The energy system towards 2030
With the the increasing volume of variable renewable generation, the demand for flexibility will grow over the coming decades in three main area: portfolio balancing by market parties, system balancing by the TSO and congestion management by TSO and DSOs. Of these, the volume of flexibility required for portfolio balancing will be significantly greater than the other two. Therefore, while system balancing and congestion management are important elements in a robust electricity system, an efficient market model has to be facilitate portfolio balancing by market parties first of all. Next, it is important that the growing pool of flexibility sources that enters this market, also becomes fully available to be leveraged to meet the demand for system balancing and congestion management.
Secondly, while flexible conventional generation is a major supplier of flexibility today, the growing demand for flexibility has to be met while CO2 emissions have to be reduced. Fortunately, there are new potential sources of flexibility that can be unlocked by the market to achieve this. For instance, these may come from demand response associated with electrification of industry, heating and transport, or from energy storage. Investment in these technologies as well as suitable commercial arrangements between consumers (large and small) and market parties are therefore essential. With the likely increase in variability of electricity prices in the wholesale markets, this flexibility becomes both a means for consumers to optimise their electricity bill and an essential building block for a cost-effective electricity system with a high % of variable renewable generation.
How pricing can create win-win in congestion management
Both transmission and distribution networks may be confronted with an increasing risk of congestion, as both renewable generation and new electrification of demand can develop rapidly. While TSOs and DSOs will continue to invest in additional infrastructure to enable the energy transition, there is also a need for tools to efficiently handle any congestions that may occur. In principle, bids by market parties on power exchanges can be leveraged for this, if the location of the corresponding resources is appropriate.
Stedin, Alliander, TenneT and ETPA are working together in the Congestion Spreads pilot project with the aim to leverage bids from the liquidity available at existing intra-day power exchanges, while coordinating these congestion management actions. For this purpose, TSO and DSOs are jointly developing an IT platform where they flag their respective congestion cases. This Congestion Spread platform will provide a means for cost effectively managing grid congestion, while at the same time coordinating the actions of TSO and DSO so that negative impacts are avoided on congestion in other parts of the grid.
This platform will seek for each such congestion the most cost-effective combination of suitable bids on offer from the power exchanges. For this, market parties are invited on a voluntary basis to add location information to their bids at the power exchange. The resulting transaction always comprises two matching bids from market parties that have not cleared in the regular market due to diverging prices. The TSO or DSO facilitates this transaction between market parties by only paying for the price difference (“spread”) without adopting an energy position in the market itself.