PCOMPMS 2004

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NEW SOLUTIONS IMPLEMENTED IN
MERIT ORDER PROGRAM v.2
Contributions to the improvement of competition,
related to the better use of raw materials, on
the electric power market
Eng. Gheorghe Sbârnea Author of PCOMPMS
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Overview - Present HIDROELECTRICA

• Basically, it is the only producer obliged to
  cover the charge variations of the national
  energetic system.
• Although the most flexible producer is paid with
  the lowest price on the portfolio, the prices for
  the system services are below the average of the
  mass production of energy.
• The cleanest energy is encouraged with the lowest
  price in the portfolio, while the CE encourages
  the investments in this field.
• Although HIDROELECTRICA has proved to be by far
  the most capable provider on the energy market,
  in the blueprints of the future energy market it
  is the only producer proposed for not having
  anymore the right to optimize its resource.
• The daily energy, which can be released into the
  system, is not equal to the sum of the hourly
  power blocks available (and cannot be equal under
  the first condition).

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Daily Available Energy

• The assets have been approached, highlighting
  separately
• The technical reserve depends on the technical
  status of the units and it is a compulsory
  requirement, but not a sufficient one, for the
  production of energy at a specified moment. In
  most cases it remains constant throughout the day
  even if the current bidding model allows it to
  fluctuate.
• The reserves of raw materials for hydro units are
  represented by the initial supply (indirectly
  reflected by the initial water level in the lake)
  plus the affluent.

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Hourly Computed Resource

• The real resource, at a given hour, depends
  actually on the usage from the previous time
  intervals. The provider cannot gain knowledge of
  this factor in the time necessary for making a
  correct hourly offer. This usage also derives
  from the movement on the energy market.
• The implemented solution presupposes the dynamic
  shaping of the resource in the merit order
  program.
• One of the first steps lays in the ANRE decision
  (No.720 on 30/6/2001). The water levels in the
  lake correspond to previous accumulations and to
  potential producible quantities of electric
  energy. There have been defined
• Safety reserve (res)
• Warning reserve (rea)
• In analogy, enhancements are brought by using
  the following definitions
• The initial energetic resource as a potential at
  the beginning of the scheduled energetic day
  (rei)
• The overflow energetic resource at the level at
  which the turbines must be running, thus avoiding
  the overflow (red)

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Hourly Resource - Input Data

• The average potential energy which is forecasted
  to be accumulated per hour in the day for which
  the natural affluent is scheduled (Wor)
• For the units depending on the upstream
  production are also necessary
• The number of hours after which the upstream
  power level imposes activity downstream as well,
  known as propagation interval (xibp)
• A dependency factor that indicates the downstream
  production for a given upstream production (cdep)
• The shaped results appear in the following
  graphic, where
• Wd_ant The initially forecasted resource,
  accumulation forecast
• Pop The power obtained by the unit as a
  competition result
• REC The current hourly energetic resource

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Upstream
Downstream
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Dynamic Priorities Restrictions

• At this moment the bidding is not so flexible,
  compelling the producer to anticipate the startup
  moment of an unit with limited resources
  (accumulation basin) based on the charge
  prognosis. The reality of the demand in the
  system is different because
• The sum of obligations (contracts) fluctuates.
• It is natural for both the others resources and
  the power offer not to be constant throughout the
  day.
• By using the previously defined shaping, POM2 is
  able to
• If REC lt REA, dynamically generate the commercial
  restriction for that unit till the obtained
  stock level surpasses the warning level.
• If REC gt RED, the difference (REC RED) will
  dynamically generate a priority 1. Only the
  probable overflow potential is set on restriction
  1, the rest of the potential having a good
  opportunity of being turned to good account on
  the spot market. The proposed mechanisms
  objective is to dynamically avoid the overflow.
• If REA lt REC lt RED, there will be generated
  blocks of energy that will freely compete
  (priority 9) with the prices in their offers.

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Dynamic Priorities Restrictions - Effects
The new system does not cancel the existent
bidding method, instead it extends
it. Remaining on the spot market leads to
additional revenue for Hidroelectrica, but it is
an advantage deserved by the hydro provider for
the flexibility he confers to the market in
covering the charge fluctuations in the
system. POM2 automatically extracts from the
available resources the hourly level specified in
the portfolio contract and generates priority 8
at this level. In this way, beside the
opportunity for Hidroelectrica and the more
flexible offer for the system, the frequent
demand for repeated bidding is avoided.
Therefore, a time-consuming process, that does
not follow the European Community model (a one
day ahead act of stating), is also evaded.
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Dynamic Prices
Due to the resource shaping and the fact that
the ANRE 720 decision accepts price changes, a
supplementary stage is proposed in order to
optimize the hydro energetic potential. This
would mean differentiating hourly prices with
respect to the actual level of the water
resource. POM2 establishes a balance between
satisfying the varying demands for lower prices
on energy (at a national level) and
HIDROELECTRICA interest in profit. The
national interest may be observed through the
value of the imposed price at the level of
warning, when the unit would undergo commercial
restriction. In this model, it is of the same
value as the maximum deduction level permitted by
ANRE. The hydro providers interest may be
achieved through his possibility of indicating,
in the offer, the target prices of the day for
the 3 installments.
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Price evolution following the resource
Commercial restriction
Priority 1 obligation
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Dynamic Prices - Consequences

• POM2 is evaluating hourly the status of the
  reserve and draws up the price for each
  installment according to the situation. In a
  dynamic and automatic way, the market is being
  offered energy at a higher hourly price, if the
  reserves are poor, and at a lower price if they
  are richer.
• Consequences
• The compulsion of anticipating restriction 1
  (overflow) is eluded.
• The other groups (thermo, nuclear) will become
  interested (especially when the lake reserves are
  low, e.g. last fall ) in participating gradually
  at the covering of the demand variations.
• There will be avoided a number of stop-n-goes at
  thermo groups, since restriction 1 is faced more
  seldom.
• The hydro-producers will gain interest in opening
  investment accounts (e.g. for the improvement of
  the lakes storage capacity) with additional
  revenues.
• The other producers profits will be fluctuating
  according to their flexibility.

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Global outcome

• Given the fact that 2/3 of the countrys hydro
  production are done by units with hourly level
  accumulation, the usage of this system improves a
  lot the productions flexibility of meeting the
  demand.
• This solution is also helping the thermo units
  which do not have enough fuel or run on
  consumption. All providers are treated equally.
• It is a transparent system which does not put
  Hidroelectrica outside the market or outside the
  competition. It is a non-speculative solution.
• It creates a self-adjustment process, through
  price signals, that engages all the
  participants on the market in the covering of the
  charge variations.
• It offers the data necessary for making the best
  decisions on long-time investments.

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Global outcome

• The market is being offered energy at a higher
  hourly price, if the reserves are poor, and at a
  lower price if they are richer. The hydrological
  risks are avoided.
• The statistically determined border price will be
  in accordance to the level of demand in the
  system, the markets health indicator in the
  European Union.
• The requirement that OPCOM is to make a
  quotation on the waters value is dealt with by
  the solution forwarded in an impartial, automatic
  and practically instantaneous way.
• It spares the MEC and ANRE of having to
  intervene, undermining the markets discipline
  (which represents a disadvantage towards the
  integration in the European Union).
• POM2 offers the possibility of simulating more
  possible solutions.

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