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A description of the operative decision-making process of a power generating company on the Nordic electricity market

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Abstract

In a liberalised electricity market, power generating companies face various trading possibilities. In addition, they have to take scheduling decisions. Both kinds of decisions are affected by uncertainties, e.g. power plant outages, uncertain market prices for electricity or imperfect wind power forecasts. This paper presents an overview of the decision-making process of a power generating company on the Nordic electricity market and illustrates how uncertainties affect this process. As a power generating company’s return on investment arises—at least partly—from its trading and scheduling decisions, it is important to optimise those decisions. Therefore, selected optimisation models are listed in a condensed manner. The paper also includes a both detailed and comprehensive description of the market design in the Nordic countries.

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Notes

  1. This is covered by the assumption of rational behaviour where participants try to maximise their own utility [5, p. 53].

  2. If market signals are persistent and sufficiently strong, market participants may also react to them in a longer time perspective. A power generating company can, for example, take investment and decommissioning decisions by which it in the long run adjusts its portfolio [3]. However, as this paper focuses on trading and scheduling decisions, strategic long-term investment decisions that change the portfolio are not discussed further here.

  3. Such day-ahead and intraday markets are often referred to as physical markets. However, following a stricter definition as in [11], only the balancing market can be regarded as a physical market.

  4. The Nordic primary reserves consist of frequency controlled normal operation reserves (FNR) and frequency controlled disturbance reserves (FDR).

  5. The Nordic secondary reserves are automatic frequency restoration reserves (FRR or synonym FRR-A). They are also called automatic load frequency control (LFC).

  6. In descriptions of the Nordic market, balancing is often called regulating and activated balancing power regulating power. The balancing market is also called regulating market or regulating power market.

  7. The Nordic electricity market currently constitutes 12 price zones: five in Norway, four in Sweden, two in Denmark and one Finnish price zone [17].

  8. Two-price imbalance settlement rules are, however, discussed controversially [16, 18, 19]. Here, one issue is whether they force power generating companies to bid close to their expected production on the day-ahead and intraday markets.

  9. In this context, it should also be observed that due to costs of grid expansion, it would not be optimal to enforce the grid as much as possible even though the cheapest generation can only be scheduled if sufficient transmission capacity is available [21].

  10. On a BRP’s level, this would violate the balancing agreement between BRP and TSO, see e.g. [13]. According to that, a BRP must not have systematic imbalances between its production plans and its real generation/consumption.

  11. They are called water regulating companies, or vattenregleringsföretag in Swedish.

  12. From the system’s perspective they are, however, essential to keep the system stable. Therefore, if one changes the perspective, system services such as the provision of reserves, reactive power, short-circuit capacity and voltage control [38] are complementary services to electric power generation.

  13. Although the balancing market is directly linked to physical fulfilment, bids are in practice only economically binding [13].

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Acknowledgments

The authors are grateful to the reviewers of the journal as well as Karin Eketorp, Pär Holmberg, Ewa Lazarczyk, Richard Manton, Mia Westerlund, and participants of the YEEES seminar in autumn 2013 for their detailed and constructive comments.

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Authors and Affiliations

  1. Electric Power Systems, School of Electrical Engineering, KTH Royal Institute of Technology, Stockholm, Sweden

    Richard Scharff & Lennart Söder

  2. Workgroup for Infrastructure Policy, Berlin University of Technology, Berlin, Germany

    Jonas Egerer

  3. Department of Energy, Transportation, Environment, German Institute for Economic Research (DIW Berlin), Berlin, Germany

    Jonas Egerer

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  1. Richard Scharff
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Correspondence to Richard Scharff.

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Scharff, R., Egerer, J. & Söder, L. A description of the operative decision-making process of a power generating company on the Nordic electricity market. Energy Syst 5, 349–369 (2014). https://doi.org/10.1007/s12667-013-0104-2

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