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Abstract

Driven by climate change concerns, Europe has taken significant initiatives toward the decarbonization of its energy system. The European Commission (EC) has set targets for 2030 to achieve at least 40% reduction in greenhouse gas emissions with respect to the 1990 baseline level and cover at least 32% of the total energy consumption in the European Union (EU) through renewable energy sources, predominantly wind and solar generation. However, these technologies are inherently characterized by high variability, limited predictability and controllability, and lack of inertia, significantly increasing the balancing requirements of the system with respect to historical levels. The flexibility burden is currently carried by flexible fossil-fueled conventional generators (mainly gas), which are required to produce significantly less energy (as low operating cost and CO<sub>2</sub>-free renewable and nuclear generation are prioritized in the merit order) and operate part loaded with frequent startup and shut-down cycles, with devastating effects on their cost efficiency.

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... How will electricity prices behave in systems with 100% renewable, zero marginal-cost energy sources? Very generally, under the current paradigm load serving entities procure electricity at the lowest cost to meet inflexible demand, thus zero (short-run) energy costs suggests a zero (short-run) price [1]. However, [2] has shown by including demand-side behavior in a capacity expansion model that dynamic electricity pricing is not zero but becomes increasingly important for economic efficiency in 100% renewable systems. ...
... All constraints are implicitly defined ∀t ∈ T . 5 q π gv (q) g k (q) (q (1) , π (0) ) (q (1) , π (1) ) (q (2) , π (1) ) (q (2) , π (2) ) dg k dq > dgv dq Fig. 2: The standard convergent cobweb model. 1) Optimization problem for the π-agent: The π-agent receives a set of requested quantities q = {q k } from each k ∈ Y (positive means k receives energy), with q k = {q k,t }, which may not be feasible. ...
... All constraints are implicitly defined ∀t ∈ T . 5 q π gv (q) g k (q) (q (1) , π (0) ) (q (1) , π (1) ) (q (2) , π (1) ) (q (2) , π (2) ) dg k dq > dgv dq Fig. 2: The standard convergent cobweb model. 1) Optimization problem for the π-agent: The π-agent receives a set of requested quantities q = {q k } from each k ∈ Y (positive means k receives energy), with q k = {q k,t }, which may not be feasible. ...
Preprint
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Efforts to efficiently promote the participation of distributed energy resources in community microgrids require new approaches to energy markets and transactions in power systems. In this paper, we contribute to the promising approach of peer-to-peer (P2P) energy trading. We first formalize a centralized welfare maximization model of an economic dispatch with perfect information based on the value of consumption with zero marginal-cost energy. We characterize the optimal solution and corresponding price to serve as a reference for P2P approaches and show that the profit-maximizing strategy for individuals with storage in response to an optimal price is not unique. Second, we develop a novel P2P algorithm for negotiating energy trades based on iterative price and quantity offers that yields physically feasible and at least weakly Pareto-optimal outcomes. We prove that the P2P algorithm converges to the centralized solution in the case of two agents negotiating for a single period, demonstrate convergence for the multi-agent, multi-period case through a large set of random simulations, and analyze the effects of storage penetration on the solution.
... In current markets, the effect of filling energy storage units that is shown in Figure 4 is not yet apparent, as the volume of electricity storage facilities is low. As a result, at times of high VRE generation, other generators are pushed out of the market and the wholesale price becomes low or even negative (Strbac et al., 2021). In a market with sufficient storage capacity and demand response, such low prices should not be common. ...
... In a future market with nearly 100% renewables, the demand for flexibility is expected to be higher, possibly causing an increase in the value and prices of ancillary services. Consequently, it is a priority to enable more technologies and aggregators to provide these services Strbac et al., 2021). Balancing markets are highly complex and undue restrictions to participation make them vulnerable to market power abuse (Poplavskaya, Lago, & De Vries, 2020). ...
... As VRE develops into a mainstay of the energy system, it needs to participate fully in ancillary services markets, both on the side of paying for its costs (e.g. imbalances) and on the side of being allowed to provide ancillary services (Strbac et al., 2021). ...
