Electricity markets and regulation
By Alex Cruickshank, Chair, & Yannick Phulpin, Secretary
Introduction
Electricity Markets, like the objectives of the entities and systems that those markets serve, continue to evolve. Internationally, markets have developed and have successfully provided economic signals that support the efficient operation and development of electricity consumption, storage, and generation facilities. The success of those markets have allowed for the recognition, development and successful implementation of new technologies and solutions for supplying and purchasing electricity. Electricity markets have also attracted new demands in the power system.
Study Committee C5 is expanding its focus to report on and discuss the regulatory and market issues associated with the changing electric power industry, which includes both transmission and distribution. SC C5 members provide needed insight to the wide variety of market requirements involved with providing reliable energy with the changes in renewable energy, distributed energy resources, and consumer choice. Moreover, the changing landscape of behind-the-meter supply and the growing recognition for different levels of reliability and flexibility provides changes in requirements and changes in market designs to properly incentivise the new providers and consumers, wherever they may be.
Scope of work
The scope of the Study Committee is to analyse the impacts on the planning and operation of electric power systems of different market approaches and solutions; and of new structures, institutions, actors and stakeholders. It also encompasses the role of competition and regulation in improving end-to-end efficiency of the electric power system.
Structure of SC C5
The structure of the study committee is shown in Figure 1.
Figure 1 - Study Committee Structure
The structure has evolved in 2021 to include a Technical Programme Committee (TPC) that manages the selection of papers and the conduct of the General Discussion Meetings. The TPC will also manage the Reviewer Panel that is being established as part of the new process for handling Session papers.
The TPC comprises Kankar Bhattacharya as the Chairman and the three Special Reporters for 2022; Jarrad Wright, SC Saxena and Anant Venkateswaran.
SC C5 Membership
The current membership of the study committee is available at https://c5.cigre.org/GB/about-sc-c5/our-members. The Study Committee has 24 ordinary members and 18 observers. Together, the members and observers represent 37 different countries
WG Membership
The Working Group membership and demographics are examined in March of each year. The report for 2021 noted that the Study Committee had 6 Working Groups. There were 153 members in the Working Groups. The WG members were spread across 31 countries. SC C5 Working Groups had 14% female membership and a smattering of NGN members.
Principal areas of interest
The Study Committee focuses on three key areas:
- Market structures and products (market design, physical/financial markets and interaction, isolated and interconnected systems);
- Market approaches and tools (demand/price forecasting, financial risk management, demand management and active customer integration);
- Regulations (regulatory objectives, regulatory approaches, transmission pricing, ancillary service pricing, reliability and economics).
In addition, the Study Committee is interested in:
- Changes in regulatory roles and jurisdiction related to the interaction between the transmission system and the distribution system;
- The role of markets, including: the integration and coordination of distributed energy resources; the impact on wholesale market price formation caused by non-wholesale market participants; the need for and development of distribution service providers;
- The impact of emerging technologies on system operations;
- Market clearing procedures, techniques and principles used to take advantage of the flexibility of aggregating large numbers of end-users;
- Potential market rule changes to address changes in traditional ancillary service products.
Areas of attention
The current areas of attention, which are reflected in the current working groups, are listed below.
Demand Side Management (DSM) and Demand Response (DR) solutions and their integration into existing market structures
Innovative DSM and DR mechanisms have become a priority in the transition to low carbon energies. The role of transmission system operators (TSOs) and distribution system operators (DSOs) in managing DR services (e.g. operational time frames, service procurement mechanisms, payment methods, and activation of such services). The development of DR auction markets (time frame, bid structure, and pricing mechanisms.)
