Unfortunately, the article misses the forest for the tree: it points the shortcomings of one particular electricity market model, but never acknowledge that the whole endeavor is doomed to fail: the way electricity works physically (coupled with the way societies have been built around it being readily available) makes it fundamentally impossible to manage through market forces. And as a result, every attempt results in an apparently nonsensical failure (see also how the European electricity market's "copper plate" model leads to the insanely high re-dispach costs).
Not all markets, and not even all European markets, assume a single trading zone (i.e. a copper plate network). Re-dispatch costs are high because policy choices have created a physical reality that drives high constraints.
That could have been prevented by simply not permitting connections in certain parts of the network. Yes, theoretically it could also have been prevented by forcing generators to directly bear re-dispatch costs which would have led developers to build a different set of generating assets. This would have been a different set of market mechanisms.
However, if generation decisions had been made centrally, they would have been made by the same system operators, regulators, and governments that mandated the construction of the current system and they would have therefore built the same system more or less. Do you really think that if e.g. Germany or the GB network had been centrally planned by their respective government mandated regulators and system operators, they wouldn't have put all those windfarms exactly where the market-led model we actually have has put them?
-dispatch costs are high because policy choices have created a physical reality that drives high constraints.
You don't seem to understand what's driving the so-called re-dispatch costs in Germany so let me explain: when there's power consumption in the South, it is paid at the market price, when the "supplier" is located in the North (typically wind) and there's not enough network capacity to transfer the power to the consumer, the transport authority sends an order to the supplier not to produce the electricity, and instead pays a thermal power plant in the South (at a higher price than market price, by definition) to provide it instead.
That's not a problem of physical realities driving constraints, that's the problem of a market that uses a very simplified model that simply can't deal with the complexity of the underlying phenomenon (we don't even have enough computing power to accurately model the electricity transport at national scale given how challenging the equations are, and even the lineralized version that are being used in practice are already very compute-intensive, it's entirely futile to expect to build a market that can efficiently reflect them).
The issue is that the physical reality of the network and the location of generators and loads is fixed at time of [re-]dispatch. Regardless of how you reconfigure the dispatch mechanism, there is energy that cannot be moved through the network from the wind in the North to the load centres in the South. The only way to avoid that physical reality is to either massively increase the N-S transmission capacity or to put generation capacity closer to load.
Once these generators have been placed where they are and pending extremely challenging network expansion being realised, it will always be the case that some party or set of parties bears the cost of the constraint.
If you moved the ownership and control of the transmission network and all generators into a single operator that was responsible for optimising its operation in near-real-time and that bore all the costs within a single accounting perimeter, it would do more or less what the the existing market based mechanism does: turn off the wind generators and instruct the thermal plants in the South to run instead.
Yes, it's true that in that case there would not be a "market price" paid to wind turbines that actually cannot run, nor would there be a higher re-dispatch price paid to the thermal generator. However the total system cost would still be the same. Even though the wind turbines would "lose" money because they can't run and the thermal plant wouldn't receive its market price for relieving the congestion.
Of course you could argue that this efficient single operator simply wouldn't have built the wind assets in the first place in a location where they often couldn't run but that assumes that the same policy makers who created the current outcome wouldn't have engineered the exact same outcome through the direct control they presumably would have had of the integrated operator. I will note that many American utilities actually are vertically integrated like this (banned in the EU under the Third Energy Package) and they build in the exact same pattern and bear the constraint costs internally.
If you moved the ownership and control of the transmission network and all generators into a single operator that was responsible for optimising its operation in near-real-time and that bore all the costs within a single accounting perimeter, it would do more or less what the the existing market based mechanism does: turn off the wind generators and instruct the thermal plants in the South to run instead.
But it wouldn't count a profit in the North and build yet another pointless wind turbine in the North. Whereas the current system, because it pays the Northern producer the market rate, for electricity that isn't needed, shape the grid in a nonsensical way! That's the core of the criticism.
Of course you could argue that this efficient single operator simply wouldn't have built the wind assets in the first place in a location where they often couldn't run but that assumes that the same policy makers who created the current outcome wouldn't have engineered the exact same outcome through the direct control they presumably would have had of the integrated operator.
There's literally no reason to assume they would have done the same choice given they would have responded to completely different incentives (minimizing the total cost, instead of individual actors maximizing their profit under the artificial price scheme).
My reason for assuming that they would have made the same choices or in any case a broadly equivalent one is the fact that the BNetzA, the BMWE, and political stakeholders knew from the beginning of the renewable buildout that the combination of current grid connection arrangements, network tariffs, energy markets, and subsidies would lead to this situation and they went ahead anyway. [The BNetzA regulates the networks and the BMWE is the relevant ministry in the German context]
They did so for political and ideological reasons that I think are pretty clear to anyone who follows European politics.
