A fast and flexible stochastic dynamic programming model of the electricity market: VTT-EMM - structure and use

Eero Tamminen, Veikko Kekkonen, Göran Koreneff, Tiina Koljonen

    Research output: Book/ReportReport

    Abstract

    The Nordic power system and electricity market consists of Finland, Sweden, Norway and Denmark, which have a common market place. Most of the electricity produced and consumed goes through the Nord Pool Spot exchange. Our main objective was to develop a fast, agile, robust and transparent, mediumto long-term mathematical model of the stochastic development of the spot price of electricity on the Nord Pool market. In this report we present the Electricity Market Model of VTT Technical Research Centre of Finland, VTT-EMM. The model is a mathematical representation, based on stochastic dynamic programming, of the dynamics of the demand, production and market price of electricity in the power system of the Nordic countries. The power system is versatile and dominated by hydropower, and modelling the market is a demanding task. There are structural simplifications (one hydro reservoir, time aggregation) as well as data input generalisations (index series for power and CHP heat demand, modelled hydro inflow, and capacity aggregation) in the VTT-EMM model, which affect the results. Simplification and aggregation cut the computing time and data acquisition effort required and improve the flexibility of the model. Can we obtain reasonable market price and production estimates using a greatly simplified representation of the hydro system and the other power plants? Test results are compared with both spot prices and forward prices on the market. The results are considered to be good enough empirically, especially on an annual level. One weakness is that short-term spot price fluctuations are not captured very well. Further model development could, thus, include methods to integrate the short-term intermittency of wind power into the model and modelling of intra-market price areas. One strength can be found in the assessment of a more long-term future using multiple scenarios, even up to several hundred.
    Original languageEnglish
    Place of PublicationEspoo
    PublisherVTT Technical Research Centre of Finland
    Number of pages109
    ISBN (Electronic)978-951-38-8202-0
    ISBN (Print)978-951-38-8201-3
    Publication statusPublished - 2014
    MoE publication typeNot Eligible

    Publication series

    SeriesVTT Technology
    Number203
    ISSN2242-1211

    Fingerprint

    Dynamic programming
    Agglomeration
    Electricity
    Wind power
    Power markets
    Data acquisition
    Power plants
    Mathematical models

    Keywords

    • electricity market model
    • stochastic dynamic programming
    • Nordic electricity market
    • price forecast

    Cite this

    Tamminen, E., Kekkonen, V., Koreneff, G., & Koljonen, T. (2014). A fast and flexible stochastic dynamic programming model of the electricity market: VTT-EMM - structure and use. Espoo: VTT Technical Research Centre of Finland. VTT Technology, No. 203
    Tamminen, Eero ; Kekkonen, Veikko ; Koreneff, Göran ; Koljonen, Tiina. / A fast and flexible stochastic dynamic programming model of the electricity market : VTT-EMM - structure and use. Espoo : VTT Technical Research Centre of Finland, 2014. 109 p. (VTT Technology; No. 203).
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    Tamminen, E, Kekkonen, V, Koreneff, G & Koljonen, T 2014, A fast and flexible stochastic dynamic programming model of the electricity market: VTT-EMM - structure and use. VTT Technology, no. 203, VTT Technical Research Centre of Finland, Espoo.

    A fast and flexible stochastic dynamic programming model of the electricity market : VTT-EMM - structure and use. / Tamminen, Eero; Kekkonen, Veikko; Koreneff, Göran; Koljonen, Tiina.

    Espoo : VTT Technical Research Centre of Finland, 2014. 109 p. (VTT Technology; No. 203).

    Research output: Book/ReportReport

    TY - BOOK

    T1 - A fast and flexible stochastic dynamic programming model of the electricity market

    T2 - VTT-EMM - structure and use

    AU - Tamminen, Eero

    AU - Kekkonen, Veikko

    AU - Koreneff, Göran

    AU - Koljonen, Tiina

    PY - 2014

    Y1 - 2014

    N2 - The Nordic power system and electricity market consists of Finland, Sweden, Norway and Denmark, which have a common market place. Most of the electricity produced and consumed goes through the Nord Pool Spot exchange. Our main objective was to develop a fast, agile, robust and transparent, mediumto long-term mathematical model of the stochastic development of the spot price of electricity on the Nord Pool market. In this report we present the Electricity Market Model of VTT Technical Research Centre of Finland, VTT-EMM. The model is a mathematical representation, based on stochastic dynamic programming, of the dynamics of the demand, production and market price of electricity in the power system of the Nordic countries. The power system is versatile and dominated by hydropower, and modelling the market is a demanding task. There are structural simplifications (one hydro reservoir, time aggregation) as well as data input generalisations (index series for power and CHP heat demand, modelled hydro inflow, and capacity aggregation) in the VTT-EMM model, which affect the results. Simplification and aggregation cut the computing time and data acquisition effort required and improve the flexibility of the model. Can we obtain reasonable market price and production estimates using a greatly simplified representation of the hydro system and the other power plants? Test results are compared with both spot prices and forward prices on the market. The results are considered to be good enough empirically, especially on an annual level. One weakness is that short-term spot price fluctuations are not captured very well. Further model development could, thus, include methods to integrate the short-term intermittency of wind power into the model and modelling of intra-market price areas. One strength can be found in the assessment of a more long-term future using multiple scenarios, even up to several hundred.

    AB - The Nordic power system and electricity market consists of Finland, Sweden, Norway and Denmark, which have a common market place. Most of the electricity produced and consumed goes through the Nord Pool Spot exchange. Our main objective was to develop a fast, agile, robust and transparent, mediumto long-term mathematical model of the stochastic development of the spot price of electricity on the Nord Pool market. In this report we present the Electricity Market Model of VTT Technical Research Centre of Finland, VTT-EMM. The model is a mathematical representation, based on stochastic dynamic programming, of the dynamics of the demand, production and market price of electricity in the power system of the Nordic countries. The power system is versatile and dominated by hydropower, and modelling the market is a demanding task. There are structural simplifications (one hydro reservoir, time aggregation) as well as data input generalisations (index series for power and CHP heat demand, modelled hydro inflow, and capacity aggregation) in the VTT-EMM model, which affect the results. Simplification and aggregation cut the computing time and data acquisition effort required and improve the flexibility of the model. Can we obtain reasonable market price and production estimates using a greatly simplified representation of the hydro system and the other power plants? Test results are compared with both spot prices and forward prices on the market. The results are considered to be good enough empirically, especially on an annual level. One weakness is that short-term spot price fluctuations are not captured very well. Further model development could, thus, include methods to integrate the short-term intermittency of wind power into the model and modelling of intra-market price areas. One strength can be found in the assessment of a more long-term future using multiple scenarios, even up to several hundred.

    KW - electricity market model

    KW - stochastic dynamic programming

    KW - Nordic electricity market

    KW - price forecast

    M3 - Report

    SN - 978-951-38-8201-3

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    ER -

    Tamminen E, Kekkonen V, Koreneff G, Koljonen T. A fast and flexible stochastic dynamic programming model of the electricity market: VTT-EMM - structure and use. Espoo: VTT Technical Research Centre of Finland, 2014. 109 p. (VTT Technology; No. 203).