Sunday, June 8, 2014

Some curiosities of the European power markets


It should not be a surprise that power markets in Europe are amazingly complex.

There are both many different market segments, and rules governing the segments in various countries are often very different.

Among the key market segments we have:

  • day ahead market (DAM) - where planned electricity deliveries and prices for the next day are set
  • intraday market (IDM) - where both electricity generators and users try to adjust their positions
  • balancing market - where differences between plans (forecasts) and physical delivery/consumption are settled
  • futures and derivatives market - when expected mid- and long-term prices are established
The growth of the renewable energy sources (RES) such as wind and solar put this structure to a test and also added new market segment:
  • green energy rights market - where various green energy-related rights such as green certificates / certificates of origin / guarantees of origin are traded
The key problem with renewable energy sources is that they are intermittent (they work when the required "fuel" such as wind or sun is available) and the production is hard to forecast. This problem is exacerbated by the difficulties with energy storage.

This leads to many curious market behaviors like negative prices:

Fig. DAM prices on FELIX
Source: EEX

-2 EUR does not look too scary, but minimum theoretical prices on EEX are -500 EUR for DAM and... -10,000 EUR for IDM!

Fortunately, over the recent year the prices have "just" touched -250 EUR a couple of time:

Fig. Germany/Austria IDM 1yr
Source: EEX

I am going to examine the characteristics and behavior of the power exchanges and the impact of the renewable sources in the next posts, so stay tuned :)


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