Day-ahead and intraday electricity markets in various market areas

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Mina Ghanadi

DAY-AHEAD AND INTRADAY ELECTRICITY MARKETS IN VARIOUS MARKET AREAS

Master of Science thesis Faculty of Information Technology and

Communicating Sciences Examiner: Prof.Pertti Järventausta

November 2020

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ABSTRACT

Mina Ghanadi: Day-ahead and intraday electricity markets in various market areas Master of Science Thesis

Tampere University

Master degree program in Electrical Engineering, Smart grid November 2020

Increasing the usage of renewable resources makes the electricity market important in all countries. Day-ahead and intraday electricity markets play an important role in the electricity market all over the world. Trading on day-ahead markets happens on one whole day before real-time and all participants in the market buy and sell by relying on their estimations on this market. They have the ability to correct their transactions on the intraday market which closure time is just one hour before real-time.

In this thesis, intraday and day-ahead electricity markets in Nordic countries, Germany, United Kingdom, Australia, and the USA have been studied. Various viewpoints of these two markets in selected countries are pursued. Introducing definitions, the impact of the type of electricity generation, energy storage, and demand response have been studied on the electricity market in each country. Extracting day-ahead prices and electricity generation and production from August 2019 to August 2020 is studied in this thesis. Comparing day-ahead electricity prices in all selected countries in one year from August 2019 to August 2020 has done. Intraday electricity market prices have been extracted for July for Nordic countries and Germany.

After the study on the day-ahead and intraday electricity market, it is realized that a lack of balance between supply and demand is one of the factors that affect electricity prices in both intraday and day-ahead prices. Importing electricity from adjacent countries enhance day-ahead and intraday prices. A high share of hydropower generation causes smoothness and reduction in short term prices in both day-ahead and intraday markets. A high proportion of wind generation boosts intermittency in both electricity production and market prices. Increasing usage of renewable energies decreases average day-ahead prices in all selected countries from August 2019 to August 2020. It is also concluded that day-ahead and intraday electricity prices are relevant to each other but intraday prices mainly have higher values with more fluctuation.

Keywords: Electricity market, Intraday, Day ahead, Market prices, Demand Response, Electrical Energy Resources

The originality of this thesis has been checked using the Turnitin Originality Check service.

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PREFACE

This dissertation is about the day-ahead and intraday electricity markets in various market areas. The thesis has been written for the faculty of Information Technology and Communicating Sciences of Tampere University.

I would like to thank my supervisor Professor Pertti Järventausta for his skillful guid- ance and aid during this process. I would like to thanks for providing the necessary ground for this research by transferring his knowledge about the method of collecting materials and conducting research and recording the obtained information.

I would like to dedicate this collection to my parents and my sister that they self- sacrifice for me in my whole life. I want to thanks their rich emotion and hopeful warmth of their existence that is the best support on hard days, thanks to their big hearts that encourage me to overcome my fears.

Tampere, 15 November 2020 Mina Ghanadi

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LIST OF FIGURES

Different electricity markets based on time ... 6

Electricity system model ... 7

Global cumulative battery energy storage installation capacities ... 9

Overview of energy storage technologies, power, and energy storage durations ... 10

The reason that energy storages are important ... 11

Countries and zones that contributing in ELBAS: Yellow are Nordic, Red are Baltic and Blue are Continental European ... 14

Electricity generation by different sources in the Nordic area of 2017 ... 16

Share of generation by different companies in the Nordic area in 2018 ... 16

Nordic monthly electricity production and consumption from August 2019 to August 2020 ... 17

Maximum revenues for everyday price arbitrage with PHS in ELSPOT (Nordic day-ahead market) on 2012-2015 ... 18

Max revenues with price arbitrage in ELBAS ( Nordic intraday market) ... 19

Advantages from installing different EES in different electricity markets in Finland versus analyzing life cycle cost for different EES (for near 300 cycles for a year) ... 20

Absolute and relative cost savings for a set of small customers doing Elspot FI based DR with a theoretically with almost the best possible load control system that is a conclusion from ... 22

Range of price in ELPOT and each hour changing on Nrordbalt connection on 2015 and 2016 ... 23

Various designing in intraday electricity markets in Europe: orange indicates “Discrete auction, yellow shows “Continues trading”, green is a mixture of both continues trading and discrete auction and there is no information for green ones on 2015 ... 24

Nordic electricity market mechanisms ... 25

Germany electricity production by different sources in 2019 [34] ... 27

Actual generation and total consumption of Germany from August 2019 to August 2020 ... 28

Germany market mechanism ... 33

Germany transmission system operators in four regions ... 34

U.K electricity production and consumption flowchart 2019 (TWh) ... 36

U.K electricity production by different sources in 2019 [62] ... 37

Average generation of U.K from August 2019 to September 2020 ... 38

U.K market mechanism ... 42

Australia electricity market zones including Queensland (Qld), New South Wales (NSW), Victoria (Vic), South Australia (SA), Tasmania (TAS), Western Australia (WA), and Northern Territory (NT) ... 44

Australia electricity production by different sources in 2019 ... 44

Average generation of Australia from August 2019 to August 2020... 45

Australia electricity market mechanism ... 48

A day in the NEM market ... 49

United state electricity production by different sources in 2019 ... 50

Electricity generation and consumption in all states in USA ... 51

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Average generation of USA from August 2019 to August 2020 ... 52 ISOs and RTOs on North America ... 55 USA electricity market mechanism ... 56 Six different zones day-ahead prices From Aug 2019-Aug 2020 in Norway ... 58 Day-ahead daily average price in Norway from Aug 2019-Aug

2020 ... 58 Production and consumption of electricity in Norway from Aug

2019-Aug2020 ... 59 Day-ahead daily price in Finland from Aug 2019-Aug 2020 ... 59 Production and consumption of electricity in Finland from Aug

2019-Aug2020 ... 60 Four different zones day-ahead prices From Aug 2019-Aug 2020

in Sweden ... 61 Day-ahead daily average price in Sweden from Aug 2019-Aug

2020 ... 61 Production and consumption of electricity in Sweden from Aug

2019-Aug2020 ... 62 Two different zones day-ahead prices From Aug 2019-Aug 2020 in Denmark ... 62 Day-ahead daily average price in Denmark from Aug 2019-Aug

