Introduction to European Electricity Markets

Overview: This workshop provides a description of European markets, focusing on how they differ from US market design. The material covers three specific areas of electricity market design that are currently debated intensely in Europe, comparing to similar US market designs. The focus is specifically on balancing, congestion management and the pricing of non-convex bids in day-ahead market clearing.

Section 1: Balancing

The material covers the effort that is underway in Europe for integrating real-time balancing across European transmission system operators in the context of two integrated balancing platforms for secondary (the PICASSO platform) and tertiary (the MARI platform) reserve. The material covers the treatment of real-time reserve capacity and the closely associated issue of scarcity pricing based on operating reserve demand curves. We compare Belgium to ERCOT and PJM in order to motivate the discussion.

Section 2: Congestion management

We discuss the treatment of transmission constraints by European transmission system operators in the day-ahead and intraday timeframe, and its interaction with balancing. We cover the topic of transmission switching in Europe compared to the US, security, and the interaction of congestion management with the MARI and PICASSO balancing platforms. We discuss the interaction of zonal market clearing with day-ahead unit commitment, and discuss cost-based congestion management in order to cope with INC-DEC gaming. We use examples from the original California design, Central Western Europe and Scandinavia in order to motivate the discussion.

Section 3: Pricing of non-convexities

We discuss the treatment of fixed costs in European day-ahead market clearing. We compare convex hull pricing and its approximations that have been implemented in PJM and MISO to the current treatment of fixed costs in the EUPHEMIA platform, which is the Pan-European algorithm for day-ahead electricity market clearing in Europe.