Had those same political stakeholders had more direct executive control of a single national electricity system, they would have done the same thing and for the same reasons.
Yes, of course a vertically integrated system optimising for efficiency would never have made these choices but the same political decision makers who shut down Germany's nuclear fleet would never have permitted such an integrated system to operate in such an efficient way if it meant not building wind assets.
We can see the impact of a different political direction in the French electricity system, which despite being structurally similar to the decision making of the German system is in practice much more centrally directed and which despite absurd attempts to sabotage it from within France and within the EC continues to operate in a much more optimal way.
It doesn't do this through formal centralisation and integration but by the careful design of grid codes and subsidy regimes to avoid these absurdities.
The “copper plate” rule appeared in 1998, long before the phaseout of nuclear and the move to wind power. Your argument completely confuses cause and effect: the reason why wind was pursued was because the market model made it look like it was the most economically efficient.
Thinking that someone made a plot to favor wind against more than a decade in advance by designing the market this way is laughable.
And by the way, I'm French and your point about my country couldn't be more inaccurate: the market rules are equally absurd, if not worse, the only reason the system works the way it does is that EDF is big enough (both in terms of electricity production and economic power) to be able to perform the central damage control. It severely affects their ability to make profits though (which is why the company was pulled back from the stock exchange).
Huh, did you get this example from an LLM, or is it the bog-standard way of explaining it? I asked ChatGPT to explain what a "copper plate" is because I was lazy, and it used 1:1 the exact same example as you did (Germany,wind generation in the north paying a thermal plant in the south)
Nope, not LLM, and yes it's just the textbook example and that's why the LLM says the same thing (it's as if you were surprised someone explained distributed systems using Byzantine generals and the LLMs did the same).
Not pricing transmission in the price of EU power likely is more of a market design issue rather than a technical one given that the U.S markets have been doing this since they liberalized 30 years ago (though yes, everything will be priced according to linearized power flow in order to make things feasible to solve). Wonder if it’s more of a political question in the EU with how to handle cross border flows (even U.S markets have/have had issues with modeling this, see PJM/MISO seams modeling)
It's not about border, I'm talking about power flow through Germany.
And of course it's a market design issue, but as I said above, the problem is that you'll always face market design issues because the market designers face an impossible problem: you want to use a simple enough model and you're modeling an insanely complex problem for which any discrepancy between the model and reality will result in a catastrophic failure unless you have a central authority there to patch the holes.
At the end of the day, it's always going to be a centrally-managed system (because you cannot afford blackouts) but with the central planner merely swallowing the cost of the economic inefficiency rather than preventing it.
I mean, I guess I disagree that you need anything close to a perfect model. You will get many of the benefits of the correct solution by using linearized power flow with nodal pricing and explicitly modeling transmission constraints (and by extension, redispatch). Afaik, Germany doesn’t do this, but as you had described earlier, redispatch costs are physical in nature and obviously still exist, they just aren’t reflected in prices. This is very dumb.
Suppose a new generator wants to know which is the best node to interconnect to. This should be obvious from nodal pricing, as you would simply check the node that has the highest INC redispatch/lowest congestion costs (the nodes in the south of Germany in your example). Similarly, the worst node to connect to will be the one with the highest DEC redispatch/highest congestion costs (the North). Instead, in the current german system, I would think you would need to do some contrived thing of figuring out which generators are getting the highest uplift payments, but this would be very imperfect as you would not know how sensitive a different node would be to the system redispatch (not to mention, this is assuming this information is even readily published).
There’s really no excuse to not adopt nodal pricing over whatever exists for a centrally planned grid operator. I can only really imagine it’s a political issue.
I mean, I guess I disagree that you need anything close to a perfect model.
It's an adversarial setting, economic actors are incentivized to find any loophole and exploit them, so even if it doesn't need to be perfect it needs to be indistinguishable from perfection from the PoV of the market actors, otherwise the defects will be weaponized.
Do you really think that if e.g. Germany or the GB network had been centrally planned by their respective government mandated regulators and system operators, they wouldn't have put all those windfarms exactly where the market-led model we actually have has put them?
This is a huge "it depends", because we are then comparing a partly-political system with a fully-political system. The privatized model builds at the optimal locations for getting paid under the prevailing rules; the state one is much more prone to getting distracted by lobby groups. See the German over-dependence on coal and the UK conservative ban on onshore wind farms.
I will be interested to see how the deployment of affordable battery storage changes the economics. I've also seen a striking presentation about how much renewables the UK plans to deploy (roughly double!) by 2030. More on the strategy: https://www.gov.uk/government/publications/clean-power-2030-...