2020 ... 63 Production and consumption of electricity in Denmark from Aug

2019-Aug2020 ... 63 Day-ahead daily prices for four different Nordic countries from Aug 2019-Aug 2020 ... 64 Daily wind power generation in Nordic countries from Aug 2019-

Aug 2020 ... 65 A hydro reservoir in different Nordic countries from Aug 2019-Aug 2020 ... 65 Daily Nordic average system price from August 2019 to August

2020 ... 66 Day-ahead daily price in Germany from Aug 2019-Aug 2020 ... 67 Production and consumption of electricity in Germany from Aug

2019-Aug2020 ... 68 Day-ahead daily price in United Kingdom (N2EX) from Aug 2019-

Aug 2020 ... 69 Production and consumption of electricity in the United Kingdom

from Aug 2019-Aug2020 ... 70 Five different zones day-ahead prices in Australia from Aug 2019-

Aug 2020 ... 71 Day-ahead daily average price in Australia from Aug 2019-Aug

2020 ... 72 Production of electricity by the sources in Australia from Aug 2019- Aug2020 ... 73 Six different zones day-ahead monthly prices for the USA from

Aug 2019-Aug 2020 ... 74 Day-ahead monthly average price for the USA from Aug 2019-Aug 2020 ... 74 Production and consumption of electricity in the USA from Aug

2019-Aug2020 ... 75 Average day-ahead electricity price for all selected countries ... 76 Nordic intraday price in all zones on 1st of July 2020 ... 79 Day-ahead and intraday hourly prices for Nordic countries on 1st

of July 2020 ... 80

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Day-ahead and intraday prices for Nordic countries for July 2020 ... 80 Day-ahead and intraday hourly prices for Germany on the 1st of

July 2020 ... 81 Day-ahead and intraday prices of Germany in July 2020 ... 81

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LIST OF TABLES

Electricity import and export comparison with adjacent countries in 2018 and 2019 in Germany ... 32 Electricity import and export comparison with adjacent countries

2019 in the U.K ... 36 UK energy storage high capacity projects ... 40 USA energy storage high capacity projects ... 53 Demand response cooperation in the various capacity market in

the USA ... 54 USA hubs and wholesale daily spot price name ... 56

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LIST OF SYMBOLS AND ABBREVIATIONS

AC Alternating Current

AEMC Australia Energy Market Commission AEMO Australian Energy Market Operator AER Australian energy regulator

AESO Alberta electric system operator ARENA Australian Renewable Energy Agency

AUD Australian Dollar

AVG Average

CAES Compressed Air Energy Storage

CAISO California independent system operator

CHP Combined Heat and Power

COVID-19 Coronavirus Disease 2019 CWE Market Coupling Western Europe

DA Day-ahead

DE Germany

DK Denmark

DR Demand Response

DSO Distribution system operators

E.g. Example

EES Electrical energy storage

EEX European Energy Exchange

ERCOT Electricity reliability council of Texas EsCos Energy Service Companies

EUR Euro

FCR Frequency Containment Reserve

FI Finland

FR France

GB Great Britain

GW Giga Watt

GWh Giga Watt-hour

HVDC High Voltage Direct Current ICE Intercontinental exchange

IE Ireland

IESO Ontario independent electricity system operator

IPP Independent Power Producer

ISO Independent system operators

ISO-NE Independent system operator New England

KWh Kilo Watt-hour

LED Light Emitting Diode

LMP Locational marginal price

MISO Midcontinent independent system operator

MWh Mega Watt-hour

NaS Sodium-sulfur storage

NEM National Electricity market

NERC North American electric reliability corporation NGET National Grid Electricity Transmission

NL Netherlands

NO Norway

NSW New South Wales

NT Northern Territory

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NYISO New York in the dependent system operator

OTC Over the Counter

PHS Pumped Hydropower Storage

Qld Queensland

RES Renewable Energy Resources

RIIO Revenue contain Incentives Innovation and Outputs

RPM Regulation Power Market

RTO Regional transmission organization

SA South Australia

SCED Security commitment economical dispatch

SE Sweden

SPP Southwest power pool

T&D Transmission & Distribution

TAS Tasmania

TSO Transmission system operator

TWh Terra Watt-hour

UK United Kingdom

USA United States of America

Vic Victoria

WA Western Australia

WEM wholesale electricity market

$ Dollar

€ Euro

.

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1. INTRODUCTION

These days increase greenhouse gases and world temperature forces all countries in the world to use more renewable energies [1]. In order to be more efficient and competitive using the electrical energy market is essential. Balancing demand and production is the primary task of the electricity market. Trading and using EES (electrical energy storage) are possibilities for controlling this phenomenon. Two of the main markets in the electricity era are intraday and day-ahead markets. In the day- ahead market, trading is for the next day and it is called “closed-auction-based”.

Predicting acceptable price and power range is fundamental in this market and lots of scientists work on that trying to make more ideal intelligent patterns and models of the day-ahead market [2].

The intraday market includes the continuous and auction market and the duty of that is to upgrade and adjust unbalancing after the day-ahead market has shut down and closed until one hour or half-hour in some countries, before the actual time. By 2020 nearly 20% of energy is supplied by renewable sources [3]. In the future RES (Renewable energy resources) are becoming extraordinary in power networks so intermittent energies like wind and solar that rely on weather make supplying more fluctuating. On the other side, demand can’t be predicted accurately, so in the total intraday market becomes more valuable these days. Modeling price predicting in the intraday market still needs more works on it because dependency between market variables is following non- linear. Machine learning and artificial intelligence are methods that help the market to perceive statistical formation and they can also solve complex data analysis [2].

1.1 Research objective

Plenty of researchers have worked with intraday and day-ahead markets in lots of countries and each of them has tried to improve revenue and operation from the electrical grid and market viewpoints. This thesis aims to merge some of them to distinguish and understand the better market mechanism in five different countries which include three areas in Europe and two zones out of Europe. Nordic countries,

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Germany, the United Kingdom, the United State of America, and Australia will be considered in this thesis.

