Price of electricity in Spain. Comparison with Europe. Spanish Electricity Market model.

1. PRICE OF ELECTRICITY IN SPAIN
COMPARISON WITH EUROPE
1

2. § Liberalization of the Spanish electrical system
Regulated monopoly (un0l 1998)
• One or several agencies, under
the control of the government,
perform all the ac7vi7es for
produc7on, distribu7on and
transport the electrical energy.
• Single rate regulated.
Liberalized market (since 1998)
• Separa7on of ac7vi7es, between natural
monopolies and ac7vi7es in
competence.
• Freedom to choose supplier according to
price.
• Improve the efficiency, competences,
and security of the system.
• Decrease the cost of the electricity.
• Safeguard the interest of consumers
ensuring the transparency of the
transac7ons.
2
Price of the electricity in Spain
Comparison with EuropeINTRODUCTION

3. Natural monopoly
• Transport, the networks
between 400 kV and 220 kV,
also includes interna7onal
networks
• Distribu7on, the networks with
lower than 132 kV connec7ng
the transport network with the
consumers.
Ac0vi0es in competence
• Genera7on, regarding all the
electrical produc7on.
• Commercializa7on, sales of
energy to final consumers/
clients.
§ Agents and activities
3
Price of the electricity in Spain
Comparison with EuropeINTRODUCTION

4. • Economic Coordina7on: This ac7vity is performed by the Market
Operator (OMIE) that receives bids for the sales of energy, sets the
price for the energy distributed . Further, due to important exchange
of energy between Spain and Portugal, exist a market operator
controlling both systems (OMEL).
• Technical Coordina7on: This ac7vity is performed by the System
Operator (REE) that verify the program of the market operator and
perform necessary correc7ons. At last, perform the monitoring of
the electrical system in real 7me.
Natural monopoly
4
Price of the electricity in Spain
Comparison with EuropeINTRODUCTION

5. • The electrical demand is
manifested by a group of
consumers of different size and
with different use of the
electricity.
• Although the use of the
electricity depends of the
decisions of the consumers, it
has a regular and predictable
behavior.
• As the electricity is difficult and
expensive to store, it must be
produced as it is consumed.
Price of the electricity in Spain
Comparison with EuropeINTRODUCTION
§ Characteristics of the electrical demand
5

6. • The Spanish electrical report system
produced in 2016 by REE, indicates
the demand coverage was in the
following order:
• The prices of energy produced by
different technologies, is shown
from the cheaper to the most
expensive : renewable, nuclear, coal
and combined cycle.
• Cheaper produc7on of energy,
many 7mes, needs expensive
technologies for the regula7on of
the system, and also not always the
renewables are available.
§ Electrical generation in Spain
6
Price of the electricity in Spain
Comparison with EuropeINTRODUCTION

7. SPANISH
WHOLESALE ELECTRICITY MARKET
7

8. • Centralized Training Pool market model
• Decentralized Training Bilateral contracts
Price of the electricity in Spain
Comparison with EuropeWHOLESALE ELECTRICITY MARKET
§ Market reference models
• BILATERAL CONTRACTS:
• POOL MARKET:
In the centralized market the pool is
the unique buyer for the seller and the
unique seller for consumers.
In the bilateral contract model,
producers and consumers define
bilaterally transac7ons independently
and privately
8

9. Price of the electricity in Spain
Comparison with EuropeWHOLESALE ELECTRICITY MARKET
§ Market reference models

10. POOL
MARKET
MODEL
10

11. • Electricity is traded using a standard uniform auc7on model, working in a symmetric
manner:
• All the en77es able to sell an amount of power (not linked in to bilateral contract)
submit their produc7on bids and the corresponding market prices by the hours
(delivering 7me.) OFFER BIDS
• Buyers, who are electricity consumers and electricity distribu7on companies, submit
bids for an amount of needed electricity with the corresponding price for each hour.
DEMAND BIDS
Price of the electricity in Spain
Comparison with Europe
§ How does it work?
POOL MARKET MODEL
11
• Bids classifica7ons:
Simple bids
• Offer Bids:
Complex bids
• Demand Bids

12. Price of the electricity in Spain
Comparison with Europe
§ Aggregate curves
POOL MARKET MODEL
12
• Once the demand and the offer bids are presented, the market operator assembles
the bids to create the aggregate curves.
• The aggregate curves are created by using a Merit order method:
The aggregate demand curve is
organised in terms of energy-price,
from the most expensive to the
cheapest.
The aggregate offer curve is
organised in terms of energy price,
from the cheapest to the most
expensive.

