Traders hail improved flow-based market coupling electricity data as good sign

Data for the flow-based market coupling parallel run has been virtually complete over the last three and a half months, which traders take as a sign that the new market coupling system will be able to cope with high German renewable generation, despite some previous concerns.

“Days missing have decreased dramatically. It looks like they can deal with high [German] renewable generation,” said a German power trader on Thursday.

Flow-based market coupling is the second phase of the central west Europe (CWE) project, and will improve market coupling by fine-tuning the calculation of cross-border capacity between the four coupled markets of Germany, France, Belgium and the Netherlands.

European cross-border auctions operator CASC has published data on the hourly prices produced by a simulation of flow-based market coupling every Thursday, the so-called parallel run, since the start of January 2013 ( see EDEM 18 February 2013 ). However, data has been unavailable for occasional days.

Explanations

Project partners have published explanations for days with missing data as part of the parallel run. These include technical problems with the prototype system, errors in the application of the methodology, and the need to conduct further training with TSOs to integrate new procedures.

However, some traders had suggested that missing days coincided with days of high German renewable energy generation, indicating that the new system was not well equipped to cope with this ( see EDEM 30 April 2013 ).

At the time, project partners conceded that high wind power generation feeding into the German grid put the flow-based process under pressure, but explained that but this was happening because of procedures and tools still in the process of being finalised. “Conclusions cannot be drawn regarding correlation between high wind generation and failures in the flow-based process,” they said.

However, the missing data problem has improved so that in November and December 2013 there were no missing days. There have been three missing days in the first three weeks of January 2014, but this is still an improvement compared to the 11 missing days in the data for March and the 13 missing days in the data for May. On average, from January to September last year, there were just over six missing days of data per month.

Convergence

The new flow-based system is expected to maximise the use of cross-border capacity so that safety margins can be lower. The CWE region is already coupled according to the available transmission capacity model under which grid operators specify capacity available on each border, but the flow-based model will free up more cross-border capacity as it becomes available, enabling greater price convergence.

Now that the system has shown it can cope with high German renewable generation, the system will contribute to greater convergence of prices on days when fundamentals such as high German wind power generation and cold temperatures would normally increase spreads between French and German spot prices, said traders.

“[With flow-based market coupling], the old-school problems go away,” said a trader. Under the existing system, when there is high German wind power production forecast for the following day, some of the available cross-border capacity is cut by the transmission system operators (TSOs) because that capacity may be needed to balance the system.

“With flow-based market coupling, they can still give the same cross-border capacity, which means there is a reduced divergence [of prices between markets]” said the trader.

“But it’s really not earth-shattering. We will see an adjustment [of prices], but not major moves,” said the trader, referring to the degree of price convergence that is expected with the new system.

Price impact

According to the parallel run data provided, the average spread between hourly prices in France and Germany under the flow-based system was €5.10/MWh throughout 2013. This compares to an average spread between hourly prices throughout the year between these two markets of €7.46/MWh under the existing available transmission capacity (ATC) model of market coupling.

Another trading source said that although the new system may improve efficiency of interconnector use, with little investment made over the last two decades in expanding interconnector capacity between France and Germany, it is hard to imagine there will be a major impact on price convergence from flow-based market coupling.

The new flow-based system is expected to go live this summer. Beatrice Mavroleon