It has been aimed to answer in what way renewable production, energy storage, and demand response are affecting electricity systems and market, and what is electricity production structure in different five countries which have discussed in this thesis. The thesis is struggled to recognize what are the similarities and differences of day-ahead electricity markets in those five areas based on literature review and data analyses.

Besides, it is distinguished to find out the comparison between the intraday market based on the literature review in each country. In the end, it is concluded that the need for flexibility of demand response potential in production or demand side in selected countries

Analyzing the current electricity system, introducing of the deregulated electricity market and revolution, comprehending literature review of electricity markets of different countries and market places, analyzing the operation of different electricity markets, and comparing of the market mechanism, are the targets of this thesis.

1.2 Research methodology and materials

This thesis is going to discuss about the day-ahead and intraday electricity market in five different areas such as Nordic countries, Germany, United Kingdom, Australia, and the U.S.A. Firstly it has been explained the production structure in each country, afterward studying on day-ahead and the intraday market for each country, and in the end, these markets are going to be compared. Similarities and differences between day-ahead markets have been analyzed based on a comparison of data. Intraday markets are not defined in the USA and Australia. UK intraday market is initiating but there are no data about it. So intraday data in Nordic countries and Germany has been discussed and analyzed for one day and one month. All in all the objective of this thesis is to understand the reason behind similarities and variation between markets in different countries.

The research is compiling some existing data from various resources that have been used and processing them. The research method is a mixture of secondary data analysis and literature review for day-ahead markets and intraday markets.

The research method is a kind of “secondary data analyze” or “archival study”.It is attempting to achieving each of the selected countries' market patterns and correlating with each other. Data have been extracted from various websites like Nordpool for Nordic countries, Germany, and the UK. Agora Enrgiewende is for Germany, AEMO

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and Opennem are for Australia, energy information administration (eia.gov), and energy online for the USA. These are the main companies in electricity exchange markets.

1.3 Content of the thesis

In chapter two theoretical backgrounds of different electricity markets, the influence of renewable energies on market and power systems, various kinds of energy storage, and demand response and impact of them on the grid and market have been discussed.

Chapter three determines electricity production, energy storage, and market structure in Nordic countries, Germany, United Kingdom, U.S.A, and Australia.

Chapter four compares the differences and similarities of the day-ahead market on selected countries based on evaluating data on literature review and data inspected by Microsoft Excel.

Chapter five explains of contrast and congruity of the intraday market in selected countries only relying on the literature review.

And finally, chapter six investigates the value and role of demand response on markets and constructs a meaningful conclusion of this thesis writing.

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2. ELECTRICITY MARKETS IN GENERAL

Electricity markets have been arranged to grant reliability with the least possible costs for customers. They require lots of effort cause production and consumption should keep in balance as well as the market have to transmit signals of actual prices to persuade producers and assets. The electricity market structure is varying in diverse countries. There are two main models of the electricity market. First is the unified market that the system administers having a duty of optimization of planning and controlling the supply centrally. In the second model which is called a trade-based market. Buying and selling all over a day in the day-ahead market and modifying them close to real-time is characteristic of this model [4]. The second model will be discussed in this thesis work.

For the second model of the electricity market, there are several kinds of electricity markets that are being included; the day-ahead market, the intraday market, the balancing market, the reservation market, and the retail market. Each of these markets may have different names in different countries and also the revenue of each electricity market might be similar or different in each zone and country. In this thesis, five different countries and market zones will be discussed.

2.1 Day-ahead market

The day-ahead market is a closed-auction-based market and runs in economic bidding.

All market shareholders comply with bids and offer for dealing with energy or ancillary services. This market is closed exactly one day before real-time. Forecasting is one of the essential parts for all consumers and suppliers and each actor have to compile data of the past and consider the circumstances of the next day. The producer’s offer has three main sectors: initiate fee, the lowest amount of energy cost, and curve that demonstrate energy offer. Initiate fee is a price that each producer needs to begin its working. For some resources like gas turbines, it is so expensive and lots of them prefer to do not to shut down the generators. The lowest amount of energy cost is referring to that in which energy rate the producer works sustainably. Finally, the curve of energy shows the borderline cost and also demonstrates in each level of production what are the price of generation. All these inputs are essential for a competitive market[5].

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The day-ahead market clarifies trading fees and amounts and the main goal is to boost bid acquisition. In order to find a knee point, each supplier proposes a rising cost curve and every user has a decreasing curve and by these curves, the competition begins and the aim for the seller is minimizing their cost of production and buyers minimizing their payment. Several factors are playing roles like transmission line fees in some countries or oil prices so computing is complex.

2.2 Intraday market

This market is a supplementary market and tries to make a balance in one hour or quarter-hour (depend on countries) before the real-time, which is known as “Lead time”. In the intraday market, all market players make the last chance of correcting their supply or demand so closely to real-time. The intraday market is also called the short- term wholesale market. The biggest intraday market in the world is running in the EPEX spot in France and Nordpool in the Nordic area. Prices and fees in intraday are varying from the Day-ahead market and trading in the intraday market is a “Pay-as-bid”

structure and it is defined that prices are not stable and fixed and they would be changed with time [5].

2.3 Regulation or balance market

TSOs settle some rules for regulation power markets in each zone and this market operates in real-time. According to upward or downward regulation some players can supply or consume to handle balances in the grid. (Some rules are established here like the minimum and maximum contribution in each segment) [6]. In the balancing market every player act. If some suppliers produce less or more than the limitation border or each demander uses a different rate than it is proposed in the intraday market, then they should accept fee penalties.

2.4 Reservation or ancillary service market

This market is a subset of the regulation market and the actors of this market try to keep frequency in nominal value. For example, some producers like hydropower can assist the grid when the grid needs more power. Reservation market producers should be entered into the grid immediately and usually, the costs and fees in reserve markets are high. Figure 1 demonstrates vividly how each different electricity markets work based on a time range.

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2.5 Retail market

Small consumers cant directly apply in the market so they make a contract with retailers. Consumers are free to choose any retailer and they can contribute to the retail market and try to choose better choices for them. Each retailer provides some offers so that customers can choose by their type of benefits they want[7].

