Power generation and transmission: quite far from a well-orchestrated symphony

(14 Dec 2018) The rise of renewables will require using the grid more efficiently. However, you cannot expect this from the market that neglects the grid as its fundamental assumption.

Konrad Purchała Ph.D. is Director for European Integration Policy, and Piotr Koryś Ph.D., is Adjunct, Faculty of Economic Sciences, University of Warsaw and Chief Specialist, Department of the International Cooperation at PSE.

Transmission system operators (TSOs) play a unique role in the European electricity sector.

As natural monopolies tasked with securing transmission system operation, TSOs facilitate the market’s organization and development. It is therefore in their DNA to act in the public interest, maximizing economic efficiency and, consequently, minimizing energy supply costs for consumers.

Competition has made the electricity sector more efficient, but also brought along new challenges. The shift in energy policy towards sustainable and clean sources — and less fossil fuel use — has led to a gradual change in the energy mix. Power generation and transmission resources need now to be used more flexibly in order to continuously adapt to weather-driven renewables and changing market conditions.

However, electricity market in Europe is detached from the transmission grid and its complexity. When making electricity trades and deciding on their preferred generation dispatch, market participants neglect the grid, which is considered as copper plate.

It’s the job of TSOs to ensure that the energy traded on the market is delivered securely. When demand for transmission exceeds physical capabilities of power lines, it raises the risk of line tripping, which could lead to the emergency disconnection of consumers and generators, or even blackouts.

To prevent this risk, TSOs intervene and reschedule the power output from certain generators by increasing the generation that sits downstream of congestion, and decreasing it by the same amount upstream. This out-of-market TSO intervention is called redispatching. It results in additional payments to generators, so that its volume is strictly limited to necessity to avoid too much burden for final consumers.

The problem with this market-and-redispatching sequence is that it treats power generation and grid resources separately, instead of optimizing them together. So although wholesale trading allows power plant operators to minimize the costs of electricity requested by their own customers, ignoring the technical grid capabilities and the technical capabilities of other generators renders the result far from optimal.

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, 14 Dec 2018: Power generation and transmission: quite far from a well-orchestrated symphony