A Coupled FTR and Electricity Market Model to Test Strategic ...

PhD Research:Games Electricity Firms Play: Strategic Behavior in theContext of Liberalized Electricity SectorInternational Energy Workshop, June 20134

PhD Research:Three Pillars of The Research:Game TheoreticFormal ModelingRetailCompetitionTransmissionCongestionManagementInnovationin ElectricitySectorInternational Energy Workshop, June 20135

Challenges of Electricity TransmissionIn contrast to conventional durable goods;• Non-storability of electricity• Loop flows• Transmission congestionInternational Energy Workshop, June 20136

Transmission Congestion Management• There is a limit of electricity transmission over a copper line dueto the nature of the matter• Liberalization process has to deal with managing the flow TSO• Yet another question: Who congests the transmission lines?• What mechanism should TSO use to restrict congestion?International Energy Workshop, June 20137

Transmission Congestion ManagementInternational Energy Workshop, June 20138

Financial Transmission Rights• Financial Transmission Rights are introduced in several regionsincluding New York, PJM and New England in US and in NewZealand• FTRs have profound support as a hedging tool against congestioncharges for markets that is based on locational marginal pricing(LMP)• FTRs are utilized as a hedge against the congestion costs due todifferent LMP’s on the generation and consumption nodes.International Energy Workshop, June 20139

Financial Transmission RightsGenQLoad• Gen sells at p1• Load buys at p2• If p1

Locational Marginal Pricing (LMP)• Two Gens GA,GB withUpper generation:(200, 150)• Two Loads LB, LC (120,60)• CAB bottleneck lineInternational Energy Workshop, June 201311

Locational Marginal Pricing (LMP)Case 1: CAB = ∞• GA,GB = (180,0)• TAB = 100 MW• LMP = (10,10,10)International Energy Workshop, June 201312

Locational Marginal Pricing (LMP)Case 1: CAB = 80 MW• GA,GB = (150, 30)• TAB = 80 MWwhere fAB = 90,fAC = 60• LMP = (10, 20, 15)International Energy Workshop, June 201313

Coupled Electricity-FTR Model• To test the strategic hypotheses• features FTR market and the electricity market which arecoupled by the decisions of the electricity firms and theprice signals.• ”Can firms exercise market power by keeping theirgeneration information private”International Energy Workshop, June 201314

Coupled Electricity-FTR ModelInternational Energy Workshop, June 201315

Coupled Electricity-FTR ModelInternational Energy Workshop, June 201316

Electricity Market ModelInternational Energy Workshop, June 201317

Electricity Market ModelPower flow allocation problem (DCOPF)International Energy Workshop, June 201318

Electricity Market ModelPower Transfer Distribution FactorsInternational Energy Workshop, June 201319

Electricity Market ModelPower Transfer Distribution FactorsInternational Energy Workshop, June 201320

Electricity Market ModelLocational Marginal Prices (LMP)International Energy Workshop, June 201321

Electricity Market output to FTR MarketInternational Energy Workshop, June 201322

FTR Market ModelInternational Energy Workshop, June 201323

FTR Market Model:FTR allocation problemInternational Energy Workshop, June 201324

FTR Market Model:Calculation of FTR pricesInternational Energy Workshop, June 201325

FTR market output to electricitymarketInternational Energy Workshop, June 201326

Numerical Example• Electricity-FTR Market workbench• MATLAB, fmincon solver (Active-set algorithm)• First a validation example• Next hypothesis testing: Hidden Knowledge GameInternational Energy Workshop, June 201327

Numerical Example: Validation2500Gen 12500Gen 2Aggregated Cost of Generation [Euro]200015001000500Aggregated Cost of Generation [Euro]2000150010005000-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]0-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]International Energy Workshop, June 201328

Numerical Example: Validation2500Gen 1Aggregated Cost of Generation [Euro]20001500100050025000-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]Gen 2Aggregated Cost of Generation [Euro]2000150010005000-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]International Energy Workshop, June 201329

Numerical Example: ValidationResults A) No Bottleneck line (c3 = Inf)International Energy Workshop, June 201330

Numerical Example: ValidationResults B) Bottleneck line (c3 = 50 MW)International Energy Workshop, June 201331

Scenario: Hidden Knowledge Game• Strategic behavior based on hidden knowledge offuture generation capacity• Based on the validation example above• Technology Upgrade:Cost of Generation [Euro]2000Gen 11800Gen 21600140012001000800600400200Cost of Generation [Euro]200018001600140012001000800600400200Gen 1Gen 20-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]0-10 0 10 20 30 40 50 60 70 80Offered Generation Capacity in Merit Order [MW]International Energy Workshop, June 201332

Scenario: Hidden Knowledge Game*FTR sale profits are notconsidered in FTR profit sectionInternational Energy Workshop, June 201333

Scenario: Hidden Knowledge Game• LMPs drop except for N2• Reward Prices drop• Knowledgeable Gen_1benefits from hiddenknowledge• Electricity profit does notchange for Gen_1*FTR sale profits are notconsidered in FTR profitsectionInternational Energy Workshop, June 201334

Conclusions:• Electricity system is prone to strategic behavior with orwithout FTR.• FTRs increase the risk of gaming• FTRs should be reframed to serve its original intention (i.e.,hedging against volatility)• Diverse scenarios for simulating strategic behavior can bedrawn and tested with Electricity-FTR workbenchInternational Energy Workshop, June 201335

Thanks for your audiences.oruc_at_tudelft.nlInternational Energy Workshop, June 201336

Electricity as a Techno-Social SystemInternational Energy Workshop, June 201337

Liberalized Electricity SectorOld ParadigmNew ParadigmInternational Energy Workshop, June 201338

Policy Intensity in LiberalisationInternational Energy Workshop, June 201339

Strategic Behavior• “General term for actions taken by firms which are intended toinfluence the market environment in which they compete.Strategic behavior includes actions to influence rivals to actcooperatively so as to raise joint profits, as well asnoncooperative actions to raise the firm’s profits at the expenseof rivals” (OECD, 1993)• Regular strategic behavior (predatory pricing, collusion oradverse selection) can occur when there is market power orinformation asymmetry. (Heuvelhof et al., 2009)• Network based strategic behavior! (Heuvelhof et al., 2009)International Energy Workshop, June 201340