Different electricity markets based on time [8]

There are three vital skate holders in the electricity market:

1) Consumers (also called as users)who need energy or special services. They purchase energy by proposing expenditure bid-offer in order to curtail their costs

2) Retailers that have the intermediate duty. They buy energy from the electricity market and trade it to users who can’t take part directly in the market.

3) Energy owners (also producers) are responsible to produce power or ancillary services and they try to boost their acquisition.

As can be seen, there are several actors playing roles in the electricity market, and lots of rules are set to ensure reliability and keep balance in the economy of the market.

One of the responsibilities of TSOs(Transmission System Operator) and DSOs(Distribution System Operators) is maintaining a safe and compatible electricity market in each zones [9].In recent years increasing in performance of energy service companies and DSOs capability, controlling and supervising in very small-scale and real-time is possible. By new rules of energy transactions, each customer is able to pick any service provider that they are interested in.Figure2 demonstrates a simple plan of a novel electricity system and also shows in which part of the electricity system the wholesale market and retail market play their roles. It represents that in a new electricity market system, trading is optional and possible in each stage (the possibility of transactions is shown with lines). For instance, customers can buy energy from retailers and distribution system operators s deliver the energy[10].

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Electricity system model [10]

2.6 Renewable energy effect on the power system and electricity market

Electricity markets have experienced a huge progression in recent years. Demand for energy is growing fast and there are strict restrictions about CO2 emission and these reasons lead the energy systems to use more renewable energies. The cost of production of renewable energies decline dramatically and so there are reasons to use them and some scientist anticipates that in 2050 renewable energy resources usage rate will be more than 50% of consumption in all over the world. The question is how do these renewable resources are influencing on the power system and power market.

There are three major disputes which can affect by renewable resources on the grid.

First, the stability which refers to power quality and how the grid rapidly reacts to load fluctuations. These reactions should be fast at least in seconds. Intermittent renewable energy resources influence the stability of the grid considerably. The reason is a shortage of kinetic inertia which typical feature of converters that combine renewable generators to the grid. In the past stability of the grid depended on spinning generators and their grant of physical inertia. All in all, in nearly future renewable resources will affect FCR (Frequency Containment Reserve). The second challenge is flexibility which is an ability that the grid should amend in changes of generation and demand and commission balance and the third threat is adequacy that grid promise to supply users any time [11].

Renewable resources impact the grid and on the electricity market too. One of the most imperative effects is the median price of the market would be scale down but volatility

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and rapid changes in prices can be seen after entering renewables in the market [12].

Although intermittent renewable resources curtail prices in the wholesale market mostly they don’t have this influence on the retail market [13]. In addition, there are other parameters that might be considered as the variability of output energy amount in renewable energy resources like wind and solar. This may cause some additional cost for backup capacity in case of curtailment of generation and also paying some penalty fees for this lack of energy in the electricity market. Uncertainty is another problem especially in markets that need anticipation like day ahead market or might rise balancing costs in to settle anticipation errors in the intraday market. Suppliers can’t be sure how much energy will be generated in the future cause they are intermittent.

Finally, the location of renewable resources is kind of an issue. In some areas transmission lines expenses are added to the market prices and this causes an effect on the electricity market too.

In conclusion fuel prices in each zone, the capacity of renewable resources that are installed in each area, average demand on the market, obligation capacity for renewable energy amount in each country or zone, are some of the major factors which renewable energy resources affect electricity market.

2.7 Energy storage effect on power system and electricity market

Energy storage would help the grid and electricity market for unbalancing between production and demand and they assist the reliability of the system. During small load hours like midnight storage equipment that has the ability to store energy for a long time can bank energy and inject it to the grid in a peak hour time. Also, intermittent renewable energies that have different output need energy storage in order to increase reliability. Besides energy storages have more quick responses than ramping up of conventional fossil generators if the unpredicted rising of demand happens. Energy storages assist network to decline of reliant on fuel energies. All around the world capacities of energy storage are rising. Figure 3 can demonstrate it so clearly. It is anticipating installation battery capacities until 2040 globally [14].

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Global cumulative battery energy storage installation capacities [14]

Energy storage technologies can be installed at different levels of the grid. They can be placed near suppliers or adjacent to end-users. Energy storage can be used on off-grid in islands and to help the building of microgrids. They can assist grid services for frequency responses, also they can aid variable recourse energies for firming capacity or small duration of fluctuation, helping end-users for self-consumption by storing the rooftop photovoltaic panels and assisting electromobility for using vehicle to grid or vehicle to the home appliances. There are several technologies for storing energy like batteries, pumped hydroelectric storage, thermal storages, flywheels, compressed air, and hydrogen storage.

Batteries: large capacity banks of batteries are able to be installed in the whole grid but mostly they are placed in distribution level to enhance stability and also for some of the end-user customers who own electric vehicles which can gain benefits of batteries.

Batteries types are widely from lithium-ion and lead-acid ones for massive use to smaller ones used in electric vehicles [15].

Pumped hydroelectric storage: This technology is used in the past. It is affordable in the transmission level and also some generators have this technology for the reserve market. Revenue of that is getting aid from gravitational potential energy and operates by sending water in the above level when demand is less in the grid and drop it to spin a turbine in peak hours.

Thermal storages: The system of this storage is based on heating that absorbs from the sun and stores it in fluids and mainly employs in the end use of the grid.

Flywheel: Storing by this technology can be possible in both the transmission and distribution stage of the network and the core of the operation is banking energy by rotating mass at the very extreme speed of the flywheel. Making a flywheel farm is a novel way of maintaining a large amount of energy.

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Compressed air: Gas turbines can take advantage of this storage possibility and the mechanism is by compressing air in low demand hours and firing them in peak hours.

The technology isn’t new. It has to be installed underground.

Hydrogen: there is no carbon in this production of energy. When there is extra electricity, the capability of making hydrogen from water is available and it can be used in necessary times [16]. Figure 4 demonstrates a different type of energy storage technologies considering power and energy rates.

