Finer Expectations
Smooth, saw-toothed, both?
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Very well… I shall allow you to battle against the cold for another quarter of an hour, as I don’t want to pester you, but in fifteen minutes I shall take you away by force. Marcel Proust, In Search of Lost Time: The Guermantes Way
Though roll-out has been delayed, European power markets are moving closer and closer to quarter-hour granularity in Day-Ahead auctions.
Currently, the Day-Ahead auction in Germany offers only hourly products. If market participants require finer adjustments, they must turn to the continuous intra-day market, which supports half-hourly and quarter-hourly products.
It is thought that the introduction of 15-min granularity in the day-ahead auction will enable a more seamless integration of renewables into the market while enhancing grid stability.
Some see the move to 15-min granularity as a first step towards increasingly fine-grained trading opportunity. The Head of Strategy and Energy Policy at Amprion has noted that if Germany achieves its development of PV capacity to 215 GW by 2030 then we could see ramp-ups of up to 6 GW of PV within 15 minutes at sunrise, which may be too abrupt to manage with 15-minute blocks alone — creating a need for 5-minute trading.
There are different views as to what the effects of 15-min granularity will be. FlexPower has an excellent running thread on LinkedIn with market participants betting on whether the future shape of the 15-min Day-Ahead price will be smooth or saw-toothed.
What do I think? I think the DA price curves are more likely to be smooth. Day-Ahead prices express expectations about the weather, the state of supply and demand. I can’t see a reason why these expectations would systematically jump in 15-min intervals. When you’re one day ahead of the action, what could really be expected to change in just 15 minutes?
I may change my view slightly in the course of this post.