Congestion management within and between the Dutch and German transmission networks

Electricity is an essential service that can be seen as a utility necessary for modern life. It is typically generated in large scale power plants, and must then be transported through a capital intensive infrastructure known as the transmission grid. It can not be easily stored for later use, which implies that supply and demand of it must be balanced at all times. The capacity of the grid to transport electricity is limited. If it is overburdened, costly loss of property and the failure of the network can result. Electricity transport is special, because the marginal costs for transport from one place to another often depend on what is happening elsewhere in the system. This is a consequence of the fact that flows through a network depend on physical properties rather than exclusively following from economic transactions. The term ‘congestion’ applies when the capacity of the transmission network is not sufficient in order to meet our transport needs for electricity. Such congestion is currently an issue in the Netherlands, where investment in generation capacity is expected to outpace the construction of stronger transmission networks during the coming years. Congestion can be managed through the allocation of scarce capacity beforehand, using methods such as explicit or implicit auctions. This is presently the situation on the transmission links on the borders between the Netherlands and neighbouring countries. It can also be managed while maintaining a single price within the country, using methods such as counter trade that correct infeasible electricity flows closer to the real time of power plant dispatch while maintaining a single price for electricity in an area. This costs money, as the power which would have been dispatched is less expensive than that which is constrained on instead. A model was built which can determine both the economic outcomes of electricity trade within the markets (quantities produced and prices paid at each location ) and the resulting flows of electricity through the networks. This model was used to compare methods for managing congestion for a set of plausible scenarios for 2014, involving potential additions to the available generation capacity and incidental conditions which may contribute to congestion. The results suggest that the additional costs to society in the form of the increased expense resulting from counter trade are quite modest compared to the total magnitude of power costs. The most significant congestion costs were found given large amounts of wind power in the north of the Netherlands and Germany, around 70 000 Euros per hour. Those costs were roughly estimated to imply annual costs of up to 80 million Euros. The difference between the optimal dispatch achievable using locational prices and the counter trade is around 5% of congestion cost. If the scenario with wind energy occurs, the model predicts most of the additional costs of congestion related to counter trade could be avoided by implementing price zones within Germany. Increased interconnection on the borders between the Netherlands and Germany was investigated. This would reduce some but not all congestion, as national networks would remain congested. The research also identified the fact that decreasing tradable interconnection capacity on the borders could allow TSOs to avoid some of the expense of counter trade within their networks. This could potentially cost society at least as much as managing the congestion. Based on this research, policymakers are advised to consider counter trade as a feasible option if developments in new electricity plants in the CWE region remain close to the expectations forming the input for the reference scenario described in this thesis. However, they should note that the cost estimates for using this method were based on conservative assumptions relating to perfect competition and available transmission capacity. If developments such as the rapid realization of wind power occur, which could lead to greater congestion than in the reference scenario, policymakers are advised to closely monitor whether market performance conforms to these conservative assumptions. If significant congestion is caused due to rapid wind power development in the north of the Netherlands and Germany, policymakers are advised to consider the feasibility of implementing two price zones within Germany. Doing so would allow congestion to be managed at lower cost to society than by using counter trade. If and when that situation occurs, regulators would also be advised to monitor the possibilities for abuse of market power by market participants who take on the role of pivotal suppliers for the purpose of relieving congestion.Infrastructure Systems & ServicesTechnology, Policy and Managemen