"Clean Power means that by 2030, Great Britain will generate enough clean power to meet our total annual electricity demand, backed up by unabated gas supply to be used only when essential."
the way electricity works physically (coupled with the way societies have been built around it being readily available) makes it fundamentally impossible to manage through market force
Comments
Unfortunately, the article misses the forest for the tree: it points the shortcomings of one particular electricity market model, but never acknowledge that the whole endeavor is doomed to fail: the way electricity works physically (coupled with the way societies have been built around it being readily available) makes it fundamentally impossible to manage through market forces. And as a result, every attempt results in an apparently nonsensical failure (see also how the European electricity market's "copper plate" model leads to the insanely high re-dispach costs).
Not all markets, and not even all European markets, assume a single trading zone (i.e. a copper plate network). Re-dispatch costs are high because policy choices have created a physical reality that drives high constraints.
That could have been prevented by simply not permitting connections in certain parts of the network. Yes, theoretically it could also have been prevented by forcing generators to directly bear re-dispatch costs which would have led developers to build a different set of generating assets. This would have been a different set of market mechanisms.
However, if generation decisions had been made centrally, they would have been made by the same system operators, regulators, and governments that mandated the construction of the current system and they would have therefore built the same system more or less. Do you really think that if e.g. Germany or the GB network had been centrally planned by their respective government mandated regulators and system operators, they wouldn't have put all those windfarms exactly where the market-led model we actually have has put them?
You don't seem to understand what's driving the so-called re-dispatch costs in Germany so let me explain: when there's power consumption in the South, it is paid at the market price, when the "supplier" is located in the North (typically wind) and there's not enough network capacity to transfer the power to the consumer, the transport authority sends an order to the supplier not to produce the electricity, and instead pays a thermal power plant in the South (at a higher price than market price, by definition) to provide it instead.
That's not a problem of physical realities driving constraints, that's the problem of a market that uses a very simplified model that simply can't deal with the complexity of the underlying phenomenon (we don't even have enough computing power to accurately model the electricity transport at national scale given how challenging the equations are, and even the lineralized version that are being used in practice are already very compute-intensive, it's entirely futile to expect to build a market that can efficiently reflect them).
I know how re-dispatch works.
The issue is that the physical reality of the network and the location of generators and loads is fixed at time of [re-]dispatch. Regardless of how you reconfigure the dispatch mechanism, there is energy that cannot be moved through the network from the wind in the North to the load centres in the South. The only way to avoid that physical reality is to either massively increase the N-S transmission capacity or to put generation capacity closer to load.
Once these generators have been placed where they are and pending extremely challenging network expansion being realised, it will always be the case that some party or set of parties bears the cost of the constraint.
If you moved the ownership and control of the transmission network and all generators into a single operator that was responsible for optimising its operation in near-real-time and that bore all the costs within a single accounting perimeter, it would do more or less what the the existing market based mechanism does: turn off the wind generators and instruct the thermal plants in the South to run instead.
Yes, it's true that in that case there would not be a "market price" paid to wind turbines that actually cannot run, nor would there be a higher re-dispatch price paid to the thermal generator. However the total system cost would still be the same. Even though the wind turbines would "lose" money because they can't run and the thermal plant wouldn't receive its market price for relieving the congestion.
Of course you could argue that this efficient single operator simply wouldn't have built the wind assets in the first place in a location where they often couldn't run but that assumes that the same policy makers who created the current outcome wouldn't have engineered the exact same outcome through the direct control they presumably would have had of the integrated operator. I will note that many American utilities actually are vertically integrated like this (banned in the EU under the Third Energy Package) and they build in the exact same pattern and bear the constraint costs internally.
But it wouldn't count a profit in the North and build yet another pointless wind turbine in the North. Whereas the current system, because it pays the Northern producer the market rate, for electricity that isn't needed, shape the grid in a nonsensical way! That's the core of the criticism.
There's literally no reason to assume they would have done the same choice given they would have responded to completely different incentives (minimizing the total cost, instead of individual actors maximizing their profit under the artificial price scheme).
My reason for assuming that they would have made the same choices or in any case a broadly equivalent one is the fact that the BNetzA, the BMWE, and political stakeholders knew from the beginning of the renewable buildout that the combination of current grid connection arrangements, network tariffs, energy markets, and subsidies would lead to this situation and they went ahead anyway. [The BNetzA regulates the networks and the BMWE is the relevant ministry in the German context]
They did so for political and ideological reasons that I think are pretty clear to anyone who follows European politics.
Had those same political stakeholders had more direct executive control of a single national electricity system, they would have done the same thing and for the same reasons.
Yes, of course a vertically integrated system optimising for efficiency would never have made these choices but the same political decision makers who shut down Germany's nuclear fleet would never have permitted such an integrated system to operate in such an efficient way if it meant not building wind assets.