Overview of energy storage technologies, power, and energy storage durations

Energy storage systems have massive affection on the electricity market. Energy can be stored at a cheap price and can be sold at expensive rates in the electricity market but lots of factors are important like the capacity of storage technology, area of installation, market fee, generation fee, a trading program for storage, and how much the customers pay.

The market price is in the lowest amount in off-peak hours and it is at the highest rate in peak times. Large-scale energy storage can curtail this difference in price dramatically. Production fees rely on the size of storage in the grid when the grid has a larger amount of storage capacity. The price rate of generation is much greater in off- peak hours (in contrast to smaller stores in the grid). Also, generation fees are in a lower rate during peak hours. In addition, when the grid takes advantage of storage technologies, the sum of customer cash scale down but profits of generation parts are being less. Furthermore installing storages in the transmission system may cause more stability prices in the market than placing them in distribution areas but distribution sites

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are more profitable from the shareholders of the energy storage viewpoint [17]. Figure 5 explains briefly why energy storage is important for the grid. It can be seen that discharging of storages help the grid to prevent the use of fossil power plants during peak hours [18].

The reason that energy storages are important [18]

2.8 Effect of demand response on the power system and electricity market

Demand response is the capacity of electrical energy demand to respond to the variation in market fees in real-time. It can be performed by using reducing demand, transferring load, and substituting with every other resource.

By the term demand response, it has to aware that remand response has a different definition from different viewpoints. There are four diverse viewpoints for utilization of demand response: First customers who have the aim to minimize their costs. The second distribution network side reduces the peak load as their target. Third; retailers should have balancing management between supplies and consumption. They have some portfolio in optimization markets like day-ahead and intraday markets. The last fourth one, transmission network which has to keep the balance of the power market and also keep the reserve market to limit the frequency to be nominal.

These days demand response is progressing so fast because of the improvement of smart meters and breakthroughs in renewable energies. Demand response has an economic impact on medium to large customers and large users but larger customers face more difficulties. Each country and each zone in each country have their own rules and strategies in demand response cause they have a different kind of situation like loads and renewable energies [19].

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Smart meters in electricity markets play an important role and for each hour they have to store data and each day export the electricity consumption data to demand-side operators. With this technology, the day-ahead market defines prices for users each hour. Smart meters technologies can participate in the retail market and compete with each other at different prices and their operation. On the other hand, demand response absorbs customers by progressing the prices and regulations in markets.

In some markets in the world, one of the important factors that have to consider is that the rules and costs have to be attractive for all customers whether a small one or big ones. And in addition, all users have to take a huge advantage of demand response patterns. Lots of factors should be studied in the future for instance the scale of contributing customers in the day-ahead market. Moreover changing the rate of fees from fixed prices to spot prices is somehow bring more competition for small users.

Retailers have a remarkable duty in day-ahead and intraday markets for demand response action because small users cant contribute directly to markets. It is the duty of retailers to estimate their customers' needs of energy and supply them also to decrease the risks and improve safety, and besides that also earn good money too.

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3. ELECTRICITY PRODUCTION STRUCTURE IN SELECTED COUNTRIES

3.1 Nordic Countries

One of the novel breakthroughs in the electricity industry is making the electricity market is international. This momentum help grid overcomes it’s unbalancing and increase security among countries involved. The Nordic electricity market can be a symbol of this innovation. In the past, each country had its own monopolized market.

Energy producers had a duty to start up and plan to make new power plants and substations and all of the market players were under distribution company each zone.

Liberalization has started 24 years ago. The biggest beginning revolution started in Norway by operating TSO (Transmission system operation) in 1990. After that STATNETT was introduced and in 1992 all consumers could contribute to the vying market. Nord pool day-ahead market was settled in 1992. In 1998 Finland, and in 1999 the western part of Denmark, and Sweden already earlier and the eastern of Denmark were connected to Nordpool. Denmark tied its two TSOs into one in 2005 and called it Energinet dk. Still, Denmark is unique to have two kinds of market patterns

Nowadays all Nordic countries are dividing their markets into wholesale and retail markets and all zones are under Nordpool. Liberalization is the characteristic in the Nordic market and it means anybody can trade and participate in the market.

Seven counties were joined and controlled Nordpool in the Nordic zone in 2012. Two other countries joined in 2013. It can be seen in figure 6 that the Nordic area is divided into several zones to participating in Nordpool and each zone has its domestic operator and have special characteristics.[20].

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Countries and zones that contributing in ELBAS: Yellow are Nordic, Red are Baltic and Blue are Continental European [20]

One of the most important factors in electricity markets is electricity prices. The electricity fee depends on various considerations in each area. One of the aspects is renewable energy resources in each area. The reference [21] comes with the idea that they analyze the prices in three different places: Denmark, Sweden, and the PJM market. Each market has its characteristics like in Denmark, there is huge potential for wind power so the prices are based on wind energy. In Sweden, the number of hydropower system is a lot, and this renewable energy effect on prices. In the end, the PJM market is a market that has frequently fossil energy and uses little renewable energy. By comparison between these three markets in [21], it should be aware of the impact of different RES (renewable energy resources) on the variation of fees. By the past information that was studied in different sources, it has expected to have more stable markets that have hydropower than wind power cause hydro energy can be controlled but the wind is intermittent energy and difficult to predict.

Variation in the market’s prices is depended on elements like fuel fees in different areas, accessibility in different resources, renewable energy resources like wind and hydropower, and the consumption rate at each moment. Lots of researches are done to predict the energy fees and to find a way for measuring it. A usual technique for that is the time series parameter figure. This model is used in business that gets the relation within definite elements with volatilities in prices. One more technique is named the

“jump test”.

There are some patterns and arrangements for prices that they have been arranged in a day, week, and season. For instance, the fees are higher in winters in Nordic

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countries but it can be vice versa in the Middle East. These factors depend on the load peak for each different area and in Nordpool in particular. They have really cold winters and also the rate of using renewable energy is high enough that can impact price differences.

If the network has rapidly changing prices, the market cant is stable. These fluctuations in price can be organized with different stakeholders in markets. These stakeholders are careful of intense descending and ascending of electrical fees in the market to prevent hazards in trading. Jumps are one of the encounters in the settlements. In [21]

the scientists use non-parametric patterns that break down the huge alternation in jump and non-jump elements.

