronized reserve:
◼ Regulation service is corresponding to
secondary regulation
◼ Synchronized reserve is corresponding to
tertiary regulation
(Forward) Capacity Market Financial Transmission Rights market
◼ The main elements of the capacity market are
procurement of capacity three years before it is
needed through a competitive auction to:
◼ Provide locational pricing for capacity to
reflect limitations on the transmission system
and to account for the differing need for
capacity in various areas of PJM
◼ Define a variable resource requirement to
help set the price for capacity
◼ PJM operates a market for financial transmission
rights (FTRs) to assist market participants in hedging
price risk when delivering energy on the grid
◼ The FTRs provide a hedging mechanism that gives all
market participants the ability to gain price certainty
when delivering energy across PJM
• The energy market consists of:
• Day-ahead Market
• develop day-ahead schedule using least-cost security constrained unit commitmentand security constrained economic dispatch programs that simultaneously optimizeenergy and reserves
• calculate hourly LMPs for next Operating Day using generation offers, demand bids,and bilateral transaction schedules
• Real-time Energy Market
• calculate 5 minute LMPs based on actual operating conditions as described by the PJMState Estimator
• actual financial settlement performed on hourly prices (hourly integrated LMP)
THE ENERGY MARKET
• The energy market (both Day Ahead and Real Time) performs security-constrained unit commitment based on generation offers, demand bids, and bilateral contract schedules submitted by participants
• Unit schedules to satisfy:
• Fixed demand bids
• Cleared price-sensitive demand bids
• Cleared decrement bids of transmission customers
• PJM Reserve objectives
• Goal is to minimize total production cost
• Start-up costs
• No-Load costs
• Hourly Production costs
CO-OPTIMIZATION OF ENERGY AND
ANCILLARY SERVICES
• PJM operates a market for financial transmission rights (FTRs) to assist marketparticipants in hedging price risk when delivering energy on the grid.
• FTRs are financial instruments that entitle the holder to a stream of revenues (orcharges) based on the hourly energy-price differences across a transmission path inthe Day-Ahead Market.
• The FTRs provide a hedging mechanism that gives all market participants the abilityto gain price certainty when delivering energy across PJM.
• Market participants can obtain FTRs in four ways:
• They can bid for them in PJM’s long-term auction, in which FTRs are availablefor periods from one to three years.
• They can bid for them in PJM’s annual auction, in which FTRs for the entiretransmission capability of the system are available.
• They can bid for them in the monthly auctions at which leftover FTRs are sold.
• They can buy them in the secondary market in a transaction with anothermarket participant.
FINANCIAL TRANSMISSION RIGHTS
(FTR) MARKET
2/12/2020 42
CENTRAL ASIA REGIONAL ELECTRICITY MARKET
CHIEF OF PARTY ARMEN ARZUMANYAN
WWW.PTFCAR.ORG/CAREM