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Locational-based Coupling of Electricity Markets: Benefits from Coordinating Unit Commitment and Balancing Markets

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  • van der Weijde, A.H.
  • Hobbs, B.F.

Abstract

We formulate a series of stochastic models for committing and dispatching electric generators subject to transmission limits. The models are used to estimate the benefits of electricity locational marginal pricing (LMP) that arise from better coordination of day-ahead commitment decisions and real-time balancing markets in adjacent power markets when there is significant uncertainty in demand and wind forecasts. The unit commitment models optimise schedules under either the full set of network constraints or a simplified net transfer capacity (NTC) constraint, considering the range of possible real-time wind and load scenarios. The NTC-constrained model represents the present approach for limiting day-ahead electricity trade in Europe. A subsequent redispatch model then creates feasible real-time schedules. Benefits of LMP arise from decreases in expected start-up and variable generation costs resulting from consistent consideration of the full set of network constraints both day-ahead and in real-time. Meanwhile, using LMP to coordinate adjacent balancing markets provides benefits because it allows intermarket flow schedules to be adjusted in real-time in response to changing conditions. These models are applied to a stylised four-node network, examining the effects of varying system characteristics on the magnitude of the locational-based unit commitment benefits and the benefits of intermarket balancing. Although previous www.eprg.group.cam.ac.uk EPRG WORKING PAPER studies have examined the benefits of LMP, these usually examine one specific system, often without a discussion of the sources of these benefits, and with simplifying assumptions about unit commitment. We conclude that both categories of benefits are situation dependent, such that small parameter changes can lead to large changes in expected benefits. Although both can amount to a significant percentage of operating costs, we find that the benefits of balancing market coordination are generally larger than the unit commitment benefits.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1044.

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Date of creation: 22 Sep 2010
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Handle: RePEc:cam:camdae:1044

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Keywords: Electricity prices; international electricity exchange; electricity market model; electricity transmission;

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  1. Ehrenmann, Andreas & Smeers, Yves, 2005. "Inefficiencies in European congestion management proposals," Utilities Policy, Elsevier, vol. 13(2), pages 135-152, June.
  2. Meeus, Leonardo & Purchala, Konrad & Belmans, Ronnie, 2005. "Development of the Internal Electricity Market in Europe," The Electricity Journal, Elsevier, vol. 18(6), pages 25-35, July.
  3. Vandezande, Leen & Meeus, Leonardo & Belmans, Ronnie & Saguan, Marcelo & Glachant, Jean-Michel, 2010. "Well-functioning balancing markets: A prerequisite for wind power integration," Energy Policy, Elsevier, vol. 38(7), pages 3146-3154, July.
  4. Brunekreeft, G. & Neuhoff, K. & Newbery, D., 2004. "Electricity transmission: an overview of the current debate," Cambridge Working Papers in Economics 0463, Faculty of Economics, University of Cambridge.
  5. Adriaan Weijde & Benjamin Hobbs, 2011. "Locational-based coupling of electricity markets: benefits from coordinating unit commitment and balancing markets," Journal of Regulatory Economics, Springer, vol. 39(3), pages 223-251, June.
  6. Chao, Hung-po & Peck, Stephen & Oren, Shmuel & Wilson, Robert, 2000. "Flow-Based Transmission Rights and Congestion Management," The Electricity Journal, Elsevier, vol. 13(8), pages 38-58, October.
  7. Richard Green, 2007. "Nodal pricing of electricity: how much does it cost to get it wrong?," Journal of Regulatory Economics, Springer, vol. 31(2), pages 125-149, April.
  8. Hsu, Michael, 1997. "An introduction to the pricing of electric power transmission," Utilities Policy, Elsevier, vol. 6(3), pages 257-270, September.
  9. Benjamin F. Hobbs & Fieke A.M. Rijkers & Maroeska G. Boots, 2005. "The More Cooperation, The More Competition? A Cournot Analysis of the Benefits of Electric Market Coupling," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 69-98.
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Cited by:
  1. van der Weijde, A.H. & Hobbs, B.F., 2010. "Locational-based Coupling of Electricity Markets: Benefits from Coordinating Unit Commitment and Balancing Markets," Cambridge Working Papers in Economics 1044, Faculty of Economics, University of Cambridge.
  2. Karsten Neuhoff & Loredana Sasso & Christian Winzer, 2013. "Policies for International Transmission Investment: Unlocking North Africa's Renewable Energy Portfolio - for Local Use and International Exchange ; Final Report," DIW Berlin: Politikberatung kompakt, DIW Berlin, German Institute for Economic Research, volume 74, number pbk74.
  3. Karsten Neuhoff & Rodney Boyd & Thilo Grau & Julian Barquin & Francisco Echavarren & Janusz Bialek & Chris Dent & Christian von Hirschhausen & Benjamin Hobbs & Friedrich Kunz & Hannes Weigt & Christia, 2011. "Renewable Electric Energy Integration: Quantifying the Value of Design of Markets for International Transmission Capacity," Discussion Papers of DIW Berlin 1166, DIW Berlin, German Institute for Economic Research.

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