How coordination can be implemented

Coordination is always crucial in order to ensure the proper functioning of interconnected electricity systems, both at planning and at operational stage.

At the level of planning, it is obvious that the construction of any cross-border line, as well as related infrastructures on both sides of the border, requires coordination between the respective TSOs. It is not only rights-of-way and equipment specification that must be agreed between the TSOs, but also commissioning procedures and the very timing of the project need to be jointly decided by the concerned parties. Somehow, cross-border lines must fit within the national transmission network expansion plans of the neighbouring countries. Therefore, their existence implies a certain degree of network planning coordination between countries, also taking into account merchant lines. If the interconnected network is supposed to physically support the functioning of a single, supra-national integrated electricity market, then all relevant aspects related to the expansion, operation and maintenance of cross-border lines should be collectively discussed and agreed by the concerned interconnected TSOs. Finally, one should recall that planning means, by definition, the coordination of different resources “to achieve or do something”⁸ – not only at EU level, but also at national or local level.

If we now turn to the operational level, four different types of coordination are actually required (see Fig. 1.2):

8 http://www.merriam-webster.com/dictionary/planning.

1. Technical coordination between generators (injections) and loads (withdrawals), controlling physical flows throughout the whole system – known as ‘system operation’;

2. Commercial coordination between supply and demand, directing financial flows – known as ‘market operation’;

3. Coordination between the technical/physical and the commercial/financial processes – i.e. between system operation and market operation;

4. International coordination among actors from different countries inside an interconnected electricity system (international coordination can be organised in different ways, corresponding to different types of interaction at each level of coordination: technical, commercial and technical/commercial).

Fig 1.2: Operational coordination in interconnected electricity systems and markets

There are many different possible ways of organising coordination. We will briefly discuss here how international coordination can be arranged.

If the TSOs of the interconnected system merged into one Single System Operator (SSO) and the different existing market operators merged into one Single Market Operator (SMO), the outcome would be a situation similar to the one currently existing at national level (although in some countries several TSOs coexist). Indeed, we will end up with a single system operator and a single market operator throughout international transactions (see Fig. 1.3).

Fig 1.3: Single Market Operator / Single System Operator

Coordination between system and market operators would be a straightforward iterative process similar to the current situation in most EU Member States – see Fig.

1.4.

Fig 1.4: Coordination between SSO and SMO: an iterative process

Another conceivable architecture consists of one Single Market Operator (SMO) coexisting with Multiple System Operators (MSOs), as depicted in Fig. 1.5. The Nordic model works in this way.

Fig 1.5: Single Market Operator / Multiple System Operators

In this case, two alternative coordination strategies could be implemented, as indicated in Figures 1.6 and 1.7 – respectively, parallel and sequential coordination.

In the ‘parallel’ case, each system operator interacts bilaterally and simultaneously with the single market operator; in the ‘sequential’ case, first there is a horizontal coordination process among system operators and then, once their coordination is accomplished, a vertical coordination process with the single market operator. In both cases, several iterations may be necessary in order to reach a satisfactory solution.

Fig 1.6: Parallel coordination

Fig 1.7: Sequential coordination

Conversely, it is conceivable to have one Single System Operator (SSO) coexisting with Multiple Market Operators (MMOs), as described in Fig. 1.8.

Fig 1.8: Single System Operator / Multiple Market Operators

As in the previous case, which was characterised by a single market operator and multiple TSOs, both parallel and sequential coordination strategies could be implemented between the individual TSO and the many MOs (it suffices to exchange the words ‘market’ and ‘system’ in Figures 1.6 and 1.7 above to visualise how they would work).

The present situation in the European Union is not as integrated as the above-portrayed scenarios. It still corresponds to a very fragmented landscape, with numerous national system operators and market operators – see Fig. 1.9. Technical and economic concerns vary from country to country and, as George Orwell would say, all operators are equal, but some operators are more equal than others.

Fig 1.9: Multiple System Operators / Multiple Market Operators

Under the current circumstances in Europe, several coordination strategies are possible, combining functional (market/system operation) and geographical dimensions according to different sequences. For example, one may give higher priority to the geographical (e.g. regional) approach or to the functional (e.g. market coupling) method.

It should be pointed out that, in the analytical framework of this chapter, ‘market operation’, ‘system operation’ and ‘coordination’ are ‘information processing entities’:

they act basically as algorithms with their associated data inputs and outputs. From the point of view of information and complexity analysis, ownership of these entities is not the key point. However, while ownership can be irrelevant from the computational point of view, it plays a very important role in terms of accountability, liability and incentives.

From the complexity analysis point of view, the ‘two single’ scenario is the ‘best’ one.

With only one TSO and only one MO, we get the lowest degree of complexity and therefore the fastest computational performance. Conversely, the ‘multiple/multiple’

scenario, with multiple TSOs and multiple MOs, requires more computational resources and, therefore, is slower. Computational time becomes less critical as the performance of processors and storage devices increases; however, there is a cost factor to be considered and, moreover, the more time that is available for market agents and system operators to perform their tasks, the better. In practice, time is still very critical for real-time applications, when reliability and control of the interconnected system are at stake.

In summary, Fig 1.10 shows the possible combinations of system and market operators.

MMO: Multiple Market Operators MSO: Multiple System Operators SMO: Single Market Operator SSO: Single System Operator Fig 1.10: Possible combinations of market and system operators in any

interconnected system