We can see the impact of a different political direction in the French electricity system, which despite being structurally similar to the decision making of the German system is in practice much more centrally directed and which despite absurd attempts to sabotage it from within France and within the EC continues to operate in a much more optimal way.
It doesn't do this through formal centralisation and integration but by the careful design of grid codes and subsidy regimes to avoid these absurdities.
Gosh, what kind of conspiracy theory is that?!
The “copper plate” rule appeared in 1998, long before the phaseout of nuclear and the move to wind power. Your argument completely confuses cause and effect: the reason why wind was pursued was because the market model made it look like it was the most economically efficient.
Thinking that someone made a plot to favor wind against more than a decade in advance by designing the market this way is laughable.
And by the way, I'm French and your point about my country couldn't be more inaccurate: the market rules are equally absurd, if not worse, the only reason the system works the way it does is that EDF is big enough (both in terms of electricity production and economic power) to be able to perform the central damage control. It severely affects their ability to make profits though (which is why the company was pulled back from the stock exchange).
Huh, did you get this example from an LLM, or is it the bog-standard way of explaining it? I asked ChatGPT to explain what a "copper plate" is because I was lazy, and it used 1:1 the exact same example as you did (Germany,wind generation in the north paying a thermal plant in the south)
Nope, not LLM, and yes it's just the textbook example and that's why the LLM says the same thing (it's as if you were surprised someone explained distributed systems using Byzantine generals and the LLMs did the same).
Not pricing transmission in the price of EU power likely is more of a market design issue rather than a technical one given that the U.S markets have been doing this since they liberalized 30 years ago (though yes, everything will be priced according to linearized power flow in order to make things feasible to solve). Wonder if it’s more of a political question in the EU with how to handle cross border flows (even U.S markets have/have had issues with modeling this, see PJM/MISO seams modeling)
It's not about border, I'm talking about power flow through Germany.
And of course it's a market design issue, but as I said above, the problem is that you'll always face market design issues because the market designers face an impossible problem: you want to use a simple enough model and you're modeling an insanely complex problem for which any discrepancy between the model and reality will result in a catastrophic failure unless you have a central authority there to patch the holes.
At the end of the day, it's always going to be a centrally-managed system (because you cannot afford blackouts) but with the central planner merely swallowing the cost of the economic inefficiency rather than preventing it.
I mean, I guess I disagree that you need anything close to a perfect model. You will get many of the benefits of the correct solution by using linearized power flow with nodal pricing and explicitly modeling transmission constraints (and by extension, redispatch). Afaik, Germany doesn’t do this, but as you had described earlier, redispatch costs are physical in nature and obviously still exist, they just aren’t reflected in prices. This is very dumb.
Suppose a new generator wants to know which is the best node to interconnect to. This should be obvious from nodal pricing, as you would simply check the node that has the highest INC redispatch/lowest congestion costs (the nodes in the south of Germany in your example). Similarly, the worst node to connect to will be the one with the highest DEC redispatch/highest congestion costs (the North). Instead, in the current german system, I would think you would need to do some contrived thing of figuring out which generators are getting the highest uplift payments, but this would be very imperfect as you would not know how sensitive a different node would be to the system redispatch (not to mention, this is assuming this information is even readily published).
There’s really no excuse to not adopt nodal pricing over whatever exists for a centrally planned grid operator. I can only really imagine it’s a political issue.
It's an adversarial setting, economic actors are incentivized to find any loophole and exploit them, so even if it doesn't need to be perfect it needs to be indistinguishable from perfection from the PoV of the market actors, otherwise the defects will be weaponized.
This is a huge "it depends", because we are then comparing a partly-political system with a fully-political system. The privatized model builds at the optimal locations for getting paid under the prevailing rules; the state one is much more prone to getting distracted by lobby groups. See the German over-dependence on coal and the UK conservative ban on onshore wind farms.
I will be interested to see how the deployment of affordable battery storage changes the economics. I've also seen a striking presentation about how much renewables the UK plans to deploy (roughly double!) by 2030. More on the strategy: https://www.gov.uk/government/publications/clean-power-2030-...
"Clean Power means that by 2030, Great Britain will generate enough clean power to meet our total annual electricity demand, backed up by unabated gas supply to be used only when essential."
(note details of wording)
This is anti-scientific woo. Both theoretically and empirically market-based electricity systems are much more efficient, that's why even China is adopting one: https://www.enerdata.net/publications/daily-energy-news/chin...
This is hilarious coming from someone defending a concept that assumes neither thermodynamics nor Maxwell's laws exist.
When making preposterous hypothesis you can prove literally anything to be efficient.
Ah yes, like the PJM and the European market are “empirically efficient”.