Abstract
Gas, electricity and heat markets depend on the reliability of the physical networks for transport. This reliability can be seen as a semi-public good and, as a consequence, its provision is not fully secured by the market. This chapter first explains how the functioning of energy markets and networks is interrelated before discussing regulatory measures which can be taken to ensure reliability of energy supply. Section 7.3 goes into the organization of financial incentives to network users related to network capacity; Sect. 7.4 discusses how financial incentives can be given to market participants to contribute to system balancing, while Sect. 7.5 discusses how to assure that there is always sufficient production capacity and that all production is priced even if the market is not able to clear.
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Notes
- 1.
These conditions are generally summarized as security and adequacy. Security refers to the ability of a system to counteract sudden disturbances, while adequacy refers to the ability of a system to supply the needed energy for the demand at all times (Stoft 2002).
- 2.
Although it is to some extent possible to use equipment, like phase shifting transformers, to change the flow pattern in the meshed grid with the aim to achieve a better overall utilization.
- 3.
These types of goods have some characteristics of public goods, which are goods that cannot be exclusively made available to a limited group of users (i.e. the goods are non-exclusive) and that can be consumed without affecting the availability to others (i.e. the goods are non-rivalrous). In case of semi-public goods, one of these characteristics hold.
- 4.
In relation to this, in markets with centrally coordinated dispatch, the operation of the network and the operation of the spot market are conducted by one agency, the so-called independent system operator (ISO), while in countries with decentralized dispatch, the operation of the network is not (necessarily) integrated with the management of the network. In the latter markets, the transport and network management is done by the so-called transmission system operators (TSO).
- 5.
- 6.
The transport networks of gas are, therefore, also called high-pressure networks, while the distribution networks are called low-pressure networks.
- 7.
In Europe, the AC network frequency is 50 Hz, while in the USA, for instance, it is 60 Hz.
- 8.
Strictly speaking, this programme responsibility task applies to all those who are connected with the network, including residential consumers. Retailers are obliged to take over this programme responsibility from the consumers, though.
- 9.
As an example, see the website of the Dutch TSO with real-time information on the imbalance volumes and prices: https://www.tennet.org/english/operational_management/System_data_relating_implementation/system_balance_information/BalansDeltawithPrices.aspx.
- 10.
Note that in reality, the variable costs are generally not constant due to the so-called dynamic costs which are related to the ramping up and down of a power plant. The magnitude of these dynamic costs influences the optimal generation portfolio. By using the load-duration curve, it is implicitly assumed that these dynamic costs do not play a role in the investment decisions.
- 11.
After all, variable costs in euro/MWh times the number of hours gives: \(\frac{euro}{{MWh}}*h = \frac{euro}{{MW}}\).
- 12.
At the break-even number of operating hours, the average costs per unit of electricity (MWh) are also equal. These average costs can be found by dividing the total costs per MW per year by the annual number of operating hours. For instance, when the number of operating hours is 2875, the average costs per MWh for both plant type B and C are 61.73 euro/MWh, while the average costs for plant type A are much higher at that level of operating hours (i.e. 71.60 euro/MWh).
- 13.
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Mulder, M. (2021). Reliability of Energy Supply as Semi-public Good. In: Regulation of Energy Markets. Lecture Notes in Energy, vol 80. Springer, Cham. https://doi.org/10.1007/978-3-030-58319-4_7
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