The Spot Market enables the making of contracts containing production and consumption schedules between 36 and 12 hours in advance of dispatch. Promises
76
are made and equilibrium is scheduled or planned. But things do not always go according to plan, and events disrupting the contracted production or consumption schedule can easily occur in the time between the making of a contract on the Spot Market and the actual dispatch of electricity (e.g. Energinet.dk, 2013c). Hence the motto of the founders of homeostatic utility control: “The forecast is always wrong!” (Schweppe et al., 1987, p. V). Here the intermittency problem associated with volatile electricity production surfaces in the electricity market context. Considering that wind speed forecasts up to 36 hours in advance are quite uncertain (Danish Energy Agency & Danish Ministry of Taxation, 2009b), that they are the most uncertain at the most frequently occurring middle wind speeds (Ibid.), and that electricity production from a wind turbine varies exponentially with wind speed (e.g. Dong Energy, 2013) except at the very maximum and minimum wind speeds, the problem associated with an increase of wind power in an electricity market context becomes clear. It is a problem related to increasing the number of generation units where the operators have a hard time making and living up to the promises implied in their offers.
To handle deviations from the schedules agreed upon in the Spot Market, the supply and demand side can enter the intra-day market named Elbas. After the Spot Market closes, contracts for the scheduling of production and consumption in the same hours of the upcoming operating day can be negotiated via Elbas, which opens at 14:00 (Energinet.dk, 2013b). Asking and bidding is possible up until an hour before the operating hour, and buyers and sellers can operate in Elbas between 1 and 34 hours in advance of dispatch. The intra-day market thus enables market participants to minimize deviations from the production and consumption schedules set on the Spot Market. If for example an electricity supplier operating a wind turbine expects to be producing more or less than the original prognosis suggested, or an electricity buyer has over- or underestimated consumption by clients in the retail market, it is possible to buy or sell the difference in the after- market (e.g. Bregnbæk, 2012a). When entering Elbas, the price-making mechanism of the market changes (Møller, 2006). The uniform-pricing principle which lets the marginal power plant set a single price is changed in favor of the pay-as-bid principle (Energinet.dk, 2013b), also known as a discriminatory auction. The major change in the price-making mechanism is found in the way the market price for electricity in a specific hour is set by means of calculating an
77
average from the asking prices circulated by the producers ‘within merit’ who are then paid their asking price.
Despite the fact that Elbas enables market participants to trade their way towards the obligation made in the Spot Market, it is still not sufficient to ensure equilibrium between supply and demand at any given moment of dispatch. The final steps toward equilibrium are realized through the use of a series of different price-making arrangements collectively called the Balancing Market (Ibid.). In contrast to the Spot and intra-day markets, the balancing market is characterized by market actors dealing only with the TSO Energinet.dk. A significant part of the balancing market is made up of what is called the Regulating Power Market (Bang, Fock, & Togeby, 2012). The regulating power market is where the actual final trade with electricity for balancing supply and demand takes place. In the regulating power market the TSO buys upwards and downwards regulation services from select electricity consumers and producers. The market works by means of a double-sided blind auction and the uniform-pricing principle applied within the established pricing zones, as on the Spot Market (Energinet.dk, 2008a). The arrangement of the regulating power market has taken a number of different forms over the years, and has even simultaneously differed between pricing zones. These differences have recently been normalized, however (Parbo, 2012). In the regulating power market, the TSO obtains the required upwards or downwards regulation by buying the lacking amount of electricity or selling the excess. In doing so, Energinet.dk thus sorts and chooses the most attractive asking prices or bids for one of the two regulation services through a process of merit ordering. The markets for upwards and downwards regulation are in this way separate auctions, and are never open simultaneously for the same area. Here Energinet.dk chooses the best offers from producers to increase (upwards regulation) or decrease (downwards regulation) production, and the best offers from consumers to decrease (upwards regulation) or increase (downwards regulation) consumption (e.g. Danish Competition and Consumer Authority, 2004).7
78