13. Price of the electricity in Spain
Comparison with Europe
§ Aggregate curves -Matching method
POOL MARKET MODEL
13
• Overlapping the two curves created the result will be the mee7ng point.
• The me7ng point establishes the quan7ty of energy to be exchanged (EQ) and the price of
transac7on (EP):
All the selling bids with a price less than the marginal price are accepted, the others
are refused.
All the buyers offers with a price grater than the marginal price are accepted, the
others refuse.

14. Price of the electricity in Spain
Comparison with Europe
§ Aggregate curves - Matching method
POOL MARKET
14
• All the transac7ons will be executed according to the MEETING POINT:
Each buyer will pay the purchase amount of energy at the price of the
mee7ng point (EP).
Each producer will receive an amount corresponding to the price of the
mee7ng point (EP).

15. 1. Un7l 12 pm the market
operator (OMIE) receives bids
of sale and purchase, by
producers and traders, for all
the hours of the next day. The
dates of the table are for a
hour H of the day D.
Price (R/
MWh)
Supply
(MWh)
Generator
Company
Price (R/
MWh)
Demand
(MWh)
Traders
Company
12 200 Red 25 200 Orange
13 100 Blue 23 100 Yellow
15 50 Red 22 150 Purple
16 150 Green 13 50 Yellow
17 50 Green 11 50 Purple
18 50 Blue 10 50 Orange
20 50 Red
§ Example
15
Price of the electricity in Spain
Comparison with EuropePOOL

16. 2. The intersec7on of the
demand and supply
curves, set the marginal
price of the system and
the energy exchanged. In
this case, 16 R/MWh and
450 MWh. Supplied
energy from all producers
will sell at a price lower
or equal to the marginal
price, at the same 7me
the energy received by the
buyers is set at a price
greater or equal than the
marginal price.
§ Example
Price of the electricity in Spain
Comparison with EuropePOOL
16

17. TIMING SCHEDULE
OF THE MARKET
17

18. Ø The process starts one day before day (D-1), and lasts un7l the day (D)
Once the daily programming horizon is established, different processes from the marke
performed during the previous day (D-1) and the day (D) for which the demand has t
covered. Figure 4.4 illustrates all the steps of this procedure, so that generation and dem
curves are optimally adjusted [OME07].
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE
18
§ Time line structure

19. Ø Two operator actors involved: - Market Operator (OMEL)
- System Operator (REE)
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE
§ Operators
19

20. Ø Most of the power transac7ons, around 80% of the final power
Ø Each day is divided into 24 hourly periods.
Ø For each of 24 hourly periods, prices will be determined by the matching method
Ø DAILY MARKET
Ø Before 11:00 a.m. buyer’s and seller’s bids are offered
- Simple matching method :
- Complex matching method
- Simple bids
- Complex bids
18 Chapter 4. Empirical Model
the point where both curves meet (see Figure 4.5). Then, as a result of what is called market-
clearing algorithm (more details in subsection 4.3), the market price and a batch of accepted
production and consumption bids are set every hour. The market price is the price of the last
unit of the last bid whose acceptance has been required in order to meet the demand that has
been matched (the unit with the highest price). All supply bids offering prices lower than the
established market price and all demand bids offering prices higher than the market price will
be accepted.
Figure 4.5: Day-ahead market matching procedure for one hourly period. Own elaboration. Source:
OMEL
This mechanism is repeated every hour and it affects the daily programming schedule corre-
sponding to the day after the deadline date for the reception of bids for the session, and com-
prising twenty-four consecutive programming hours (twenty-three or twenty-five periods on
days on which the clocks are changed).
Complex matching method
Once the simple matching method has been applied, the market operator executes the simple
conditioned matching, finding a solution which complies with the conditions derived from the
complex bids, except the minimum income condition (it satisfies the conditions of indivisible
bids, the restrictions derived from the load gradient and the conditions of planned stoppage).
Afterwards, the minimum income restriction is added in an iterative procedure which performs
several simple conditioned matchings. The process works as follows: all sale bids correspond-
ing to production units that do not comply with the minimum income condition are successively
eliminated until all the sales bids corresponding to the production units considered in the so-
lution satisfy the condition. This process is called complex matching and marginal prices are
PBC ( “Programa Básico de Casación” )
provisional solu7on, which represent the day-ahead market price .
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE
§ Day D-1 Daily Market
20