- WG C5.26 - Auction Markets and Other Procurement Mechanisms for DR Services
- WG C5.31 - Wholesale and Retail Electricity Cost Impact of Flexible Demand Response
Market Drivers
The purposes for market changes, the initiators of those changes, the processes for selecting a proposed change and the success of changes in meeting their objectives
- WG C5.28 - Energy Price Formation in Wholesale Markets
- JWG C5/C6.29 - New Electricity Markets, Local Energy Communities
Environmental Regulation in the Electricity Sector
A variety of regulatory or market-based approaches are implemented to manage environmental constraints, such as reductions in greenhouse gas emissions
- WG C5.32 - Carbon Pricing in Electricity Markets
Blockchain use cases to support electricity markets
In-depth look at the potential applications for blockchain in the area of energy trading
- WG C5.33 - Trading Electricity with Blockchain Systems
2021 Centennial Session - Virtual Session
General Discussion Meeting
The CIGRE Centennial Session included a general discussion meeting in the form of two, four-hour online sessions. In addition, the Study Committee organized a presentation and discussion of the activities performed by 4 Working Groups. The live streaming of these sessions were attended by 116 and 149 unique attendees, respectively.
The special report of SC C5 was based on 48 papers, and the GDM featured 27 registered contributions.
Workshop
The Study Committee convened a workshop, in conjunction with SC C2 to examine large disturbances in energy market and systems. The workshop featured 5 presentations, of events in Sri Lanka, India, Australia, Europe, and the USA. The live streaming was attended by more than 222 unique attendees. The Large Disturbance workshop has been convened by CIGRE during the Paris Session for many years and recently has included market disturbances.
Seminar
The Study Committee also convened one seminar, in conjunction with IEEE, examined potential standards for blockchain technology to manage electricity-related trades.
Tutorials
The Study Committee organized a new tutorial on the technical capability and limitations of the blockchain technologies to support electricity market applications. This tutorial was conducted during the GDM.
The tutorial on the findings of the working group on market-design for short-term flexibility was replayed during the Centennial Session. One of the presenters of the original tutorial was present during the replay and answered questions from the attendees.
Topics of current and recent Working Groups
WG C5.26 - Auction Markets and Other Procurement Mechanisms for DR Services
One of the key features of smart grids is that they have strengthened the interest in demand-side resources such as distributed generation, on-site storage, and DR. How the DR services are procured- via auction markets, long-term contractual mechanisms, or other, and implemented in market operations in various electricity markets around the world is worth studying and understanding. This Working Group (WG) will identify the various complexities in different DR procurement mechanisms, and their operational aspects. The WG will identify the barriers in different models and develop a global outlook for management of DR services.
WG C5.28 - Energy Price Formation in Wholesale Electricity Markets
The structure of wholesale electricity markets impacts how prices are formed, and how accurately prices reflect the true cost of serving load. As the dynamics of the electric power sector change – especially the characteristics of the generation mix – there is a need to evaluate whether pricing mechanisms are adequately valuing wholesale electricity.
This Working Group will analyse price formation with a focus on wholesale energy markets. The group will gather information about pricing mechanisms as they exist today and examine if these mechanisms are working as desired. For example, are energy markets incentivising desired operational behaviour? Are out-of-market (uplift, make-whole) payments impacting desired price signals? Are there attributes not currently valued in energy markets – like flexibility or environmental externalities – that should be considered in price formation? After evaluating today’s energy pricing landscape, the Working Group will discuss potential enhancements that could more accurately reflect the true cost of wholesale energy.
JWG C5/C6.29 - New Electricity Markets, Local Energy Communities
Today it becomes more and more efficient to develop local energy systems based on distributed energy resources (DER) allowing customers to become energy suppliers. Adding locally batteries to dispersed generators, stationary or within electric vehicles, allows for a group of citizens or more generally for any group of consumers, to settle their own local structure for their supply of electricity, becoming a local energy community (LEC). With the digitalization of economy and some specific tools such as block chain, each of this group may organize easily its local market. Depending on national regulation, LEC can or not own and/or operate the network, or even target to be physically balanced, enabling islanded operation. As underlined by the recent Clean Energy Package in the EU, regulation is under development for LEC.
