Analytik Jena

Area: energy
Problem class: MIP

Optimizing Power Trading Auctions

A GAMS Application in the Energy Sector

The German “Energiewende” (transition of the energy system) aims for a power system on the basis of renewable energy sources (RES). In 2015, about 30% of the power generation was provided by RES. The RES target for 2025 is a 40-45% share and 55 to 60% are expected in 2035. Large parts of these shares are based on fluctuating wind and solar power. For a successful “Energiewende”, a highly efficient matching of generation and demand will be required.

The Auctioning Markets

One important element to achieve that is the organization of ancillary services. Those are fast reacting generators used by the transmission system operators (TSOs) to smooth short-term imbalances. These balancing reserves are procured by the TSOs via auctioning markets. Potential suppliers place related offers and the TSOs select the most cost-efficient combination of bids to cover the requirements.

Supported by several TSOs, the 50Hertz Transmission GmbH, TSO of Eastern Germany and part of the Elia group, manages an internet platform to collect bids and execute described auctions of balancing reserves. In the case of primary reserve, which is the fastest reacting reserve, suppliers for the reserve demand of Austria, Belgium, Germany, France, the Netherlands and Switzerland (status of January 2017) are selected by the platform. The outcome of the auction has to respect all criteria of an objective and legally binding selection process. In particular, the cost effectiveness of the selection has to be guaranteed. Additionally, the auctions are integrated into a dense process of power trading (exchange or OTC, auctions or continuous trading) and grid operation addressing many different players and data communication.

Control centre
At the Transmission Control Centre, employees monitor and control the 50Hertz transmission grid around the clock

The Optimization Solution

As a technical solution for a timely and robust calculation of the auction results, the optimization software GAMS was chosen. The auctions translate to a mixed-integer optimization problem in which each country has a certain reserve demand. Exchanges of reserves are possible with respect to export limits and core shares (maximal total import for a country). Depending on the specific product, different kinds of bids are allowed in the auctions: divisible and indivisible bids and conditional or unconditional bids. Divisible bids can be selected with less than their bid volume while conditional bids are bundles of bids out of which only one single bid can be selected. A combination of bids is selected so that the demand in all countries is covered with minimal costs. A particularity is the event of equally optimal solutions. According to the auction conditions, the bids that were chronologically placed first have priority – when not altering the total costs. This is solved by two sequential optimizations. A cost minimization is executed, followed by a minimization of the bid time stamps with an additional condition restricting any increase in costs. CPLEX is the selected solver applying an extended solution pool so that no possible combination is neglected.

The reserve market is currently characterized by many ongoing changes of market design and regional scope. Thanks to the implemented solution, the incorporation of these changes was easy and straightforward. In total, the organization of the reserve market becomes more and more efficient reducing the electricity costs for all consumers despite the challenges of the “Energiewende”.

The optimization solution is implemented as a GAMS model

About 50Hertz

50Hertz is responsible for the operation, maintenance, planning and expansion of the 380/220 kilovolt transmission network in the north and east of Germany. The network covers an area of ​​109,360 km² and has a length of about 10,000 km, which corresponds approximately to the route from Berlin to Rio de Janeiro. It secures the grid integration of about 40% of the total installed wind power in Germany. 50Hertz provides a safe power supply to 18 million people - 24 hours a day, 7 days a week, 365 days a year.