Coordinating Cross-Country Congestion Management: Evidence from Central Europe.

AuthorKunz, Friedrich
PositionReport
  1. INTRODUCTION

    European electricity systems experience a fundamental change toward a low carbon infrastructure. By 2014, the variable renewables wind and solar accounted for 11% of electricity generation in the EU 28, compared to 2% in 2005 (Eurostat, 2016). In the future, the renewables share is supposed to rise further in order to achieve the EU's ambitious climate goals (EC, 2011). At the same time, the electricity transmission system evolved when large-scale generation and national self-sufficiency was still the norm. The result, for instance for Germany, is a high number of hours with insufficient line capacities in the high voltage grid and increasing costs for congestion management (BNetzA and BKartA, 2013, 2014, 2015). In the long run, the transmission system can be recast to meet the new requirements. In the short run, network congestion must be relieved by counter-trading or redispatch measures. In both cases, the responsible entity, in most cases the Transmission System Operator (TSO), arranges an increase in generation at one end of the congested grid area, compensated by a decrease at the other end. The costs of these deviations from the spot market dispatch are socialized through network tariffs.

    Physical flows in the electricity network cannot be directed, but spread according to Kirchhoff's laws. The resulting flows are, as such, not bound by national borders, but may put pressure on the operation of adjacent electricity systems. In Germany, for example, wind generation and lignite plants are concentrated in the north-eastern regions, whereas load centers are in the south and west. A share of the resulting electricity flows, so-called loop flows, is also transported through neighboring countries, for instance Poland and the Czech Republic, to re-enter Germany in Bavaria (BNetzA and BKartA, 2015). See Figure 1 for a stylized representation of our study region. Such spillovers on adjacent transmission systems may pose new challenges for their operation. These inter-dependencies highlight the relevance of international cooperation and call for coordinated measures of congestion management. In principle, the delineation of bidding zones, in which the network topology is economically not taken into account, can internalize congestion issues, (1) with the limiting case of nodal pricing. Irrespective of market areas, however, coordination issues between countries or zones remain to be resolved.

    Against this background, this paper analyzes benefits from coordinating cross-country congestion management. It develops a two-stage model of the electricity system in our study region, comprising Austria (AT), the Czech Republic (CZ), Germany (DE), Poland (PL), and Slovakia (SK). In the first stage, the deterministic version of the short-run unit commitment and dispatch model stELMOD (Abrell and Kunz, 2015) creates a market dispatch and determines the resulting physical electricity flows. In the second stage, extending the work by Kunz and Zerrahn (2015), we implement different cases of coordination between national TSOs, and isolate the benefits of closer cooperation. In this respect, we vary the scope of national responsibilities, the balancing area, and the implicit auction mechanism for cross-border capacities. Within this framework, we can isolate different benefits from coordination.

    New guidelines for coordination are, in fact, on the rise: the European Commission (EC) envisages a European Energy Union to enhance economic efficiency, sustainability, and security of supply. A vital part is the deeper integration of electricity markets through greater interconnectivity and closer cooperation in planning and operation of grids (EC, 2015a). Already within the Third Energy Package in 2009, so-called Network Codes were proposed, in order to harmonize cross-border trade and operation of adjacent electricity systems (EC, 2009). Specifically, the Network Code on Capacity Allocation and Congestion Management (CACM), enacted in 2015, requires TSOs to elaborate a common set of practices for alleviating congestion of cross-border relevance and coordinate on measures taken (EC, 2015b). Particularly, TSOs are urged to