Experiment Findings
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... Notably, the high proliferation of RES production in the energy mix, combined with the recent EU directions for the decarbonization of the energy grids, has resulted in significant decommissioning of conventional fossil fuel-fired synchronous generators [4]. On top of this challenge, the more RES in the energy mix the higher the ancillary services requirements become due to the stochasticity of these resources. ...
... Thus, TP no longer implies a "zero-sum game" for the TSO. 4 Consider a final example: A producer is producing 5 MWh more than its market position. Suppose that the system is short by 25 MWh at the same time. ...
... Constraint (4) imposes that the DAM energy offer plus the upward FCR offer cannot exceed the aggregator's maximum capacity. Constraint second-stage decision representing the real production of the aggregator in scenario k, when controlling its power output between a maximum and a minimum limit. ...
Article
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With the advent of bulk volumes of renewable energy, RES aggregators have evolved into key market players of the energy industry. This paper presents a holistic approach to derive the optimal offering strategy of a price-taker RES aggregator in the day-ahead energy and ancillary services markets. The day-ahead, the ancillary services and the real-time balancing market functions are modeled in detail. Fundamental imbalance settlement mechanisms are examined, namely Single Pricing, Two Price settlement and Dual Pricing. Several sources of uncertainty are considered affecting the day-ahead market prices, the ancillary services prices, the imbalance prices and the actual production of the RES aggregator. To cope with these uncertainties, a stochastic risk-constrained optimization model is formulated for the aggregator's optimal bidding. A realistic application in the Greek power system allows for examining the motivations for strategic bidding and accurate forecasting in each imbalance pricing scheme. The interplay between the energy and the ancillary services offers is analyzed, to examine the RES aggregator's motivations to bid for ancillary services.
... Against this background, a future carbon-neutral society, but also reliable, and economically efficient will always depend on the capacity of consumers to follow and accept the sectoral electrification, providing the required flexibility that guarantees the security of supply of near 100% renewable penetration in power systems. Currently, the pricing mechanisms do not incentive the active participation of consumers through DR, but in the future, scarcity pricing can achieve significant values, incentivizing consumers to increase their flexibility, shifting their consumptions to periods with higher renewable penetration and/or lower prices [20,21]. ...
... Distributed generation, like solar PV, is expected to increase rapidly in the coming years, such as district heating, cooling and EVs penetration [8,[27][28][29]. CECs will play an important role in triggering all these electrification solutions, providing the required flexibility that can guarantee local carbon neutrality and energy sustainability at low prices, when comparing to nowadays [18,21]. The distribution system operator has a major role to play in facilitating the active participation of CECs in the society decarbonisation, accommodating new distributed generation and transitioning to a more flexible system where smart grid services, self-consumption, smart meters, the expansion of the EVs charging network, microgrid trades and peer-to-peer (P2P) markets will be required. ...
... These power plants may be compensated trough capacity mechanisms, increasing the power system costs, and the extra costs paid by consumers. Furthermore, wholesale price reduction can be an issue for a future non-discriminatory integration of VRE in EMs, and in the absence of feed-in tariffs or other incentives, insufficient changes in market designs (spot, balancing, and derivatives markets are essentially designed to conventional generation) or increases in CO2 prices, may lead to situations where VRE is not attractive for profit-seeking investors [20,21]. ...
Article
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Global warming contributes to the worldwide goal of a sustainable carbon-neutral society. Currently, hydroelectric, wind and solar power plants are the most competitive renewable technologies. They are limited to the primary resource availability, but while hydroelectric power plants (HPPs) can have storage capacity but have several geographical limitations, wind and solar power plants have variable renewable energy (VRE) with stochastic profiles, requiring a substantially higher investment when equipped with battery energy storage systems. One of the most affordable solutions to compensate the stochastic behaviour of VRE is the active participation of consumers with demand response capability. Therefore, the role of citizen energy communities (CECs) can be important towards a carbon-neutral society. This work presents the economic and environmental advantages of CECs, by aggregating consumers, prosumers and VRE at the distribution level, considering microgrid trades, but also establishing bilateral agreements with large-scale VRE and HPPs, and participating in electricity markets. Results from the case-study prove the advantages of CECs and self-consumption. Currently, CECs have potential to be carbon-neutral in relation to electricity consumption and reduce consumers’ costs with its variable term until 77%. In the future, electrification may allow CECs to be fully carbon-neutral, if they increase their flexibility portfolio.