So when scientists try to plan for the Nordic day-ahead and the intraday market they have to be aware of electricity prices in different zones. Also considering and studying past data is part of it. Scientists should check the potential of renewable energy in variable zones. Demand growth and prediction is another duty of the utilizer of the network.[21]

3.1.1 Type of generation

Nordic countries supply electricity more than 70% from renewables. Hydropower energy is commonly used in Norway and Sweden. Biomass and CHP are mainly used in Finland and Sweden and wind power is highly generated in Denmark. Geothermal has a particular impact on Iceland while Sweden and Finland use a high range of nuclear energy for preventing CO2 emissions. Figure7 represents electricity production by each source in five different countries in the Nordic area in 2017. As can be seen, each country has a unique kind of generation based on geographical circumstances.

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Electricity generation by different sources in the Nordic area of 2017[22]

Nordic power generation is supplied by more than 350 companies with total energy around 400 TWh. Main generation companies are Statkraft, Vattenfall, Fortum, Uniper, E-CO Energi, PVO, and others in the Nordic area. Figure 8 demonstrates the share of each company briefly [23]

Share of generation by different companies in the Nordic area in 2018 [23]

3.1.2 Nordic generation data from August 2019 to August 2020

In order to compare the electricity market in different areas, production data is needed.

Figure 9 represented electricity consumption and production in different areas in the Nordpool market like Norway, Sweden, Finland, Denmark, Estonia, Latvia, and Lithuania. Sweden and Norway have the most generation rate in Nordic countries. Data are gathered from the Nordpool website [24].

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Nordic monthly electricity production and consumption from August 2019 to August 2020

3.1.3 Energy storage in Nordic countries

Electrical storage systems overture various services in the electrical power system.

One of the most significant cases is that they allow renewable energies to work in the system more flexible. In order to justify market profits by installing EES (Electrical Energy Storage) in Nordic countries.

In [25] scientists introduce a model that calculates the maximum benefit in diverse electricity markets that is resulted from modeling EES in the power system. The final outcome was that the Finland area is the most beneficial zone in ELSPOT (day-ahead) and balancing market for fee arbitrage. Denmark's bidding zone is the most constructive area for flexibility in the Nordic market. Besides, the cross-border market reduces price diversity in ELBAS (intraday market). Although in total, nowadays using the technology of EES is not profitable but it has recommended to install cheap and long-life EES in the future would be great for the power system.

In 2015 Nordic electricity markets and six different zones in Europe starting to exchange power in the day-ahead market to unify the European market and the couple

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to each other, but in each area the price pattern is different. So using EES makes opportunities for markets to gain money. For example, Denmark, that has a high potential for power energy, can store it and contribute to other countries markets to prosper. According to STETPLAN in Europe, EES is necessary for intermittent renewable energies. Scientists study to find the best places for investing in the business model. In [25] two important parameters (i.e energy arbitrage and ancillary assistant services) are investigated.

Plenty of researching methods like fixed-price or historical time-series have tested for financial places for installing EES in each market. For instance, in one study they realized that CAES (Compressed air energy storage) can be a good idea in Denmark but the volatility of price make it costly. Another example is that some examiners recommend large-scale storage with defining PHS (Pumped hydropower storage) that can reduce black-start costs. Likewise, some scientists analyzed installing PHS for four years during 2005-2009 in the day-ahead market. They realized that there were not commercials. Also in [25], they study on possibility and potential in ELBAS (Nordic intraday market). They use an algorithm to boost and optimize energy arbitrage by using buy and sell prices hourly in intraday and balance markets.

In [25] after introducing their methodology they get some results, which are discussed briefly in this thesis. One of the glorious ones is indicated in figure 10. Figure 10 shows the max profit of price arbitrage by installing PHS in ELSPOT (Nordic day-ahead market)daily in three different yeers 2012-2015 (the data have received from Nordpool data). From figure 10 it has realized that Finland and both Denmark zones (West and east) are the best places for installing PHS and Norway has the lowest potential.

Maximum revenues for everyday price arbitrage with PHS in ELSPOT (Nordic day-ahead market) on 2012-2015 [25]

On the other side, [25] study on PHS potential on ELBAS (intraday market) and their results are revealed in figure 11. This figure is collecting data for 2012-2014. It can be seen that in intraday markets Denmark is the highest rank of advantage. The reason is

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the volatility of price caused by the volatility of generation in Denmark. The volatility reason is sharing a huge amount of wind power energy. So EES are much vulnerable in the Denmark intraday market.

Max revenues with price arbitrage in ELBAS ( Nordic intraday market) [25]

To sum up in [25] appeal to figure12. This figure illustrates the possibility and earning of different EES technologies in various ancillary services and various markets. Figure 12 also illustrates contrast and compare them with EES costs in Finland as an example of Nordic countries in 2014. There is four kinds of EES have been examined: LI-ion batteries, Leas-Acid batteries, Sodium-sulfur storages(NaS), and Pumped Hydropower storage(PHS) in one year. If ancillary service doesn't count as profits, the low-priced EES is not beneficial in all markets. The capacity of ancillary services recommends using cheaper batteries. Despite that in [25] they don’t consider black start or T&D (Transmission and Distribution) assistance but these parameters can change the results too.

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Advantages from installing different EES in different electricity markets in Finland versus analyzing life cycle cost for different EES (for near

300 cycles for a year) [25]

So installing a different kind of EES are profitable in different kind of countries in the Nordic zone. The potential depends on bidding prices and other parameters. Using EES in peak times in the power system is profitable. In the balancing market one of the most vulnerable areas for EES is North Sweden and after that Finland and West of Denmark respectively. In the case of EES energy arbitrage, Norway is the most trivial place for business absorption. The reason behind it is that Norway has high potential hydropower. Hydropower is much cheaper than EES. So using cheap and good life span EES can be profitable in the future in Nordic electricity markets [25].

