Wind Power and Future Trading with Regulating Power

Abstract

Regulating power is needed to compensate for unplanned deviations from production and consumption plans. The transmission system operator (TSO) in each country is responsible for keeping the electric system balanced, and activates regulation if needed to keep the frequency in the network stable. The need for regulations will likely grow when more wind power is built in the power system, as it is difficult to forecast wind power production and make accurate production plans. By using data on wind power prognosis errors from the West Danish power system, a need for regulating power in the Swedish system is predicted, with 4000 MW of new wind power installed. An attempt is made to forecast pricing on regulating power in Sweden based on the need for regulating power along with other aspects. The results show that the regulating power market energy turnover increases together with the monetary turnover following the large‐scale installation of wind power.

Acknowledgements

The authors are employed by Vattenfall AB and Vattenfall Research and Development AB. They wish to thank Nils Andersson, Urban Axelsson, Viktoria Neimane, Robin Murray, Daniel Nordgren, Bo Wrang, Joakim Allenmark Fredrik Wik, Björn Wetterborg and Olof Nilsson. To a large extent this work is based on a working paper by Brandberg and Broman (2006). The authors would also like to thank an anonymous referee for suggestions to improve the paper. The usual disclaimer applies and the authors assume sole responsibility for any errors. Any views expressed in the article are those of the authors and do not necessarily reflect the views of their companies.

Notes

1. For descriptions of the Nordic markets, see Bergman (2005) or Damsgard and Green (2005).

2. As a rule of thumb, Sweden has 45% nuclear, 45% hydro and 10% other sources. See, for example, Swedish Energy Agency (2005).

3. See www.nordpool.no

4. The data and facts in this section can be found at www.svk.se

5. The facts and figures on the Nordel TSOs is found at Nordel's site (www.nordel.org) if no specific source is noted. The national power networks within Norway, Sweden, Finland and East Denmark are connected synchronically and are therefore called a synchronous system. Together with the network in West Denmark, which is connected to Norway and Sweden with high voltage direct current (HVDC) cables in the north, they comprise the interconnected Nordic power system (INPS). West Denmark is connected synchronically to the continental European power system (UCTE) in the south. In each Nordic country there is a TSO responsible for the operation of the national network and for keeping it in balance. The TSOs within the Nordic power system are Svenska Kraftnät (SvK) in Sweden, Fingrid in Finland, Statnett in Norway and Energinet.dk in Denmark. As the national power systems are connected, the TSOs are required to co‐ordinate their work. This is carried out within the Nordel organization on a strategic level and agreements regulate how transmission of energy between the countries should be carried out. On a daily operational basis, SvK and Statnett share the overall responsibility of the entire network in co‐operation with the other TSOs. The electricity consumption in the Nordic countries amounts to around 390 TWh annually, which in absolute numbers is small compared to the UCTE system, which has an annual energy turnover of 2,300 TWh but which makes the Nordic market roughly the same size as the German market. However, considering the relatively small population in the Nordic countries, the electricity consumption per capita is substantial. Hydropower delivers around half of the energy consumed in the Nordic region, even though the production mix varies considerably between the countries in the region. Norway produces ninety‐nine per cent of its electricity from hydropower, Sweden fifty per cent, Finland fifteen per cent and Denmark none. The maximum amount of power needed in the INPS is about 60,000–70,000 MW, depending on timing and climate. The INPS is sorted in subsystems rather than countries, although the borders often coincide for historical reasons. Sweden and Finland both consist of one subsystem each, while Denmark and Norway are divided into several, mainly due to frequently occurring internal bottlenecks.

6. This section has been adapted from Svenska kraftnät (www.svk.se).

7. Interviews were carried out with the following people: Jan‐Erik Hällström (Vattenfall Produktion, 24 May 2006); Olof Nilsson (Vattenfall Produktion, March 2006); Rickard Nilsson (Nord Pool's Stockholm Office, 3 May and 9 June 2006); Daniel Nordgren (Vattenfall Produktion, 25 February, 24 March, 8 May 2006); Fredrik Wik (Balanstjänsten, Svenska Kraftnät 27 April 2006); Bo Wrang (Vattenfall Produktion, 23 February 2006).

8. The database can be obtained by contacting [email protected]

9. Relative regulation is defined as the amount of regulation as a percentage of load.

10. See Brandberg and Broman (2006) for further elaboration on this.

11. The addition to the spot price (the extra compensation demanded for regulating power) modelling does not have the same correlation as modelling the regulating price itself. This is due to the fact that the correlation between the actual prices for regulating power is determined with zero as a point of reference. An error of 10 SEK/MWh between the modelled and the real price does not have a large negative impact on the correlation when the price level is at, for example, 700 SEK/MWh. The same error of 10 SEK/MWh can have a severe impact on correlation if studying just the addition to spot price. For example, if additions are in the range of 50 SEK/MWh, an error of 10 SEK/MWh gives a lesser contribution to the correlation between the model and reality. The correlation between the additions to the regulating price is 0.58.