Long-Term Capacity Market

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Rui Yu
10/03/2021

Long-Term Capacity Market: the added-value of a market-clearing algorithm

With the increasing electrification of our society and the significant change in supplies structures (e.g. nuclear phase-out), system operators are facing a risk of future scarcity issues of the electricity supply. Part of the solution to this structural change lies in long-term capacity markets (LTCM). An LTCM lays out several new measures designed to guarantee the security of supply in the long term and at the fairest price. This consists of providing no more and no less than the necessary remuneration to compensate for the “missing money“ in production capacity using an auction mechanism. An LTCM can for instance be used by a “single buyer” setting up a demand curve and organizing an auction a few years before the delivery period to allow the suppliers to make long-term investment decisions based on the auction results.

 

For each auction, participants (i.e. buyers and sellers) are asked to submit bids on a dedicated digital auction platform. The auction is cleared using a market-clearing algorithm, taking into account all submitted bids and other relevant input parameters and constraints. Selected bids are communicated once the clearing phase is completed. Using a well-chosen market-clearing algorithm is key. On one hand, it allows integration of important market requirements (pricing rules, complex order, time, and grid constraints representation) directly in the solution computation. On the other hand, external benefits for the solution can be unlocked with an appropriate market-clearing algorithm, such as impartiality and transparency of the solution maximizing the social welfare.

The role of N-SIDE

In this context, N-SIDE provides software to manage LTCM auctions (i.e. receive and select the bids in an optimal way) relying on N-SIDE Power Matching Algorithm, the proprietary market-clearing algorithm developed by N-SIDE.

The N-SIDE Power Matching Algorithm is the standard clearing algorithm designed for energy close-gate auctions that N-SIDE applies to many use cases for various electricity stakeholders: Market Operators, TSO, DSO, … The tool, based on cutting-edge optimization techniques (mixed-integer linear and quadratic programming), integrates a robust algorithm relying on a high-quality mathematical solver and is boosted with side heuristics.

Moreover, the mathematical model behind this tool can deal with the constraints related to the LTCM context (such as complex bids and network topology) and take those into account during the clearing.

 

 

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About the Author

Energy Marketing Coordinator. Driven to build a sustainable future with energy organizations.

Rui Yu