3.1.4 Demand response in Nordic countries

These days demand response is progressing so fast because of the improvement of smart meters and breakthroughs in renewable energies. A study on [26], discusses about the attractiveness of demand response in the Nordic market place. Scientists consider two cases (medium to large customers and large customers). Demand response has an economic impact on both users but larger customers face more difficulties. The study is focusing on the day-ahead market (which all customers can participate in it) in Finland specifically. Each Nordic country and each zone in each country have their own rules and strategies in demand response cause they have a different kind of situation like loads and renewable energies.

Researchers in [26] try to study in two scenarios. First, an elementary day-ahead market in medium-size customers with a big load that can be controlled easily. The other one consists of small users who try to use demand response to reduce their payment for the retailer.

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The Nordic electricity market is a great example of well-developed and a powerful retail market. Some of the market players can easily reduce or increase their load, resources, and reserves. They can reduce their costs by using demand response in the market. The market players can contribute to four different eras. First, day-ahead and intraday markets which have to work with Nord Pool. Second, FCR (Frequency Containment Reserve) markets where the target is to keep frequency near 50 Hz and respond to alternation. These market players work with TSO (Transmission System Operator). Third markets are FRR markets that mean frequency rotation reserve that also takes responsibilities with TSOs. Forth market is the RPM market (Regulation Power Market). This one has also a task to keep frequency near 50 Hz. The other task is to apply the profitable prices to adjust the system processing [26].

Some markets have to respond to changes in network really fast like about seconds.

Some of them respond slowly to near minutes to an hour. These arrangements are settled by TSO.

From [26] it can be realized that in large and medium-size users demand response can work perfectly and bring a lot of interest. For small customers, if program them by special equipment for a long period of time they can perform nicely in demand response. This can act in markets. Figure 13 demonstrates absolute and relative cost savings for a set of small customers doing Elspot FI based DR. It is done with a theoretically the best possible load control system. Scientists in [26] show that if the system uses DR in a perfect way in the future, lots of customers can be cheered by the reduction of their costs. Meanwhile, the prices that are demonstrated in Elspot nowadays are not that much absorbing for users to use DR.

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Absolute and relative cost savings for a set of small customers doing Elspot FI based DR with a theoretically with almost the best possible load

control system that is a conclusion from [26]

Nowadays there are two grid tariffs available with different fees over a day. One fee for the daytime and the other one for the night. Cause the electricity usage at nights are less than mornings so the feed rate at nights is lower. This encourages the customers to transfer some of their consumption at night.

In Nordic markets, one of the important things is that the rules and costs have to be attractive for all customers. Whether a customer is a small one or big ones. Besides, all users have to take a huge advantage of demand response patterns. Lots of factors should be studied in the future. For instance, the scale of contributing customers in the Elspot market should be studied. Moreover changing the rate of fees from fixed prices to spot prices is somehow bring more competition for small users. Figure 14 demonstrates that the price range at Elspot changes so rapidly. Nordbalt connection is a submarine power line that passes through the baltic sea and transfers electricity between the baltic and Nordic electricity market.

In the past when fees do not change and stable all time, there is no competition. But now there is a contest in the market so some big users and sellers can impact the market by their tradings [26].

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Range of price in ELPOT and each hour changing on Nrordbalt connection on 2015 and 2016[26]

Reserve markets will be essential in the future. Intermittent energy producers cause fluctuation in real-time of use in the electricity market system. The shortage of supply for small users can be a huge problem in evolution in markets. So DSO has to participate to be aware of peak-loads times and offers higher prices in those moments.

This causes the consumption to reduce and the need for back-up decreases [26]. At the end by demand-side management, the system has to plan for the future of the Nordic electricity market to have optimization and obtain excellent energy efficiency.

3.1.5 Nordic electricity market

Nord pool spot markets are belonging to TSOs. They are divided into ELSPOT and ELBAS. Trading in Nordpool is based on “Implicit Auction” [27].

ELSPOT (Day-ahead market in Nordpool): This market is close auction-based on trading among all market actors (producers, consumers, retailers) and it predicts one day before exact and real-time in the Nordic grid.

ELBAS (Intraday market in Nordpool): This market is a supplementary market and tries to make a balance among all north of Europe (Nordic countries plus German, UK, and Baltic market)

Recently controlling power plants are no longer centrally and instead of that market players try to maximize their utilization. There are two kinds of design that the intraday market can be worked. Each country in the world uses these designs: Discrete Auction and continues trading. Figure 15 demonstrates various designs in intraday electricity markets in Europe. These trading prices and fees are different in each deal. This is a meaningful diversity between auction-based and continuous trading. There are some

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pros and cons to each of these designs. Generally in continuous trading risks are lower and it is more flexible. But on the other hand, it has lower apportion efficiency. Also, it can be recognized that Nordic countries use a continuous trading design in the intraday market [20]

Various designing in intraday electricity markets in Europe: orange indicates “Discrete auction, yellow shows “Continues trading”, green is a

mixture of both continues trading and discrete auction and there is no information for green ones on 2015 [20]

Based on the study of a lot of papers like [28], [29], and [2] it can be summarized some policies on Nordic electricity markets. Energy producers have some regular contracts that they should add certain energy in a specific period (trade period). Consumers buy and consume the same energy at that time. In the Nordic market, the specific time of trading is one hour. All actors in the market try to anticipate before the trading period. It depends on estimating trading shape between producers and users in different markets. Lots of contracts are bilateral which means they are accepted by two sides.

These contracts are signed in ELSPOT (day-ahead market) and ELBAS (intraday market). ELSPOT is the first and the most important market and trading is done in huge amounts. Prices that are formatting in ELSPOT influence and determine the other markets. Bidding auction in ELSPOT (day-ahead market) is fixed and sealed within marginal fee variations.

The third market for controlling balance in a system is called the balancing market. In this market use of reserves is one of the significant parts. Frequency in the grid must be stable and the limitation of transmission lines has to be considered in this market.

So in real-time, it is expected that all players, behave like their have promised in day- ahead or intraday markets. Slight differences can be controlled (i.e primary control).

But in case of fall down or riding frequency out of marginal rate, bidding will start to

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work in the real-time regulation market. Contributing to this bidding case is not obligatory. Actors of the system can join in earning money.

