Abstract
This chapter introduces the different European electricity markets and explains the basic principles of these markets and how they are interlinked with each other. Since liberalisation, rules of the markets have been adjusted repeatedly to adapt to new fundamental situations. For example, intraday markets have become relevant with higher shares of renewable energies and the need to balance their uncertain day-ahead forecast in a market close to delivery. The chapter starts with an overview of spot markets, including day-ahead and intraday markets and cross-border trading. Spot markets generally act as a reference for the other markets. But other markets are also crucial for a proper operation of the electricity system. The role of the different markets and mechanisms (derivative markets, control reserve markets, provision of system services, capacity mechanism and congestion management) are discussed in the adjoining subchapters. Furthermore, retail markets and their functioning are described. Besides sections on retail contract types, competition in retail markets and energy poverty, key ratios such as self-supply and autonomy are introduced for the characterisation of decentralised energy sources. As competitive electricity markets in Europe substantially differ from those in North America, this chapter ends with a comparison of the design of European and North American markets.
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Notes
- 1.
Block bids and multi-part bids are summarized under the term complex bids. For multi-part bids see Sect. 10.8.
- 2.
This may even lead to paradoxically rejected block bids (for details see, e.g., Madani and Van Vyve 2014).
- 3.
Each country engaging in trade will increase its overall economic surplus. In the simple models of Sects. 7.2 and 7.3, this corresponds to a decrease in cost – when costs are adjusted for the value of imports and exports. Yet not necessarily all market participants within the countries will benefit from cross-border trading. Typically, producers in high-price markets lose profits whereas consumers benefit from lower prices. The opposite is true in low price areas.
- 4.
EMIR: European Market Infrastructure Regulation. MiFID II: Markets in Financial Instruments Directive. REMIT: Regulation on Wholesale Energy Market Integrity and Transparency. While the first two are applicable to a broad range of financial derivatives, the last one specifically applies to the energy sector and imposes increased reporting requirements on energy traders.
- 5.
- 6.
Cf. Sect. 5.1.4.2 for this and the other reserve categories.
- 7.
If overall supply adequacy is satisfied; see Sect. 10.5.
- 8.
A profound overview of market mechanisms and remuneration concepts for voltage control is given in Hinz (2017, Chap. 3).
- 9.
In this context, first the question has to be answered, how an adequate level of supply adequacy is to be defined (quantitatively).
- 10.
This might especially be the case for traditional energy companies that are often characterized to be extremely risk-averse. On the role of risk aversion for generation investment see e.g. Neuhoff and De Vries (2004).
- 11.
Depending on the slope of the supply and demand functions for capacity, the effects of an error in setting the price or the quantity lead to a bigger deviation from the equilibrium (see e.g. Oren 2000).
- 12.
This means that even in the case of a failure of one system element, a stable system operation is feasible.
- 13.
A (very) long-term measure not considered in this chapter would be to build new transmission capacities.
- 14.
Ex-ante in this context means before clearing of the (day-ahead) market.
- 15.
Netting means that electricity flows over the same line in opposite directions offset each another.
- 16.
The interested reader is referred to a more detailed description of the market coupling optimisation problem, which can, e.g., be found in Ringler (2016, p. 109).
- 17.
In some markets, nodal prices are only used for the generation side, whereas on the consumption side the nodal prices are aggregated e.g. to zonal prices. Aggregating nodal prices, e.g. across a region, is often used to limit consumer price risk exposure (cf. Neuhoff and Boyd 2011, pp. 7–8).
- 18.
In these auctions, it has to be guaranteed that only feasible FTRs are issued by running the so-called Simultaneous Feasibility Test (SFT) (for more information see e.g. Hedman et al. (2011)).
- 19.
Ex-post in this context means after clearing of the (day-ahead) market. Sometimes this form of congestion management is also called curative congestion management, which might lead to confusion as curative actions can also be seen as post-fault actions (see, e.g., Hoffrichter et al. 2019).
- 20.
In some European countries, contracts are offered for different power levels. In consequence, the base rate is higher for higher power peaks. In Germany, DIN 18015-1 “Planning of electrical systems in residential buildings” (DIN 2020) regulates the specifications of electrical house connections. The standard assumes a power requirement of 14.5 kW for a (standard) residential unit.
- 21.
- 22.
Of course, this statement depends on the regulation of power grids. In most European countries, costs are passed-on from higher voltage levels to lower voltage grids resulting in higher costs for consumers at low-voltage levels (cf. Sect. 6.1.4). This can be justified by the fact that the customers at the lower levels additionally make use of the (electricity transport) services at the higher levels.
- 23.
Depending on their electricity consumption, energy-intensive industries can apply for exemptions from non-energy related cost components of the electricity price such as the renewable levy.
- 24.
Cf. EU Energy Poverty Observatory: https://www.energypoverty.eu/.
- 25.
- 26.
In some day-ahead markets also virtual bids are allowed. This means that the virtual day-ahead bid to sell or buy electricity has to be offset by a corresponding bid to buy or sell the electricity back on the real-time market.
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Weber, C., Möst, D., Fichtner, W. (2022). Electricity Markets in Europe. In: Economics of Power Systems. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-97770-2_10
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