... A starting point when analysing electricity market development is considering the individual characteristics of national regulation and market models, as noted in Gencer et al. (2020). A misalignment between established models and an adequate regulative framework hinders the evolution of markets (Gencer et al., 2020;Newbery et al., 2016), whereas failure to implement market reform could lead to distorted electricity price signals, limiting entry and exit of generation and other technologies, and disincentivizing innovation and demand-side participation (Muñoz et al., 2021;Strbac et al., 2021). The aim of this paper is to highlight the barriers and challenges in terms of implementation of the required legislation and to discuss how these barriers impede the process of overall electricity market integration in the SEE region. ...
... Nonetheless, EnC contracting parties are steadily advancing on the energy transition path (Energy Community Secretariat, 2020), meaning that experiences from worldwide leading electricity sectors will soon become relevant in SEE as well. There is growing evidence that energy-only electricity markets, which rely on marginal cost to send appropriate price signals, become dysfunctional with large scale integration of near-zero marginal cost RES generation (Nepal et al., 2018;Peng and Poudineh, 2019;Strbac et al., 2021). Wholesale electricity prices tend to become significantly depressed and often negative, while caps on electricity prices, typically imposed to limit market power or for political reasons (Peng and Poudineh, 2019), prevent price signals from accurately reflecting the extreme short-run cost of electricity during scarcity events. ...
... Wholesale electricity prices tend to become significantly depressed and often negative, while caps on electricity prices, typically imposed to limit market power or for political reasons (Peng and Poudineh, 2019), prevent price signals from accurately reflecting the extreme short-run cost of electricity during scarcity events. Consequently, thermal generators and large energy storage units are faced with the missing money problem, where fixed investment costs cannot be recovered through market participation, thus creating barriers to entry for new flexible technologies and compromising security of supply (Muñoz et al., 2021;Strbac et al., 2021). Reaching an adequate level of system flexibility is further hindered by dampened price volatility (Mays, 2021) and by the inability of the current market design to reflect the full value of flexibility resources (Strbac et al., 2021). ...
Article
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This paper provides a comprehensive review of the current state and planned developments in the electricity sectors across eight countries in South East Europe (SEE). It highlights positive examples as well as barriers to efficient market operation and regional market integration. Progress is evaluated in terms of the level of implementation of required legislation, and the efficacy of regulatory frameworks to facilitate market integration of renewables, emerging technologies, and active demand participation. The observations are based on exhaustive research into European Union (EU) and national legislation, as well as a questionnaire taken by industry experts from the corresponding Transmission System Operators offering first-hand insights into the electricity sectors in the region. The conducted investigation demonstrates that SEE countries are at different stages in market opening and compliance with EU energy policy but show unity in the aim of integrating into the EU internal electricity market. The harmonization of legislation and technical requirements is highlighted as a precondition to this goal as it would facilitate cross-border trade, increase efficiency through the shared use of resources, and incentivize infrastructure investments. The analyses show that there is a continuous progress in development of wholesale and balancing markets in the region, but problems with liquidity and incumbents impede the process. The progress towards renewable generation targets varies between the countries, however, the region is committed to electricity sector decarbonization and digitalization in the future. Finally, the paper presents potential directions for regional power sector developments in response to the challenges in electricity market design for a low-carbon future.
... Market forces now determine the price of energy and reduce net cost through increased competition. Also, end-users can freely choose their energy providers based on the best tariffs [1][2][3][4][5][6]. The participants in electricity markets (EMs) are heterogeneous, autonomous, and follow their own goals and negotiation strategies. ...
... Usually, production companies seek to adopt strategies that maximize profit, while consumers adopt strategies that minimize electricity costs. Most strategies help negotiating parties to reach mutually beneficial agreements [2,3,6]. ...