After the closure of trading time (period) market starts to measure and calculate the exact production and consumption. All data composed is compared between the promises that each player of the market covenant in ELSPOT, ELBAS, and regulation markets. Penalties for unbalancing are calculated for each player too. It should be considered that hydropower is acting an important role in the reservoirs. Hydropower is good for avoiding ramp in the Nordic electricity market [29]. Also starting up and down some power plants like nuclear and gas are costly so they are also considered in markets.

All in all, if regulation fees (the variation between ELSPOT and balance market prices) becomes high, all players in the market face real economic problems. The efficiency of the system reduces a lot. Besides, turn up and down the units cause aging in devices and increases maintenance costs. Figure 16 represented the Nordic electricity market briefly containing generation by more than 350 companies. Transmission and distribution systems are independently in each country and regulated by each country's rules. The Nordic area has interconnection with Russia, Netherlands, Poland, Belarus, and Germany [30].

Nordic electricity market mechanisms

3.2 Germany

Germany's power grid is one of the portions of the continental synchronous area in Europe. This is the biggest coordinated and synchronized grid area all over the world

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that contain twenty-four countries. They are connected to each other and keep 50 Hz of frequency for the whole area [31]. Germany's capacity for electrical energy that is installed by 2020 is about 211.3 GW. It is one of the pioneers in curtailing fossil fuel energy and replacing it with renewable energy resources. For instance, Germany's electricity generation was 516 TWh in 2019, among this amount 46% was generated from green energy (which is 6% more than 2018). 29% and 10 % were the amounts of production by coal and gas respectively [32]. Germany has some policies to eliminate nuclear generation until 2020 and get rid of coal just before 2038. All these targets need planning for replacing with other renewable energies.

There are six political evolutions and visions in 2020 in Germany [33]. Coals endure climate security, CO2 fees for both buildings and transportations, Renewable energy, the mixture of heat and power, and tax encouragement for buildings that modify the energy consumption.

Coals endure: In order to terminate coal until 2038, Germany considerate a forty billion Euro budget to help all areas for offsetting power plant structure.

Climate security: Considering eliminate greenhouse gas emissions until 2050, Germany makes a long-term plan for measuring and caring for climate change.

CO2 fees for both buildings and transportations: From 2021 until 2025 CO2 emissions have fees around 25 euro/tCO2 to 55 euro/tCO2. All customers should be aware of this penalty.

Renewable energy: Germany plans to contribute 65% of the generation by renewable energies until 2030. Another rule is that there have to be 1000 meter space between onshore wind turbines with areas that people live.

The mixture of heat and power: Switching from district heating to be green district heating is one of the targets of Germany in 2020 to change the structure of CHP power plants.

Tax encouragement for buildings that modifying: Advocating tax and supporting buildings that renovate to adjust house to be adjacent to energy standards is started from 2020 in Germany [33].

3.2.1 Type of generation

According to figure 6, Germany uses seven types of ways for generating electricity by 2019 data. There are coal, natural gas as fossil fuels and wind, nuclear, solar, biomass, and hydro as renewable energies production [34].

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Germany electricity production by different sources in 2019 [34]

Coal energy usage is reducing in Germany during recent years. In 2010 coal consumption in Germany ranked fourth in the world but the strategy is changing. It is reduced to 151 TWh in 2019 which contains only 29 percent of the whole usage of the country and it will vanish in 2038.

Nuclear power was one of the main actors in past in Germany for instance in 2004, 167 TWh of electricity in Germany was produced by nuclear power plants. But after the Fukushima disaster, they rather eliminate nuclear in near future.

Renewable energy resources are considering so serious in Germany. Nowadays Germany is placed third in the world of wind capacity (50 GW capacity and 23000 wind turbines). It has a rank of second in the world for having more than 4 GW of offshore wind power capacity [35]. Standing in third place for using solar energy is another achievement gained by Germany (around 1.4 million photovoltaic systems spread in the whole of Germany) [36]. The German government has some plans to expand offshore wind farms, rising capability, and efficiency of transmission lines. Especially from northern areas to southern zones that have much greater usage and consumption. Like lots of countries in the world, Germany is trying to switch the centralized production of electricity to spread it in the whole area to enhance efficiency and utilized smart grid benefits.

3.2.2 Germany generation data from August 2019 to August 2020

In order to analyze and study on day-ahead and intraday market production data in 2020 is needed. As it is written on [37] around 55.8 % of production was produced by renewable energy for an average of the first six months of the year. It was the best record during the past years. The participation of wind and solar was 102.9 TWh (Wind

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participate 30.6% of total generation). From April 2020 electricity demand was curtailed because of the COVID-19 pandemic disaster in Germany. It shut down lots of industrial companies and fall export of electricity. Figure 7 demonstrates the actual monthly generation and total consumption from August 2019 to August 2020. It also considers different types of production in Germany. This chart guides the thesis for studying later the reason for the fluctuation of prices in electricity markets in Germany [38].

Actual generation and total consumption of Germany from August 2019 to August 2020 [38]

3.2.3 Energy storage in Germany

Germany uses a large number of renewable energies especially solar and wind. That is intermittent and in order to stability and reliability of the system, the necessity of energy storage is remarkable. Batteries have become so useful especially in electric cars. One of the solutions provided by Germany is using 100 thousand batteries for storing solar energy by photovoltaic panels on the roof of houses. Energy storages are one of the aids in Germany to substituting green energy instead of fossil fuels and in advance assisting decentralized power systems. The cost of energy storage is going to be curtailed in the future and some scientists anticipate it will be reduced 50 to 60 percent by 2030. Battery and heat storage will be used more in the future. The whole capacity of the commercial battery is close to 320 MW and 60 MW for home applicants in 2018 [39]. Despite a large amount of capacity of energy storage in Germany, cross-border trading and the different option of generation are still cheaper than using all amount of storage capacity. The current medium-term and large-scale grid can handle intermittent generation and battery banks that are connected to the grid can aid the electricity network when variable resources energies use more [40].

Day-ahead and intraday electricity markets in various market areas

Mina Ghanadi