Sunday, June 29, 2014

What the UK grid status data tells us about the renewable energy sources?

Thanks to the data available at the UK National Grid Status website, we are able to watch the evolution of the wind power generation in the United Kingdom from May 2009.

Over the last three years, the peak wind generation exceeded 20% of the total country electricity demand.

Even that this is lower than over 50% in Denmark, this number still looks impressive. However...

Saturday, June 21, 2014

A first look at the potential arbitrage opportunities in the electricity market

As previously observed, electricity markets can be strange at times.

Especially when there are two (or more) separate markets dealing with virtually the same article.

Usually such situation leads to arbitrage opportunities.

In case of electricity, we often have the separation of the Day Ahead Market (DAM) - when one declares amount of electricity he will provide or consume - and balancing market - when differences between DAM declarations are settled.

When you are a Renewable Energy Producer (RES), and forecasting your energy generation is not perfect, you face two possible scenarios:

  1. production excess - you have produced more than you declared (sold on the DAM)
  2. production deficit - you have produced less than you declared (sold on the DAM)
Let's focus on the later - production deficit.

Regulations differ, but usually when you are short (in deficit), you must buy the amount of the "missing" energy (forecasted amount declared/sold on the DAM minus the actual production). Unless you are able to do it on the Intraday Market (IDM), you must settled on the balancing market.

Normally the deficit prices are higher than the DAM prices, meaning that you pay for the errors in your production forecast.

For example, in Romania, the average difference between DAM and deficit prices was minus 98 RON / MWh (approx. minus 23 EUR / MWh) over the October 2013 - May 2014 period (some preliminary data used).

However, on rare occasions (<5% of the cases), deficit prices were lower than DAM prices.

Fig. Distribution of the differences between DAM and deficit prices in Romania, 2013-10 - 2014-05

Hence, selling as much energy as possible (for example your whole installed capacity) on the DAM, for the moments when DAM price is expected to be higher than deficit price would bring you a profit (on average 21 RON / MWh).

A "tiny" problem remains though. How to predict when DAM>deficit? :)

Fig. Differences between DAM and deficit prices by the hour

Fig. Average differences between DAM and deficit by months and hours
Note: all values negative, best -39 RON

Wednesday, June 11, 2014

Let the wind blow or forecasting the wind power

I have mentioned recently, that the production of renewable energy sources is difficult to predict. Let's examine some of the challenges.

The difference between production and forecast can fluctuate wildly, sometimes exceeding +/-50% of the installed wind farm capacity.

Chart: differences between production and P50 forecast
(P50 forecast is the average expected energy production)

The distributions of differences between production and forecast have high kurtosis, and both tails are pretty long. 

Chart: Distribution of differences between production and P50 forecast
(P50 forecast is the average expected energy production)

It seems, assumption of the normal distribution of the production, customarily used in wind power forecasting, may not always be correct.

Chart: Assumed normal distribution of (long term) power production
(P50 forecast is the average expected energy production)

It shouldn't surprise then that production often exceeds both conservative P50 and aggressive P90 forecast levels.

Chart: Production (gray bars) vs. P05-P90 forecast band (red and green dotted lines)

On the other hand, production significantly lower than forecast is also not welcome. Since forecasts are the basis of the declared planned production levels on the Day-Ahead Market (DAM), all deviations require costly balancing.

The forecast spread, or the width of the forecast (difference between P90 and P05), which should reflect the forecast probability does not always add any value.

Chart: Forecast spread vs. production

Also, it doesn't help that in addition to the weather-related production forecast, one needs to deal with planned availability of a plant. The planned availability is connected among others with scheduled maintenance, but not everything always goes according to the plan.

As a result, a plant operator needs to deal with additional random variable. It sometimes happens that the plant stops producing long before the planned availability goes to zero, and starts producing, when the planned availability still equals zero.

Chart: Production (black line) vs. planned availability (grey area)

Weather is a factor that affects both production forecast and availability. While wind may be strong, suggesting high production, temperature may lead to operational problems that may not be fully reflected in planned availability. As a result, one may experience noticeable periodic disparity between forecast and production.

Chart: Average monthly difference between production and P50 forecast for different farms

Even with operational information, less than one year of data is too little to decide whether we face here a seasonal effect which should be adjusted for in the next years, or one time event.

To get better alignment between forecast and production the following directions seems promising:
  • use energy storage
  • develop better weather forecasting models
  • include farm operational data it into the production forecast models
  • utilize prices, and price forecasts, where adequate
For more about wind forecasting, see:

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 :)