... However, EMs still present limitations, such as the exclusive participation of very large players [5,10]. Furthermore, there is a practically exclusive participation of producers in the ancillary services of power systems [4][5][6]. In order to overcome these limitations, end-users can form alliances. ...
Article
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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.
... In [106], the need for a radical change in the future electricity market design for a mainly renewables-based power system is highlighted. It illustrates how current, mainly energy market-focused, the market structure needs to evolve between 2020-2030 toward a more diverse market structure with a greater focus on ancillary/flexibility service and capacity markets. ...
... It illustrates how current, mainly energy market-focused, the market structure needs to evolve between 2020-2030 toward a more diverse market structure with a greater focus on ancillary/flexibility service and capacity markets. As stated in [106], the market design focus in the future will also shift from the operation timescale and the short-run marginal cost of the system toward the investment timescale and the related capital investments to support the future carbonneutral energy system. In addition, flexibility service types should be considered as a key factor in flexibility market design. ...
Article
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During the ongoing evolution of energy systems toward increasingly flexible, resilient, and digitalized distribution systems, many issues need to be developed. In general, a holistic multi-level systemic view is required on the future enabling technologies, control and management methods, operation and planning principles, regulation as well as market and business models. Increasing integration of intermittent renewable generation and electric vehicles, as well as industry electrification during the evolution, requires a huge amount of flexibility services at multiple time scales and from different voltage levels, resources, and sectors. Active use of distribution network-connected flexible energy resources for flexibility services provision through new marketplaces will also be needed. Therefore, increased collaboration between system operators in operation and planning of the future power system will also become essential during the evolution. In addition, use of integrated cyber-secure, resilient, cost-efficient, and advanced communication technologies and solutions will be of key importance. This paper describes a potential three-stage evolution path toward fully flexible, resilient, and digitalized electricity distribution networks. A special focus of this paper is the evolution and development of adaptive control and management methods as well as compatible collaborative market schemes that can enable the improved provision of flexibility services by distribution network-connected flexible energy resources for local (distribution system operator) and system-wide (transmission system operator) needs.
... The liberalization of energy markets brought full competition to the electricity supply industry (see, e.g., [1,2,3,4]). Market participants have now the possibility to trade electricity in several different types of markets, notably mediated and bilateral markets [5,6]. ...
... Table 5 shows the tariff proposed by the retailer agent R 1 to the five consumers of the portfolio. 4 This agent offers the cheapest tariff. In practical terms, the tariffs offered by all agents are interesting and competitive, since they are more attractive than the reference tariff proposed by the Regulator. ...
Article
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The liberalization of energy markets brought full competition to the electric power industry. In the wholesale sector, producers and retailers submit bids to day-ahead markets, where prices are uncertain, or alternatively, they sign bilateral contracts to hedge against pool price volatility. In the retail sector, retailers compete to sign bilateral contracts with end-use customers. Typically, such contracts are subject to a high-risk premium—that is, retailers request a high premium to consumers to cover their potential risk of trading energy in wholesale markets. Accordingly, consumers pay a price for energy typically higher than the wholesale market price. This article addresses the optimization of the portfolios of retailers, which are composed of end-use customers. To this end, it makes use of a risk-return optimization model based on the Markowitz theory. The article presents a simulation-based study conducted with the help of the MATREM system, involving 6 retailer agents, with different risk preferences, and 312 real-world consumers. The retailers select a pricing strategy and compute a tariff to offer to target consumers, optimize their portfolio of consumers using data from the Iberian market, sign bilateral contracts with consumers, and compute their target return during contract duration. The results support the conclusion that retail markets are more favourable to risk-seeking retailers, since substantial variations in return lead to small variations in risk. However, for a given target return, risk-averse retailers consider lower risk portfolios, meaning that they may obtain higher returns in both favourable and unfavourable situations.
... This aggregation is spatially limited to a control region within the power system. They only negotiate at spot markets [73]. ...
... The TSO agent will be enhanced by incorporating the new market designs, mechanisms, products, and rules developed in TradeRES project [73]. This agent will interact with the traditional and new players according to the rules defined for each agent. ...
