Electricity Markets:Balancing Mechanisms and Congestion Management

Abstract: During the last few years, several European countries have opened their electricity markets. Power exchanges have been created, and market based rules have been settled to handle most of the existing mechanisms. The main goal is to improve the competition by increasing the number of actors. More and more coordination between the different European markets is now needed, and the trend is to go from juxtaposed regional markets to a unique European market. Indeed, in February 2006 was launched the Electricity Regional Initiative, where directives were given in order to foster market integration within several European countries. In this context, two main points have to be focused on: the settlement of market based rules for each mechanism and the integration of the different existing markets. This master thesis is a part of a Research and Development project, and has been done at EDF Research & Development, in the department “Economie, Fonctionnement et Etudes des Systèmes Electriques”. It is divided in two parts. The first part explains the main principles of the balancing mechanisms in Great- Britain and Germany, in order to see to which extend these mechanisms are “markets”. The study is a part of a larger project at EDF, resulting in a benchmark of the different European Balancing Markets. The second part deals with a key to the integration of electricity markets: the congestion management methods. Indeed, cross border congestions are a main hindrance to the elaboration of a European market, and new mechanisms are developed to allocate the cross border capacities. One of them is the Market Coupling, which is a way to maximize the market value. This thesis aims at giving a basic understanding of the method as it is carried out today between France, Belgium and the Netherlands through the Trilateral Market Coupling. In the frame of an Open Market Coupling including more countries, this thesis gives an introduction to two different approaches: the “commercial” approach and the “flowbased” approach. Simulations aim at stressing the main differences between the two methods.