This JWG will liaise with parallel JWG D2/C6.47 “Advanced Consumer-Side Energy-Resource Management Systems”.
WG C5.30 - The Role of Block Chain Technologies in Power Markets
This Working Group consists of two streams of work.
The first phase, Exploration, is an assessment of the potential value and uses of block chain technologies in energy markets and power systems. This will include an explanation of how they work and some simplified examples of possible applications. Specifically, this stage will:
- gather information on the characteristics of distributed ledger products.
- consider the range of potential applications in electricity both for financial and physical parameters
- consider the implications for the electricity industry: efficiency and scope for new approaches with vastly more transactions - vs - disruption and the risk of being bypassed
The second phase, Assessment, will be a review of a range of trials and examples of early adoption of projects that use block chain, to document their value and practicality. During the project, a set of assessment criteria will be developed and applied to the trials and examples.
WG C5.31 - Wholesale and Retail Electricity Cost Impact of Flexible Demand Response
The study aims to provide an international view of the connection between retail programs/rate structures to costs incurred in the provision of electric service that may be impacted by flexible demand response (DR). Demand response (DR) includes all forms of demand-side response, which refers to a change in load coordinated with system or market needs. The change in load behind the utility meter of the customer can stem from end-use equipment, storage, PV, and other forms of distributed generation.
The study also aims to analyse the methods applied in practice to either directly or indirectly reduce costs, by service territory, in both regulated and competitive market environments. Introductory background on the functions that flexible DR supports and how it is factored into system planning and/or operations will be addressed at a high-level to provide context for presentation of findings by service territory.
The study will also identify and clarify terminology, in order to assist data collection and presentation of findings with consistency to support ready comparison of findings across service territories.
WG C5.32 - Carbon Pricing in Wholesale Electricity Markets
This Working Group will analyse mechanisms for pricing carbon and other greenhouse gases in wholesale electricity markets. While other studies such as those by the World Bank provide an overview of existing and emerging carbon pricing initiatives, this Working Group will focus specifically on their impacts on electricity markets.
The group will gather information about carbon pricing mechanisms as they exist today and examine if these mechanisms are working as desired. For example, are market participants and regulators supporting the market approach or not and what types or border adjustment mechanisms are being used.
The Working Group will analyse key themes and trends among the various market mechanisms and initiatives.
WG C5.33 - Trading Electricity with Blockchain Systems
This Working Group will build on the work of C5.30 and drill down into the actual use of blockchain for trading and marketing in operational systems including the contribution which can be made to balancing the power system.
The analysis will include an assessment of where the technology is used, which implementations of blockchain are used, the tools which have been developed using blockchain and a description of how they work. The key issue will be what benefits blockchain brings which cannot be achieved with other technologies.
CIGRE active Working Groups / Call for experts
Latest publications (2020/2021)
Green books
The Green Book, “Electricity Supply Systems of the Future”, was published just prior to the 2020 eSession. The book featured chapters from each Study Committee. SC C5 contributed a chapter on future electricity markets and regulation focusing on 2050.
The Green Book is available for purchase on our partner's website Springer.
If you are an CIGRE Member, please contact us to benefit from a 40% discount on your purchase (indicate your active member number and your National Committee in your message).
A second Green Book “Springer Handbook of Power Systems” was published in 2021. Members of SC C5 contributed to the chapter on electricity markets.
Technical Brochures published in 2020/21
Pending Technical Brochures for 2021/22
Three Working Groups expect to complete their work and publish technical brochures in the coming 12 months:
- Auction Markets and Other Procurement Mechanisms for DR Services
- Energy Price Formation in Wholesale Electricity Markets
Future Study Committees C5 meetings
- 2022 - Kyoto, Japan - CIGRE Symposium, April 3-8 (informal meeting)
- 2022 - Paris, France - CIGRE Session, August
- 2023 - Cairns, Australia - CIGRE Symposium, September 4-7
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