... A market-clearing problem is used to compute generation schedules, ancillary service quantities, and LMPs for energy and ancillary services. The day-ahead schedule is only financially binding, and any deviation in the real-time market should be balanced by buying or selling in the realtime market [9]. ...
... The European Commission (EC) has set ambitious goals to decarbonize its energy system, targeting a 40% cut in greenhouse gas emissions for 2030 (from the 1990 baseline level) and at least a 32% share of RE [9]. ...
Article
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Purpose of Review A transactive energy (TE) future promises to allow a large number of prosumers to be profit-seeking market participants. One way to realize this future is through the local energy market (LEM), a consumer-centric market platform. We aim to compare possible structures and mechanisms of LEM and systematically investigate the technical challenges faced by LEM implementation. Recent Findings We carry out a detailed classification of LEM based on the market participants, physical layer, information and communication layer, and the market mechanism. We identify that research works on LEM are most interested in market participants’ strategic behaviors and innovative market design. Optimization, game theory, and agent-based simulation are the common methods to assist the analysis of LEM. Summary Our classification of LEM can clear some confusion from terminology; we identify that LEM’s coordination with existing energy infrastructure remains as future research directions and call for greater synergy from industry and governments to pave the way for the TE future.
... At the national, transmission level, the flexibility of DERs can be used to provide balancing services, the value of which is constantly increasing with the increasing volume of renewable generation in the system. As discussed in [6], the value of such flexibility services is constantly increasing as we are moving towards zero-carbon electricity systems. Provided that a suitable market framework for the remuneration of both distribution and transmission flexibility services is developed, and a suitable integration of this framework within the LEMs' design is achieved, these system benefits can be translated to new revenue streams for prosumers participating in LEMs. ...
... To accomplish the specification requested by some market players, probabilistic outputs will be provided with this approach. One of the objectives of this approach is to enable bidding strategically of market players by identifying the most adequate quantile (e.g., the quantile that maximizes the revenue in the day-ahead market) [97]. ...
Experiment Findings
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... By installing distributed energy resources (DER) such as solar photovoltaic (PV) generators, energy consumers are becoming important contributors to the reduction of greenhouse gas emissions in the energy sector [1]. Initially, early adopters of DER were driven by environmental, rather than economic reasons [2]. ...
Preprint
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In recent years, a growing number of prosumers are beginning to form coalitions to jointly invest in renewable energy projects and share energy among themselves, either through peer-to-peer markets or collective self-consumption. The aim of this paper is to evaluate the fairness of three methods that can be used to financially settle the energy sharing between prosumers engaged in collective self-consumption. Two of the methods, the Shapley value and MinVar, are well-known and widely used in the literature on energy sharing, while the third method, called Virtual Net-Billing, is presented as an alternative and is the focus of this paper. The fairness is evaluated using distributive justice theory and is assessed based on two indicators, Jain's index J and the fairness index F. For the purposes of this assessment, 100 hypothetical coalitions of different sizes are formed and the fairness indicators are calculated for each of the three energy sharing methods. It is found that the Virtual Net-Billing method yields the greatest payoff equality while having a meritocratic formulation, which should ensure minimized envy among coalition members. Along with this advantage, it is argued that, due to its compact and rule-based formulation, Virtual Net-Billing is well-suited for real-world use even in coalitions containing many prosumers.
... To accomplish the specification requested by some market players, probabilistic outputs will be provided with this approach. One of the objectives of this approach is to enable bidding strategically of market players by identifying the most adequate quantile (e.g., the quantile that maximizes the revenue in the day-ahead market) [97]. ...
Article
The present deliverable was developed as part of the research activities of the TradeRES project Task 4.4 - Enhancing the value of VRE on the electricity markets with advanced forecasting and ramping tools. This report presents the first version of deliverable 4.9, which consists on the description and implementation of the forecasting techniques aiming to identify and explore the time synergies of meteorological effects and electricity market designs in order to maximize the value of variable renewable energy systems and minimize market imbalances.
