Environmental Engineering Reference
In-Depth Information
known as a gross pool. Buyers and sellers will bid in and the market will clear,
setting prices and quantities. The prices and quantities will be applied in market
settlement (Baldick et al. , 2005). The bidding process will occur in advance of the
actual generation and consumption of electricity, and will end some time in
advance of real time, known as gate closure. For example, in Ireland half-hourly
bids for the day ahead will be accepted up to 12 hours in advance (CER, 2005).
The mechanisms used for clearing can vary from markets based on centralised
unit commitment (see Section 5.2), where a lot of detailed bid information on costs
and technical limitations is required, to markets of the self-commitment type
where price-quantity pairs are all that are required, with the generators making
their own commitment decisions. Broadly speaking the market prices will be set
on a marginal cost basis, i.e. the cost of an additional MWh over a specified time
period (typically 30 minutes). The price will be paid to all generators and will be
paid by all suppliers for their respective volumes of energy. Variations on this
principle will apply for central unit commitment markets where the price will be
based on the marginal cost as defined over a longer time frame, e.g. 24 hours,
where start-up and no-load costs are accounted for (see Section 5.2). Variations
will also occur in markets that attempt to account explicitly for technical con-
straints, e.g. when transmission congestion occurs the marginal costs of 1 MWh at
specified locations will differ and locational prices will apply (Hamoud and
Bradley, 2004).
In a centralised unit commitment market the cost information, coupled with the
technical limitations, should allow the market operator to commit and dispatch the
units in an efficient manner. In the self-commitment market the simple bids need to
be chosen to reflect the underlying costs and are designed so that the resulting
dispatched quantities are technically feasible to deliver. Whether or not these pri-
cing mechanisms are adequate to cover all the costs of the generators is a matter of
debate (Baldick et al. , 2005). Pricing can also occur in advance of delivery
(ex ante) or after delivery (ex post). The single electricity market (SEM) on the
island of Ireland is a gross pool market where prices are set ex post using a cen-
tralised unit commitment approach (CER, 2005).
As wind turbines have negligible operating costs, they should bid zero into a
pool market. Alternatively wind can be a price taker , i.e. it offers its volume with
no cost information and is willing to take the price that is set by other bids. Bidding
zero and being a price taker are not always equivalent. For example, in certain
cases negative prices can occur (Pritchard, 2002). If wind generation decides to bid
above zero into the market then it runs the risk of not being physically dispatched
and not receiving any revenue from the market settlement.
Large-scale deployment of wind power will affect the price of electricity.
When the wind is blowing (and generating) and, provided there are no negative
prices or technical constraints that would curtail the production, it will be accepted
by the market, assuming it is bidding zero. This will displace other generation and
the marginal unit will be lower down the merit order, and hence the marginal price
will be lowered. When the wind is not blowing then the marginal unit that sets the
price will be higher up the merit order and hence the price will rise. Thus wind
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