Since the advent of renewable energy, the spot markets, where short-term electricity procurement is carried out, have rapidly gained in importance. As a flexible trading venue, the spot market offers quarter-hour contracts for the following day. It also enables continuous trading, in which electrical energy can be traded up to a few minutes before physical delivery.
Intraday trading is therefore primarily used to keep excess or short quantities of balance groups as low as possible through short-term trading on the stock exchange in order to comply with the previously made forecasts. This makes it possible to counteract unforeseen changes in electricity production before the control energy has to be accessed, which is only intended to serve as a safety reserve.
In general, the amounts of electricity that are produced or consumed must be predicted in advance. For smaller consumers such as households, this is done by the electricity supplier using standard load profiles. These forecasts are called “timetables” or “profiles” and must be reported to the transmission system operator the day before the amount of electricity is generated or withdrawn. If these profiles are not met, for example if a large steel factory consumes more electricity than forecast, the significantly more expensive balancing energy must be purchased to compensate for the difference to the original profile.
In order to avoid these costs and to be able to comply with timetables even in the event of short-term fluctuations, intraday trading offers the opportunity to buy or sell energy during the same day of delivery.
In the quarter-hour opening auction on the day before delivery, an amount of energy can be bought and sold for the 15-minute interval of the following day in order to meet your own timetables as precisely as possible. Should the weather forecast change at short notice the day before, for example, this auction can respond to them.
After the opening auction, you can continue trading across Germany in continuous quarter-hour or hourly trading up to 30 minutes before physical delivery. In this way, it is also possible to react to extremely short-term fluctuations. The smallest amount of energy for trading on intraday markets is 0.1 MWh. The price is based on bids and is called the bid price.
Conclusions of contracts that are concluded just 30 minutes before delivery or contracts for just 15 minutes enable an enormous Flexibility of the electricity market. However, this is also absolutely necessary due to the heavily weather-dependent renewable energy sources. It offers renewable producers in particular the opportunity to take short-term weather forecasts into account better in their calculations and to make offers that are as realistic as possible.
In an energy market with a high share of renewables, supply forecasts are very complex due to imperfect weather forecasts and an increasing share of solar and wind energy, which fluctuates over time. The intraday market makes it possible to correct bottlenecks and flows in the short term. Price volatility on the spot markets in Germany, France and Switzerland has increased dramatically in recent years, meaning that flexibility is becoming increasingly valuable for the electricity grid, particularly in view of the ambitious expansion goals for renewable energies. Increasing volatility is leading to rising price ranges. Negative prices occur more frequently on spot markets, although the price level is generally very high.
As extremely responsive energy storage, these extremely volatile price fluctuations enable large battery storage to participate profitably in intraday trading.
In addition to the balancing energy markets, the intraday trading market is one of the other revenue streams of a large battery storage system and part of a storage system's multi-use strategy. Depending on the situation, this enables the storage company to choose the most lucrative market and become active in it.
The merit order represents a simple model of the formation of electricity prices. It sorts power plants according to their marginal costs. The most expensive power plant, which is called up to cover the load, determines the current electricity price. Renewable energy is on the far left in the merit order in Germany because the EEG requires a prioritization of renewable generation. As a result of the elimination of brown and hard coal, as well as nuclear power, the merit order is significantly steeper. The expansion of renewable energy is widening the plateau with low prices.
The higher the electricity requirement, the more expensive power plants must be used. Renewable energy sources are very cheap sources of energy. During the day, PV systems, for example, reduce the price of electricity. Very expensive peak load power plants are already being used today in wind-poor morning and evening hours (shown below as examples for 09.07.2022) and are generating very high price peaks. More PV generation will further reduce the price of electricity at lunchtime, and the elimination of conventional generation shares will increase price peaks in the morning and evening.
The example of week 27 in 2022 clearly shows the connection between renewable feed-in and stock exchange electricity prices. The following figure simulates the behavior of storage systems in an exemplary week in the German power grid. This shows the connection between renewable generation and storage behavior. In times of high renewable generation, the storage systems are charged. At times of low renewable feed-in (i.e. in times of higher stock market electricity prices), storage systems feed energy back into the grid and thus increase supply on the electricity market. Since price formation is determined by supply and demand, the supply of storage systems results in a smoothing of price peaks.
Due to the growing share of renewable energy, the trading volume on the European power exchange EPEX Spot is rising sharply, as larger volumes must be balanced out in the balance sheets of suppliers and producers in the short term. Germany is a growth driver and accounts for over 50% of the EPEX Spot's trading volume. Wind power and photovoltaics should continue to be significantly expanded in order to achieve the German climate goals. According to the federal government's Easter package from 2020, photovoltaics should have an installed power of 215 GW and 115 GW in wind power. The share of volatile generation will therefore continue to rise sharply, whereas the majority of the conventional generation park (nuclear and coal-fired power plants) will be shut down from the grid in the next few years. At the same time, this reduces the share of predictable generation capacity, which will further increase the need for storage and thus the revenue potential in the next few years.
The daily consumption patterns of connection users and the fluctuating generation of renewable energy systems over the course of the day lead to different energy prices. Short-term storage systems such as large battery storage systems can buy energy cheaply every 15 minutes and sell it more expensively later.
Every 15 minute contract of a day can be traded from 16:00 on the previous day. Depending on consumption and production forecasts, the price fluctuates until actual delivery. The same 15-minute contract can therefore be bought and sold again several times at a profit before the trading algorithm finally decides whether the amount of energy should be physically stored.
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