... While significant investment in near-to-zero emission and RESs have occurred over the last two decades, fossil fuels still account for over 63% of the global electricity production in 2018 [4]. As a matter of action, putting a price on CO2 and other GHG emissions can considerably alter the system dispatch over the short-term and generation investment decisions over the long-term [5]. ...
Conference Paper
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The most important challenges and risks in power sector nowadays are aging equipment and complying with requirements related to climate adaptation measures and regulation related to decarbonisation of the electricity and heat sector, including coal-phase out. Power production is one of the largest sources of global greenhouse gas (GHG) emissions. While significant investment in near-to-zero emission and renewable energy resources (RESs) have occurred over the last two decades, fossil fuels still account for over 60% of the global electricity production. As a matter of action, putting a price on CO2 and other GHG emissions can considerably alter the system dispatch over the short-term and generation investment decisions over the long-term. This situation is particularly exigent for developing countries that have limited resources to respond to those challenges. The previous challenges require a holistic approach capable to integrate all relevant influencing factors and constraints in order to support sound decision-making. Structured asset management (AM) approach may provide an adequate framework in this regard. Focus of this paper is on developing countries, where AM could provide an efficient framework to their power utilities in energy transition. The paper proposes and illustrates the application of the AM framework in the general context and challenges within the power sector in Bosnia and Herzegovina (BiH), as a developing country under the Energy Community Treaty. For long-term development scenario and financial projections of the case study considered, certain initial assumptions and setting the goals have been taken into account. They address the following constraints and influence factors: decarbonisation requirements and dynamics of coal phase-out, power demand forecast, impact of internal and regional electricity market, impact of carbon pricing and integration to the European Union Emissions Trading System (EU ETS), investment plan for current and future needs, electricity prices forecast and income from supply (retail) and trade, etc. The paper states that a comprehensive AM framework is beneficial in overcoming numerous identified challenges related to the energy transition and climate change adaptation for developing countries such as demonstrated in the case study of energy transition in BiH. The proposed approach may be adapted for specific contexts of other developing countries that are at early stages of their energy transition.
... Another issue is that these markets were designed for dispatchable players. So, players that deviate from their programmed schedules may pay high penalties [13][14][15]. To overcome these limitations, end-use consumers can form local citizen energy communities (CECs). ...
Article
Full-text available
The worldwide targets for carbon-neutral societies increased the penetration of distributed generation and storage. Smart cities now play a key role in achieving these targets by considering the alliances of their demand and supply assets as local citizen energy communities. These communities need to have enough weight to trade electricity in wholesale markets. Trading of electricity can be done in spot markets or by bilateral contracts involving customers and suppliers. This paper is devoted to bilateral contracting, which is modeled as a negotiation process involving an iterative exchange of offers and counter-offers. This article focuses on local citizen energy communities. Specifically, it presents team and single-agent negotiation models, where each member has its sets of strategies and tactics and also its decision model. Community agents are equipped with intra-team strategies and decision protocols. To evaluate the benefits of CECs, models of both coalition formation and management have been adapted. This paper also describes a case study on forward bilateral contracts, involving a retailer agent and three different types of citizen energy communities. The results demonstrate the benefits of CECs during the negotiation of private bilateral contracts of electricity. Furthermore, they also demonstrate that in the case of using a representative strategy, the selection of the mediator may be critical for achieving a good deal.
... As expected, the value of wind energy decreases with increasing installed generation capacity, as electricity prices further decrease. Indeed, in a future electricity market with only zero-marginal cost RES, other market mechanisms will be necessary for power producers to make profits, as there will be no more conventional generators to push prices up [49,50]. Compared to the first scenario, the changes in the third and fourth scenarios can be explained in relation to the example provided in Section 2. Indeed, in the third scenario additional transmission capacity is built in the North Sea, with the result that less congestions are created. ...
