AADAMS

Auction and Day-Ahead Markets Spikes

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 Obiettivo del progetto (Objective)

'The on-going restructuring and market design processes for the power sector, with its complex objectives of competition, security and decarbonisation has created a need to understand the drivers of change and the nature of electricity price dynamics. Since electricity is a unique commodity, not easily storable with important implications when balancing supply and demand, any imbalances can cause large and sharp changes in price. Hence, AaDAMS, a project on “Auction and Day—Ahead Markets Spikes”, investigates appropriate modeling, forecasting and risk management techniques for the occurrence of spikes and abnormal price excursions in electricity markets, focusing upon agent specific as well as market level data. AaDAMS has a main objective of understanding abnormal price dynamics observed in wholesale electricity prices looking at the behaviour of generators’ auction offers, as well as related parallel objectives concerning the exercise of market power in the European Electricity Markets, the potential interaction of strategic behaviour with new technology characteristics, such as wind intermittency and the effect of policy interventions in market design on price dynamics.'

Introduzione (Teaser)

Wholesale electricity markets can result in prices below zero. A new methodology should provide market operators and energy regulators with an important tool for measuring the implications of increasing renewable energy supplies on wholesale electricity prices.

Descrizione progetto (Article)

The imperative of moving toward low-carbon power generation has modified market mechanisms and created the need to enhance understanding of electricity price risks. The dynamics of electricity price formation are radically different and are likely to undergo further fundamental changes. Whilst negative wholesale prices are present and electric power companies are reporting major asset impairments, retail prices continue to rise.

With the support of EU funding, the project 'Auction and day-ahead markets spikes' (AADAMS) shed further light on the occurrence of spikes and abnormal prices in the electricity market with suitable modelling techniques. AADAMS provided compelling evidence that the stochastic nature of intermittent sources poses a new set of distributional properties for power prices. In particular, negative prices were found to induce non-normal and, importantly, time-varying shapes of the probability distribution.

Project results were based on the German market, which has set the lead in fighting climate change with renewable energy technologies. The negative prices signified lack of investment in flexible power generation and, most importantly, absence of market coupling. For instance, cheaper electricity generation or negative prices in Germany can help meet demand and reduce prices in neighbouring countries.

Another focus was on worldwide regulatory practices regarding the electricity and gas sectors. AADAMS revealed the potential to form a trans-governmental network for energy policy that is able to affect the adoption of best practices.

To enhance understanding of the abnormal price dynamics in wholesale electricity prices, AADAMS considered day-ahead markets, exercise of market power and policy interventions.

The increasing share of renewable energies for electricity generation such as wind and solar photovoltaic is an important driver due to the intermittency of the energy source. AADAMS extensively investigated the phenomena of negative prices on power exchange and the behaviour of electricity markets with high renewable energy shares.