Suppliers of regulation services are placed in groups on the basis of their reaction times as determined by the technology used in delivering the service. The groups have been introduced due to how even small differences in the time it takes to supply regulation services are worth something in the context of equilibrium maintenance. The fastest sources are in turn switched on and off automatically by the TSO itself. This close to dispatch, the market thus shifts from scheduling to direct remote control. Providers of these resources are paid a stand-by fee in addition to the price of the regulation service supplied. The price for the service is also settled via a uniform-price auction. In this way, an AGC-type system reacting to frequency rather than price is thus still used to maintain equilibrium in the moments closest to dispatch. In real time, very small differences between supply and demand are evened out by means of the inertia of the electricity system itself (e.g. Energinet.dk, 2014b). Following the final adjustments made by consumers and producers dealing with the TSO on the markets for regulation services, balance power is traded in the Balance Power Market. Balance power is a ‘fictive product’ in the sense that the Balance Power Market is a cash-settled ex-post market dealing with the balance responsible parties (BRPs). The BRPs are obligatory legal entities representing producers, consumers, and traders in order to make sure that they are held responsible for deviations from the contracts made in the aggregate Nord Pool Market (Energinet.dk, 2013a). The market for balance power is thus a device by which the TSO redistributes the expenses for buying regulating power to the buyers and sellers who did not buy or sell the amount agreed upon.8
With the introduction of homeostatic utility control in Denmark, the arrangement for the economic operation of the Danish electricity system stopped relying mainly on an AGC-type system for equilibrium maintenance. In its place, a series of electricity markets constituting Nord Pool was introduced. Equating supply and demand mainly became a matter of determining a price using ongoing asking prices and bids for specified amounts of electricity in specific timeslots. And in effect, the equilibrium of the electricity system was displaced into the equilibrium of the electricity market. As the new main form of control signal, price became a
8 For details in English on for example Balancing Market rules, contingency arrangements, and
the (implied) incentives of the ‘two price system’ in the Balance Power Market see (Energinet.dk, 2008b).
79
“…mirror and a compass…” (Lingjærde, 2013, p. 150) in Danish electricity system development. Price became a mirror in the sense of reflecting the ‘physics’ or state of the electricity system. When prices in a pricing zone move closer to the price floor or ceiling, the extent to which extreme measures as constituted by peripheral or exceptional resources are used for maintaining equilibrium in the electricity system is highlighted. As exemplified below, the role of price as a compass here involves using prices in finding out how to expand the electricity grid. By representing differences in the economy of the production and consumption profiles of various zones along with the congestion between them, price analysis and forecasting came to supply input for decision-making with respect to infrastructure investment. This function of the price of electricity is elaborated on throughout the demonstration of how the intermittency problem has been handled by means of increasing the liquidity of electricity produced by wind turbines.
In the above, it was shown how the Nord Pool market arrangement was conceived of and implemented as a control system for ensuring equilibrium in the electricity system. In doing so, the involvement of control systems engineering in electricity market design and maintenance was introduced. Further describing wind power integration through market construction here proceeds by emphasizing the role of economics in the context of engineering markets as control systems. In providing a measure describing the outcome or state of affairs to be realized through market performation as control systems engineering, economics was used to define an objective in the form of liquidity. And in the context of Nord Pool, “A liquid market is a market with a high volume and many participants” (Lingjærde, 2013, p. 151).
It is important to note that reaching the goal of increasing the liquidity of wholesale electricity in this instance did not have an impact on the way homeostatic utility control works. Attempting to change the degree of liquidity did not involve attempting to reconfigure the control system design. Rather, increasing the liquidity of wholesale electricity is a way of increasing the means by which homeostatic utility control can and does work. Highlighting this distinction is
80
significant as it points to how wind power integration as electricity market construction varies from case to case.9
To clarify the form in which economics is included in this instance of market performation for the liquidization of wholesale electricity, the notion of liquidity as presented in economics will be briefly introduced. Doing so will help to elaborate on the way wind power integration through market construction for increasing the ability to trade wholesale electricity generated by wind turbines in Nord Pool has been approached. Furthermore, it will serve as a transition into the discussion of how the material market infrastructure of Nord Pool was expanded in order to increase the amount of resources available for equilibrium maintenance by means of homeostatic utility control.