    "abstain from unilateral or uncoordinated redispatching and countertrading measures of cross-border relevance. Each TSO shall coordinate the use of redispatehing and countertrading resources taking into account their impact on operational security and economic efficiency." (EC, 2015b, p. LI97/53) Concerning the economic treatment of cross-border coordination, the literature identified cost savings from a transition to a full-fledged nodal pricing system, incorporating all network constraints in the market clearing process (Kunz, 2013; Neuhoff et al., 2013). With a particular focus on cross-border congestion management and zonal pricing, Ehrenmann and Smeers (2005) analyze inefficiencies of different cross-border congestion management proposals under varying zonal configurations. The delineation of bidding zones and the difficulties with specifying a consistent zonal configuration is elaborated in Bjorndal and Jornsten (2001). Regarding coordination issues in congestion management, Bjorndal and Jornsten (2007) analyze the Nordic power market and point out that a stronger coordination of congestion management methods provides benefits. Chaves-Avila et al. (2014) analyze that increased coordination, taking account of cross-zonal balancing issues in Germany, can reduce flawed incentives toward undue arbitrage behavior. More generally, Brunekreeft (2015) discusses efficiency gains from less fragmentation along the electricity value chain in Europe.

    From a methodological point of view, the coordination of congestion management is analyzed by Oggioni et al. (2012). The authors develop a Generalized Nash Equilibrium (GNE) model to disentangle the responsibility of relieving line overflows between different players. Applications in Oggioni and Smeers (2012) and Oggioni and Smeers (2013) put forward that a higher degree of coordination can increase redispatch efficiency. Kunz and Zerrahn (2015) further elaborate on welfare gains from coordinating congestion management. They show that shared responsibility between German TSOs has the potential to substantially reduce costs by access to cheaper units.

    While the bulk of the literature either focuses on intra-national congestion management, or addresses international issues from the perspective of integrating network constraints into market clearing, there is little academic evidence on cross-border coordination of congestion management. This paper fills that gap. We provide an in-depth analysis detailing cases of coordination, and highlighting the benefits of different instances of increased cooperation. The central result is in line with intuition: more coordination enhances efficiency. In this respect, particularly the sharing of information about the network and dispatch status between national TSOs can considerably lower redispatch volumes. Moreover, liquid intra-day markets, enabling cross-border counter-trading, and multilateral redispatch actions (MRAs), implemented in a flow-based congestion management setting, can create further benefits. At the same time, redistributional effects between countries do exist and can be large. While results provide quantitative evidence for the study area, qualitative insights apply to other regions. Particularly, we picked our study region for two reasons: first, its electricity markets are already closely connected and further integration is envisaged. Second, the issue of loop flows from northern Germany to Bavaria and Austria, putting pressure on the Polish and Czech systems, is subject to controversial debate. (2) Therefore, it provides an interesting and politically relevant application.

    The remainder of this paper is structured as follows. Section 2 presents the model formulation and describes the cases of coordination as well as the underlying data. Section 3 reports on the results and discusses their significance. Section 4 concludes and outlines avenues for future research.

  2. MODEL FORMULATION

    The general structure of our numerical model resembles the current European market clearing process, consisting of a day-ahead market with uniform pricing and a subsequent curative congestion management phase. The day-ahead or spot market accounts for transmission limitations only on international cross-border trade. (3) Internal physical network restrictions are considered outside the spot market in the congestion management approach by the responsible TSO (Kunz, 2013).

    To this end, we employ two distinct models, which are solved independently for an entire year: the spot market is modeled as a deterministic cost minimization problem, where cross-border transmission lines are represented by a transportation model. The model accounts for both commitment and dispatch of individual generation units and is optimized for an entire year using a rolling planning approach. Key results are the schedules of generation units and international exchanges. The subsequent congestion management model takes these results as input data and carries out cost-minimal redispatch, reflecting different cases of international coordination. Thus, the capability of generation units to provide redispatch capacity is restricted by the spot market unit commitment. Importantly, both stages of the model are not connected by any kind of feed-back mechanism. (4) Moreover, the model setting is deterministic and congestion management is solely used to alleviate network overloadings. In the following, we reduce our model description to the most relevant aspects. A detailed account of the spot market model can be found in Abrell and Kunz (2015). (5)

    2.1 The Spot Market Model

    The spot market model minimizes total system cost (1), given by the sum of marginal generation costs [mc.sub.p] times the generated quantity [G.sub.p,t] and startup costs...

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