21. Once the daily programming horizon is established, different processes from the market
performed during the previous day (D-1) and the day (D) for which the demand has to
covered. Figure 4.4 illustrates all the steps of this procedure, so that generation and dema
curves are optimally adjusted [OME07].
Figure 4.4: Price structure of the Spanish electricity market. Own elaboration. Source: OMEL
§ Day D-1
21
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

22. 4.1. Market rules 17
the congestion will have a higher clearing price, whereas the area upstream of the congestion
will have a lower pool price.
Market splitting is the congestion management method for day-ahead capacity allocation used
between Portugal and Spain. When congestion happens, energies from both zones of MIBEL are
integrated through the market splitting procedure and instead of having one single equilibrium
price (MIBEL) there are two separate prices (one for Spain and one for Portugal).
4.1.5 Price structure
Once the daily programming horizon is established, different processes from the market are
performed during the previous day (D-1) and the day (D) for which the demand has to be
covered. Figure 4.4 illustrates all the steps of this procedure, so that generation and demand
curves are optimally adjusted [OME07].
Figure 4.4: Price structure of the Spanish electricity market. Own elaboration. Source: OMEL
§ Bilateral contracts
Once the simple and complex matching procedures have concluded, the market operator adds
the na0onal bilateral contracts in order to find the PBF
PBF: - represents the hourly produc7on and demand schedule on the network
- determinates the highest quan7ty of power produc7on required to cover
the electricity demand.
PBF ( “Programa Básico de Funcionamiento” )
§ Day D-1
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

23. will have a lower pool price.
Market splitting is the congestion management method for day-ahead capacity allocation used
between Portugal and Spain. When congestion happens, energies from both zones of MIBEL are
integrated through the market splitting procedure and instead of having one single equilibrium
price (MIBEL) there are two separate prices (one for Spain and one for Portugal).
4.1.5 Price structure
Once the daily programming horizon is established, different processes from the market are
performed during the previous day (D-1) and the day (D) for which the demand has to be
covered. Figure 4.4 illustrates all the steps of this procedure, so that generation and demand
curves are optimally adjusted [OME07].
§ Technical restric0ons
Ø Last process performed to determine the price of the DAILY MARKET
Ø To verify the energy supply is technically feasible, because PBF is based on an unlimited
capacity in interna7onal interconnec7ons.
Ø Solu7on procedure: the system operator agrees the withdrawal of blocks of sale or
purchase bids affected by technical constraints
Then it’s obtained: PDVP (“Programa Diario Viable Provisional”)
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE
§ Day D-1
23

24. Intraday market:
Ø Adjustment market
Ø Last resort resellers
Ø Organized in 6 sessions during the days D-1 and D
Ø The amount of energy managed is much lower than in the daily market.
Ø The matching method is the same as in the daily market
4.1.5 Price structure
Once the daily programming horizon is established, different processes from the market are
performed during the previous day (D-1) and the day (D) for which the demand has to be
covered. Figure 4.4 illustrates all the steps of this procedure, so that generation and demand
curves are optimally adjusted [OME07].
Modelos de subastas. Mercado mayorista español 41
Modelos de subastas. Mercado mayorista español 42
El mercado español
Mercado intradiario
• Sesiones del mercado intradiario:
9 h13 h17 h20 h24 h28 hHorizonte
14:2010:2006:2003:2023:2019:35Publicación PHF
12:4508:4504:4501:4521:4517:45Hora Cierre
12:0008:0004:0001:0021:0016:00Hora Apertura
6ª
sesión
5ª
sesión
4ª
sesión
3ª
sesión
2ª
sesión
1ª
sesión
§ Day D Intraday Market
24
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

25. § Day D - Intraday Market
25
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