Preprint
Taking concrete steps towards a carbon-free society, the Danish Parliament has recently made an agreement on the establishment of the world's first two offshore energy hubs, one on the island of Bornholm and one on an artificial island in the North Sea. Being the two first-of-their-kind projects, several aspects related to the inclusion of these "energy islands" in the current market setup are still under discussion. To this end, this paper presents the first large-scale impact analysis of offshore hubs on the whole European power system and electricity market. The detailed models used for such analysis are publicly released with the paper. Our study shows that energy hubs in the North Sea have a positive impact, and overall increase economic welfare in EU. However, when considering the impact on each country, benefits are not shared equally. In order to help the development of such projects, we focus on the identification of market challenges and system needs arising from the hubs. From a market perspective, we show how exporting countries are negatively affected by the lower electricity prices and we point at potential strategic behaviors induced by the large amount of new transmission capacity installed in the North Sea. From a system point of view, we show how the large amount of wind energy stresses conventional generators, which are required to become more flexible, and national grids, which cannot always accommodate large imports from the hubs.
... [8] compares investment under these two mechanisms using system dynamics. [9] shows that the scarcity pricing mechanism is sufficient to cover the capacity investment cost, but [10] suggests that it is necessary to equip capacity payment mechanism to stimulate generation investment. [11] thinks the capacity mechanism distorts the price of the energy market. ...
Preprint
p>Reliability option (RO) is a generation capacity adequacy mechanism based on option concept in financial products. Recent studies on RO lack the consideration of the game between power producers. In this paper, the market equilibrium under RO mechanism is studied and a bilevel model is proposed. The upper-level models are maximizing the profits of power producers and the lower-level model is market clearing. Electricity sales income, option fee income and expenditure including fuel cost, expansion investment cost, refund cost and penalty are considered to evaluate each power producer's profit. The bilevel model is reformulated into the mathematical problem with equilibrium constraints (MPEC) and a series of linearization methods are used. The market equilibrium is obtained by diagonalization iteration for all MPECs. Then, some cases are set to analyze the capacity investment and the comprehensive purchasing cost of users in the equilibrium state. Finally, suggestions on the construction of RO mechanism are given.</p
Article
The liberalization of the electricity sector has conducted to the establishment of spot markets, derivative markets and private bilateral contracts to trade electricity, increasing the competition in the sector. Spot markets are composed of day-ahead, intraday and real-time markets, and their prices are highly volatile. Derivative markets are composed of physical and financial products to hedge against spot price volatility. Players can set the terms and conditions of private bilateral contracts but these have several risks that can be mitigated using a risk management process composed of three phases: risk assessment, characterization and hedging. This paper focuses on both risk attitude and risk-sharing, and how they can influence the negotiation of the price. It presents the standard and non-standard designs of a new type of contract, the Risk-Sharing Contract (RSC). Furthermore, it describes the trading process of these contracts and introduces a negotiation strategy for dealing with risk. It also presents case studies on bilateral contracting involving the negotiation of RSCs, where different demand and supply agents interact and trade according to the rules of an alternating offers protocol. Results from the case studies prove the benefit of RSCs to hedging against spot price volatility, benefiting risk-averse players by reducing the price risk and conducting mutually beneficial agreements. While the use of derivatives products can conduct losses/revenues between −15% and 3% concerning the spot market, by using non-standard RSCs those outputs vary between −1% and 3% with substantially less risk.
Article
The liberalization of the retail market of electricity increased the tariff choice of end-use consumers. Retailers compete in the retail market for customers, obtaining private portfolios of end-use consumers to manage. Retailers buy electricity at wholesale markets to feed their customers’ demands. They can use spot, derivatives, and bilateral markets to acquire the energy they need. The increasing levels of variable renewable energy sources trading at spot markets, increase the price volatility of these markets. To hedge against the volatility of spot prices, retailers may negotiate standard physical or financial bilateral contracts at derivatives markets. Alternatively, they can also negotiate private bilateral contracts. This article addresses the optimization of the retailers purchasing options, to increase their risk-return ratio from electricity markets, and offer more competitive tariffs to consumers. Considering the risk attitude of retailers, they use a multi-step purchasing model composed of a multi-level risk-return optimization and a decision support system. The article presents an agent-based study considering a retailer with a portfolio of 312 real-world consumers. Risk-seeking and risk-neutral retailers obtained a return up to 38%, less than 7% of the optimal return. However, risk-neutral retailers are subject to four times higher risk in their returns than risk-seeking retailers. The results support the conclusion that wholesale markets of electricity are more favourable to risk-seeking retailers, considering their real returns.
