Designing innovative market tools

Tools to optimise our customers’ activity

Background

The market tools designed by RTE after discussion with the customers under the auspices of the Energy Regulatory Commission (CRE) and the public authorities play a double role: ensuring supply and demand balance and security of the electricity supply, with a constant aim of improving grid quality in a cost-effective manner.

As the market architect, we design the mechanisms and tools required to resolve any contingences affecting supply and demand balance. For example, this is the role of the balancing mechanism used to adjust the supply and demand curve by asking the power generation companies and the consumers to modify their operating programme if need be. The role of the capacity mechanism is to guarantee supply during peak consumption in a sustainable manner.

We also offer market tools enabling electricity to be consumed in a different way by fostering flexibility of the stakeholders of the electricity system.

Innovative market tools

  • The capacity mechanism: this new mechanism has been designed to ensure supply and demand balance, especially during periods of peak consumption by fostering energy savings. How does it work? By setting up a market where the power generation companies and consumers can value their generation and demand side capacities with the suppliers thus providing the electricity system participants with the means of investment in power generation and demand side management. At the same time, the suppliers are encouraged to change consumer behaviours during periods of peak consumption. Now in the validation phase, the capacity mechanism will be up and running by the winter of 2016-2017. The profit for the customers is that they are paid according to the profits made by the local authority.
  • Become the balance responsible entity: every power generation company and consumer connected to the public transmission and distribution systems are responsible for the differences between the injection and withdrawal that they carry out. Becoming the balance responsible entity enables the scope of balance to be defined within which the physical sites and financial transactions are grouped together. The differences are then assessed by RTE by factoring in all the components of the scope, which enables the portfolio effect to be benefitted from resulting in better control of the financial consequences of the differences. The profit for the customer is to be able to take advantage of the portfolio effect concerning the generation and consumption contingencies of their own customers in order to reduce their differences.
  • Exchange blocks of electrical energy : this option offers the possibility of declaring offset of energy trades with another balance responsible party (block exchange notification service between balancing responsible entities) or directly with a consumer site connected to the public transmission or distribution system (block exchange notification service between the balance responsible entity and a site). The profit for the customer is a framework in which to carry out over the counter purchases and sales outside the power exchanges.
  • Value demand side management (block exchange notification of demand response mechanism NEBEF): this mechanism enables our industrial customers to value consumption flexibility on the electricity markets, either directly or through an accredited operator. In clearer terms, the consumer is paid to temporarily stop some of its electrical equipment.
  • Participate in the balancing mechanism: our customers can reply to the calls for tenders for generation and consumption that we run on a continuous basis in order to have balancing reserves in real time. The profit for the customer is the fact that their flexibility is remunerated.
  • Access cross-border interconnections: this system enables the buying and selling of e electricty on the European market with the exchange interconnection capacities that we have contracted with the transmission system operators in 6 bordering countries.
  • Supply ancillary services: this offer enables our customers to value their consumption and generation flexibility  by becoming the supplier of primary and secondary frequency reserves. These reserves enable RTE to ensure supply and demand balance on a permanent basis: a few tens of seconds for the primary reserves and a few minutes for the secondary reserves. The profit for the customer is the fact that they can access a market worth several hundred million Euros per year.

Advantages for our customers

  1. 1

    Management of their electrical equipment (operation, safety, scheduling, etc)

  2. 2

    The buying and selling of electricity on the markets

  3. 3

    Valuing their consumption and generation flexibility

  1. 900 MW

    Energy savings capacity contracted with our customers for 2014. It is the equivalent power, for example, of a unit of Fessenheim nuclear power plant (34 out of 58 units have power of 900 MW).

Flow-based: RTE at the service of Europe’s electricity

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A more in-depth view

The capacity mechanism: a solution guaranteeing supply and demand balance in the event of periods of intense consumption

Did you know? Between 2015 and 2018, France will be exposed to a risk of a shortfall in electricity generation in the event of the ten-yearly cold snap – around 900 MW during the winter of 2015-2016, 2000 MW in 2016-2017, and 800 MW in 2017-2018. Highlighted in our 2014 generation adequacy forecast, this deterioration in our security of supply is due to a combination of several factors which are related to energy transition These are the acceleration of mothballing of the combined gas tubines, progressive closing of the coal-fired power stations up to 2015, followed by the oil-fired power stations in 2016.

As of 2010, the French Government tackled the problem by passing the law governing the new organisation of the electricity market, defining the principles and by assigning the definition and design of the new rules for this mechanism to RTE. The setting up of the capacity mechanism was born our of a year’s worth of dialogue with the various electricity system stakeholders. As of winter 2016-2017, it will contribute to ensuring security of electricity supply in France.

Acting on supply and demand

The purpose of the capacity mechanism is to design and set up a market for electricity that can be activated over the winter by forcing the suppliers to cover their peak consumption by providing financial incentives for an improved management of peak consumption during cold snaps. This innovative system was designed to affect both supply and demand. In terms of supply, this involves encouraging appropriate investment in generation facilities and demand side response capacities. The power generation companies shall thus attest as to the availability of their generation capacity during cold snaps. They can henceforth be paid for this availability by the suppliers. In terms of demand, this involves encouraging the modification of consumption behaviours during periods of peak consumption. This provides the suppliers with an additional advantage and the possibility of remunerating the customers who agree to energy savings during certain periods.

The electricity system participants are rewarded according to the profit made by the local authority. The match between supply and demand on the new capacity market results in a price corresponding to the value of an additional MW for security of supply. If there is surplus capacity on the system, the price will be very low or even zero. If the supply is strained, the price will be high making it possible to invest.

Set up two related systems

The capacity mechanism provides for two new systems:

  • Obligation of capacity: the capacity mechanism stipulates that electricity suppliers should demonstrate on an annual basis that they are able to cover customer consumption during periods of peak consumption. They are assigned an obligation of capacity within this framework. The more a supplier sets up actions to manage the demand, the lower his obligation of capacity is: the system thus encourages the participants to act on peak consumption.
  • Certificates of capacity: the power generation companies and demand side management operators shall henceforth provide proof of availability of their capacities (generation and energy savings) during periods of peak consumption. They will be awarded certificates of capacity by RTE based on their forecast contribution to security of supply during these peaks. These certificates can be traded on the new market.

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