Designing and implementing innovative market mechanisms for the power system

Image

The electricity market: what does it do?

The electricity market offers consumers a reliable source of electrical power at the most competitive prices: that is its ultimate goal.

It helps all power-system stakeholders to make the right investments, facilitates trade, rationalises power flows and acts as a driving force behind the energy transition. 

As is the case with all markets, it is governed by mechanisms that are designed to balance supply and demand in real time, while adjusting generation capacities to requirements over the long term. These mechanisms are an essential tool for maintaining the operability and safety of the power system.

What role does RTE play on the market?

Occupying a key position on the French and European electricity markets, RTE plays an instrumental role in developing the market by designing and implementing efficient mechanisms. The resulting rules are approved by France’s Energy Regulatory Commission (CRE) and other national regulators.

This role places a lot of responsibility on RTE with regard to the power system’s other players: generating facilities, suppliers, distributors, traders and consumers. Its expert skills are vital in helping all stakeholders to move through the energy transition and deal with the growing volatility of power consumption.

High-added-value market mechanisms

Image

Market mechanisms: how do they work?

Balance responsible party: keeping supply and demand in balance

The principle of a "Balance Responsible Party" gives consumers, generating facilities, suppliers and traders the opportunity to conduct all kinds of commercial transactions on the electricity market while encouraging players to balance their output and consumption.  

A Balance Responsible Party is able to trade on electricity stock markets, to conduct "over the counter" transactions and to reduce unforeseen generation-consumption imbalances.

Balancing to avoid unanticipated failures

The amount of power being generated must always be equal to the power being consumed. RTE maintains this balance in real time while taking account of unforeseen generation/consumption issues (weather, generation capacity, etc.).  

In order to maintain a balance between supply and demand, RTE must always set aside some reserves that it can adjust upwards or downwards.
 

There are three kinds of reserve power that can be used consecutively:

• Automatically activated reserves: frequency reserves made up of primary and secondary reserves

• Manually activated reserves: the adjustment mechanism comprising the tertiary reserve

An integrated European balancing market has been established in order to form these reserves. Its guiding principles are set out in the EU Electricity Balancing guideline, which describes the technical, operational and commercial rules pertaining to the acquisition of balancing capacities, the activation of balancing energy and financial arrangements.

Demand-side response: incentives for reducing consumption

When the grid is under pressure, RTE and other market players can use demand-side response to maintain a balance between supply and demand.  

By way of compensation for these demand-side response efforts, RTE has set up a mechanism called NEBEF (Notification d’Échange de Blocs d’Effacement). This novel system enables demand-side response participants – be they market players, suppliers or consumers – to bid their curtailed load as energy directly into the electricity market.

Capacity mechanism: maintaining security of supply

Up until now, there has always been a need to build more and more generation facilities to cope with peaks in demand, especially in winter. RTE’s capacity mechanism provides a novel solution. Its role is to stimulate investment in generation facilities and demand-side response systems to maintain medium-term security of supply. This supports the successful completion of the energy transition by making the power system more flexible and by encouraging the development of renewable energy sources. It places generation and demand-side response capacity on an equal footing.

How does this principle work? Each supplier of electrical power has to have a certain amount of guaranteed capacity depending on its customers’ power consumption. Certified by RTE, these guarantees may be acquired from generation facilities or demand-side participants, who undertake to ensure that their facilities remain available during peak periods.