Article
Block orders are increasingly adopted in many electricity markets as they enable power producers to implicitly express their unit commitment characteristics and address price volatility risks. However, previous work on the optimal offering problem of a price-taking producer participating in such markets has only considered the simplest type of block orders (regular block orders-RBO) and has neglected relevant realistic market regulations. This paper addresses these simplifications by proposing a new optimal offering model which also considers the more complex profile block orders (PBO) and linked block orders (LBO). This model is generic in that it can treat the block orders time spans either as fixed parameters (following the modelling approach of previous work) or as endogenous decision variables, which constitutes a completely novel modeling approach. The presented case studies demonstrate that this novel approach yields a tremendously lower number of binary variables and more efficient computational performance, when PBO and LBO are considered. Furthermore, the case studies analyze the physical conditions under which the introduction of different types of block orders increases the examined producers profit.
Article
Taking concrete steps towards a carbon-free society, the Danish Parliament has recently approved the establishment of the world’s first two offshore energy hubs on Bornholm and on an artificial island in the North Sea. Being the two first-of-their-kind projects, several aspects related to the inclusion of these “energy islands” in the current market setup are still under discussion. To this end, this paper presents a first large-scale impact analysis of offshore hubs on the whole European power system and electricity market. Our study shows that energy hubs in the North Sea contribute to increase social welfare in Europe. However, when considering the impact on each country, benefits are not shared equally. To help the development of such projects, we focus on the identification of the challenges arising from the hubs. From a market perspective, we show how exporting countries are affected by the lower electricity prices and we point at heterogeneous consequences induced by new transmission capacity installed in the North Sea. From a system point of view, we show how the large amount of wind energy stresses conventional generators, which are required to become more flexible, and national grids, which cannot always accommodate large imports from the hubs.
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This chapter presents the key features of an agent-based simulation tool, called MATREM (for Multi-Agent TRading in Electricity Markets). The tool allows the user to conduct a wide range of simulations regarding the behavior and outcomes of electricity markets (EMs), including markets with large penetrations of renewable energy. In each simulation, different autonomous software agents are used to capture the heterogeneity of EMs, notably generating companies (GenCos), retailers (RetailCos), aggregators, consumers, market operators (MOs) and system operators (SOs). The agents are essentially computer systems capable of flexible, autonomous action and able to interact, when appropriate, with other agents to meet their design objectives. They are able to generate plans and execute actions according to a well-known practical reasoning model—the belief-desire-intention (BDI) model. MATREM supports two centralized markets (a day-ahead market and an intra-day market), a bilateral market for trading standardized future contracts (a futures market), and a marketplace for negotiating the terms and conditions of two types of tailored (or customized) long-term bilateral contracts: forward contracts and contracts for difference. The tool is currently being developed using both JADE—the JAVA Agent DEvelopment framework—and Jadex—the BDI reasoning engine that runs over JADE, enabling the development of BDI agents. A graphical interface allows the user to specify, monitor and steer all simulations. The human-computer interaction paradigm is based on a creative integration of direct manipulation interface techniques with intelligent assistant agents. The target platform for the system is a 32/64-bit computer running Microsoft Windows.
MATREM: An agent-based simulation tool for electricity markets
  • A Shakoor
A. Shakoor et al., "Roadmap for flexibility services to 2030," Report to the Committee on Climate Change, London, U.K., May 2017. F. Lopes, "MATREM: An agent-based simulation tool for electricity markets," in Electricity Markets With Increasing Levels of Renewable Generation: Structure, Operation, Agent-based Simulation, and Emerging Designs, Series: Studies in Systems, Decision, and Control, vol. 144, F. Lopes and H. Coelho, Eds. Cham, Switzerland: Springer-Verlag, 2018, pp. 189-225.
Roadmap for flexibility services to 2030
  • A Shakoor