Volume risk in an electricity market

Question

I have been reading lately about electricity markets and I have stumbled upon the term "volume risk".

Volume risk is often used to denote the phenomenon whereby electricity market participants have uncertain volumes or quantities of consumption or production. For example, a retailer is unable to accurately predict consumer demand for any particular hour more than a few days into the future and a producer is unable to predict the precise time that they will have plant outage or shortages of fuel.

Basically, a fault in the prediction of both the buyer and seller may occur and either the electricity that has been purchased, may not end up being delivered or vice versa, the buyer may have ended up purchasing more electricity than needed.

However, I haven't found a clear explanation, what is done in these two cases. Who would cover the electricity difference if the generator does not end up producing the quantity stated in the trade or where would the overproduced electricity go, if the consumer has estimated his consumption poorly?

Answer 1

where would the overproduced electricity go, if the consumer has estimated his consumption poorly?

It doesn't go anywhere - if the consumer under-consumes compared to the original prediction then, that under-consumption is physically less-current being taken and less-power being supplied by the generator.

Electricity isn't like a delivery van setting off to deliver bread or cakes - it's much more instant than that and if a load takes less current or power then it's pretty much instantly reflected in the generator producing less power and the oil/coal/energy being used by the turbine and generator being less.

There is a financial deficit only and that gets resolved by credit arrangements (my guess).

Answer 2

The simple answer to "where would the overproduced electricity go" is that the generator will not produce excess electricity and that causes a reduction in the fuel that feeds the driver of the generator. It is more complex than that. Some types and sizes of generating equipment are easier to "throttle back" than others. Suppliers or groups of suppliers have a range of generating equipment. In general, small and inefficient generators are easy to throttle back and large, more efficient ones can not be efficiently throttled back very much without being shut down completely. Once they are shut down completely, the larger generators tend to require more time and effort (cost) to restart.

Suppliers that are interconnected can negotiate over how much energy will be produced by each supplier so that the most efficient mix of equipment is always in operation. A distribution system that does not have a good assortment of supply equipment may be forced, either economically or technically, to discontinue service to some customers in order to shut down some equipment that does not have sufficient customer demand. With interconnected suppliers, situations occasionally arise where one supplier pays another supplier to take "excess energy" for a short time to avoid shutting down equipment that will be difficult tor restart etc.

Suppliers will offer to sell energy at the lowest price to customers who accurately predict their demand. To get such a price, the customer may need to agree to compensate the supplier if the actual energy used deviates too much from the prediction. Large customers will have a contract that covers a range of possibilities.

Answer 3

Who would cover the electricity difference if the generator does not end up producing the quantity stated in the trade or where would the overproduced electricity go, if the consumer has estimated his consumption poorly?

This is why continuous grid management is needed.

Electricity in the grid in most cases cannot be stored for later use. It is a good approximation to assume that at any instant the electric power consumed is exactly equal to the electric power produced.

As you know, there are different ways to generate electricity. Some of them are almost 100% predictable (e.g. nuclear power plant), others are not (wind/solar).

The challenge for grid management is now to first try and predict production and consumption for a certain period, then to acquire the predicted needed amount of production capacity for that period, and then to keep monitoring fluctuations in production or consumption, i.e. deviations from the predictions, and react on those fluctuations by adding or removing electricity production (sometimes also consumption) as quickly as possible.

This is done by employing a certain mix of power producers: A nuclear power plant takes significant time (hours maybe) to significantly increase or decrease power output, wind/solar can very quickly (seconds) be taken off the grid, but e.g. at night solar power cannot be requested to generate some extra power to accomodate increased demand. Gas-powered power plants can be regulated up or down relatively quickly and are thus in demand exactly to fill the gap between the constant base load of the big (e.g. nuclear) power plants and consumption which may vary faster than a nuclear plant could accomodate.

The whole thing works very much along the basic economical model, putting a certain price to a certain risk.

Nuclear plants produce cheap electricity, but are in-flexible. Solar/wind is also not very flexible. In fact, solar and wind energy are a grid operator's worst nightmare and they're not even cheap but are usually subsidized and otherwise politically encouraged. Gas is more flexible than nuclear and more controllable than solar/wind, but also more expensive per unit of energy (Joule, Wh,...) produced than nuclear and disliked due to CO².

Bottomline: Grid operators try to get the cheapest electricity they can, but at the same time they absolutely must make sure to always be able to adjust production to varying, unpredictable consumption (or production), because at every instant power supplied to the grid exactly matches the power taken from the grid. If they try and supply more or less than is actually demanded, installations connected to the grid will malfunction (under-supply, i.e. under-voltage) or be destroyed (over-supply, over-voltage). That's just physics.

Answer 4

There are different kinds of generators. Some do supply constant electricity with monthly schedules like nuclear and thermal power plant, these can't dynamically change the production.

The variable part of the demand is supplied by power plants that can quickly turn on and off, these are gas turbine, hydroelectric plant, diesel. In case of increased demand, these power plants are turned on.

In case of unplanned decreased demand, and if all small power plants are off, they will try: fill the basins full for reversible power plants (generator/motor), to sell the electricity for small money (or even to pay for) to foreign country, contact steel forgeries to increase production, turn on street lights even in daylight,...whatever to gain time until the demand is repristinated.