26. Ø Technical restric0ons: another revision of technical constraints should be done on order to
guarantee supply quality.
There are a few last steps to ensure that energy is supplied under condi7ons of :
and demands are balanced at all 7mes.
curves are optimally adjusted [OME07].
Figure 4.4: Price structure of the Spanish electricity market. Own elaboration. Source: OMEL
- quality
- reliability
- security
§ Day D
26
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

27. Ø The system operator control in real 7me the network using:
• Ancillary services
• Devia0on management
structure
programming horizon is established, different processes from the market are
ng the previous day (D-1) and the day (D) for which the demand has to be
4.4 illustrates all the steps of this procedure, so that generation and demand
mally adjusted [OME07].
Price structure of the Spanish electricity market. Own elaboration. Source: OMEL
PHF ( “Programa horario final” )
§ Final price
27
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

28. PHF (“Programa horario final”)
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE
§ Final price
28

29. 29
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

30. 30
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

31. 31
Price of the electricity in Spain
Comparison with EuropeMARKET‘S TIMING SCHEDULE

32. Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
PRICE OF ELECTRICITY IN EUROPE

33. Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ Europe Markets

34. Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ Europe Markets

35. • The Central European countries, such as Germany, France
and Netherlands, adopt a market design similar to Spain, in
using a centralized market iden7fied with a pool market
• For each hour, with the auc7on the price is set . In UK, the
auc7on takes place every half hour.
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ Price in central Europe

36. Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
• The most developed and sophis7cated electricity market in Europe is the
German market, a market design that supports bilateral contracts (producers-
consumers contracts).
• France energy produc7on is almost en7rely based on nuclear power plants
with very low flexibility. France is a very important seller of energy due to 58
nuclear genera7ng sta7ons that onen, generate more than the need.
• Electrical interconnec7ons favor the reduc7on of prices by allowing the flow of
electricity to markets with higher prices.
§ Price in central Europe

37. • The market in north Europe is called North Pool.
• In this market, par7cipate Norway, Finland, and the Bal7c
countries., with market concer in auc7ons of bid of supplies
and bids of demands.
• In these countries, the system is based in pool, the system is
based in hydro power by 95%.
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ Price in North Europe

38. Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ Electricity prices for household consumers, second half 2015 (EUR per kWh)

39. Ø Germany is the second country with the higher price of electricity
Germany has eliminated the basic energy needs based in nuclear energy, and
has changed this basic energy needs in renewable energy.
The cost of the renewable has increased the price of the fare to the small
consumers due to the incen7ves that the government has to pay to the
producers of this type of energy.
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE

40. In spite of the European economical crisis and that the consumer consumed
less energy, the price of the energy in Europe raised year after year for the
small consumers. However, the price of the electricity was lower in the
wholesale market, this is caused for the incentives to the renewable energies.
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE

41. • PCR (price coupling of regions) is the ini7a7ve of seven European Power Exchanges to
harmonise the European electricity markets.
• The objec7ve is equalize the price of the electricity in this regions of Europe.
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE
§ PCR project

42. https://www.electricitymap.org/
Price of the electricity in Spain
Comparison with EuropePRICE OF ELECTRICITY IN EUROPE

43. Price of the electricity in Spain
Comparison with Europe

44. q Websites:
• Red Eléctrica de España, www.ree.es
• OMIE, www.omie.es
• nergiza.com /que-es-el-pool-electrico/
• antonionarejos.wordpress.com /2012/10/04/como-funciona-el-pool-electrico/
• blog.gesternova.com /como-funciona-el-pool-electrico-incluso-lo-vas-a-entender
• mifacturadeluz.com /funcionamiento-del-pool-electrico/
q Documents:
• Regula7on of Electrical Systems, Julio Usaola
• Ancillary Services in Spain: dealing High Penetra7on of RES – by Ignacio de la Fuente - REE
• Script: “Modelos de subastas. Mercado mayorista español”. Master´s degree Electrical Engineering, Electronic and Automa7c
• Market Power in Spanish Electricity Auc7on – Aitor Ciarreta and Maria Paz Espinosa – December 2004
• Master Thesis: The effect of renewable energy produc7on in the Spanish electricity market – by Cris7na Pizarro (2010-2011)
• Report for Confindustria: A compara7ve study of electricity markets in UK, Spain and Nord Pool – by NERA (June 2002)
§ Bibliography
44
Price of the electricity in Spain
Comparison with EuropeBibliography