Spot vs. forward energy markets
The intraday market falls under the category of the spot energy markets. Let’s take a look at the difference between the forward and spot energy markets:
Forward energy markets describe markets that set contracts for the delivery of electricity within a future date and predetermined prices. The pricing within these markets is influenced by anticipated supply in the future and demand conditions making it rather forecast based. Forward electricity markets allow market participants to hedge against short-term price uncertainties, and thus stabilize cash flows.
Spot energy markets are markets in which electricity is priced and delivered immediately. The prices for the traded energy are therefore influenced by real-time supply and demand dynamics, making these markets very adaptable to the needs of its participants in terms of flexible decision making. Because of that, there is also a high volatility due to short-term demand swings. Within spot trading, there are the day-ahead and intraday power exchanges. While day-ahead trades follow marketing clearing price principle, meaning the last accepted bid sets the price for all transactions, intraday trading prices are assessed either on a continuous basis for each transaction or in the variant of the intraday auction. As the name suggests, intraday power trading also takes place on the same day the power is delivered.
Pricing in intraday markets
In intraday markets, the prices are determined via the pay-as-bid principle. Thus, participants only pay the price bidded for the electricity they buy and only receive the price that was bid for the electricity they sold. In contrast to uniform pricing, the participants in this market are matched based on their bid prices and are not set by a uniform market price.
Intraday trading
The intraday market is a continuous market where the trades occur 24/7 and are delivered on the same day. This ensures great flexibility as contracts can be closed hourly, half-hourly or quarter-hourly, and also leaves room for last-minute adjustments and balancing positions as it is so close to real-time. In Germany, the lead times for trading have even decreased to five minutes to adapt to fluctuating energy sources.
A crucial part of intraday trading is the intraday auctions. These allow liquidity to be pooled at specific times, providing price references for immediate or next-day delivery. In intraday markets, liquidity bundling involves grouping buy and sell offers during specific auctions to facilitate more transactions during periods of low market activity. Price references are benchmarks set during intraday auctions that guide subsequent trades by indicating the current value of electricity.
Intraday trading helps to balance supply and demand within the participant’s balancing group, minimize imbalance cost and optimize asset usage. It is also crucial, as already mentioned, for adjusting to unforeseen changes in power production and consumption. In addition, it better integrates intermittent renewable energy sources, which are affected by constantly changing weather conditions, into energy systems by allowing real-time adjustments and balancing of intermittent supply.
Challenges of intraday energy markets
While the intraday energy market offers many advantages and flexibility to its participants, there are also some challenges within intraday trading that have to be tackled:
- Intraday markets are prone to high volatility due to various reasons, such as supply and demand imbalance, fluctuating commodity prices, infrastructure complaints or weather conditions, and thus require proper and anticipatory management.
- The increasing reliance on renewables can lead to a fluctuating and unpredictable supply, which makes forecasting more difficult.
- Due to trading and delivering occuring within the same day, there is an immense amount of data from diverse sources that varies in location, scale and time, which needs to be processed and managed.
The intraday market in Germany
In Europe, the biggest intraday power exchanges are the European Power Exchange (EPEX) Spot and the Nord Pool. The EPEX Spot SE operates in France, Austria, Switzerland and Germany. The Single Intraday Coupling (SIDC), introduced in 2018, established a single EU cross-zonal electricity market, which allows market participants to buy and sell electricity more seamlessly across Europe. This is particularly helpful as sharing (renewable) energy generation sources can better balance supply until one hour before delivery time in line with unexpected changes (in weather, consumption or outages). An increasing reliance on intermittent renewable energy makes leveraging the flexibility of different generation sources continuously on the day of delivery crucial. Since May 2001, German market participants have been able to trade in the continuous intraday market without limitations in the German/Luxembourg bidding zone from 15:00h CET, which is when the single EU cross-zonal intraday market opens. This is three hours earlier than the previous time of 18:00h, which limited trading in these first three hours to the respective German TSO control area – thus opening up trading across Germany to the SIDC system.
Intraday and its relevance for the HEMS market
Time-of-use (ToU) optimization based on intraday prices and providing flexibility via the Intraday market show great potential in the home energy management system (HEMS) market and could help users maximize the efficiency of their systems and balance the grid while saving costs.
Improve time of use optimization with intraday prices
Electricity prices fluctuate constantly throughout the day depending on supply, demand, weather and other factors. Intraday optimization allows a HEMS to adapt to these fluctuations. This reduces costs and helps households to participate in demand response programs, where they can adjust their energy consumption in response to market signals, thereby receiving financial incentives for system-friendly consumption behavior. Intraday optimization also allows households to adapt more quickly to renewable energy resources by matching energy consumption to periods of peak renewable electricity generation.
Currently, all modern advanced HEMS solutions work exclusively on the basis of day-ahead prices and use consumption forecasts to create an operation plan for the following day. However, the next step is to also use intraday prices and leverage the potential of the intraday market. This would allow us to compare the day-ahead operation plan with the intraday prices, which, in return, provides information on possible optimizations.
Another way of utilizing the intraday market prices is to optimize the actual behavior based prices. This is especially beneficial because a day-ahead price for charging a battery might indicate that the price would be at its lowest in the middle of the day. Taking intraday prices into consideration could reveal that there might be a sudden price reduction in the morning due to an unexpected wind energy surplus. The HEMS could then shift the battery charging to the morning hours and save additional costs that might have been unseen.
Providing flexibility via the intraday market
The intraday market can also be used to provide flexibility. By offering flexibility through a market access provider (MAP), end customers can monetize the aggregated flexibility of their partner’s assets on the intraday market. A partner, such as gridX, can then handle the technical aggregation and disaggregation of the available flexibilities and monetize this cumulated flexibility via a MAP.
An example of this would be if you have 10,000 HEMSs with the same amount of batteries connected to them and each battery has an average capacity of 10 kWh. This gives an estimated amount of about 100 MWh of potential flexibility. If 10% of this capacity (10 MWh) is ready to be used immediately, this energy can be sold on the intraday market if there’s a sudden demand for power. This also works the other way around: if the market has excess energy, it can be used to charge these 10,000 batteries. The ability to control and coordinate this charging and discharging for a large number of systems is crucial for participating in the intraday market. However, this is only possible for HEMS providers who access these systems and are able to handle the technical requirements and capability that is needed to ensure a seamless process.
In terms of value stacking, the intraday market is attractive because it offers the potential for additional high returns by leveraging idle capacity to quickly respond to energy demand. However, it's also challenging because it requires advanced technology, such as a HEMS, to manage this flexibility efficiently. For HEMS users, the key is to implement these systems in a way that takes full advantage of the intraday market, ensuring that they can quickly and effectively respond to market conditions, leveraging all of the flexibility that this market offers.