In Africa, efforts have been made to establish regional power pools for many years, but the volumes of power traded on power pools remains low. The Southern African Power Pool, SAPP, is the most established. However, in SAPP, a lot of existing trade is inflexible (i.e., blocky and often unidirectional trades), which could prevent the benefits of trade from being unlocked. This blog post illustrates the potential benefits of more liberalised, flexible trading arrangements.
We have used our SAPP power market dispatch model to illustrate the impacts of different trading arrangements and renewable penetration levels. Six scenarios with varying levels of renewable penetration and trade flexibility have been run, as summarised in the table below.
More flexible, liberalised trading arrangements result in lower system operating costs. The figure below shows the total operating costs in each of the six scenarios. The following can be observed:
The high renewable penetration system has substantially lower operating costs. This is largely because short-term costs (e.g., fuel expenses) have been replaced with long-term capital investments (e.g., solar panel costs).
Trade will become more important as renewable penetrations increase. Trade results in a total reduction in operating costs of 22.6% in the high renewables scenario and 6.6% in the reference scenario.
Trading arrangements are at least as important as the physical infrastructure in place in determining the benefits of trade.
Flexible use of interconnectors reduces operating costs by:
Mitigating periods of high prices and load shedding. Flexible operation of the interconnectors allows power to be imported at a lower cost than expensive emergency generation when there is high demand or generators have outages.
Allowing better use of renewable generation. Renewable generation that would be curtailed if it had to be used domestically can be exported to markets that have residual demand.
The line chart below shows hourly prices in Namibia ordered from highest (on the left) to lowest (on the right) in the “High Renewables” scenario for each of the three trading regimes modelled.
Trade of power can help with the integration of renewables, but liberalised trading arrangements are needed to unlock these benefits. Physical infrastructure alone with will not unlock the benefits of trade. While the analysis above is focused on SAPP, the same applies for regional trade in other regions; for example, in West Africa, where there are renewed efforts to establish trading arrangements in the WAPP, or in Southeast Asia, where the reality of the ASEAN Power Grid (APG) initiative remains dominated by blocky, unidirectional trades.
Kuungana’s power market dispatch models can be used by policymakers and investors to understand the impact of trade. Our models have been relied on by clients in both the public and private sectors. The impact of trading arrangements (at the country-level or at the regional level, as above) on system dispatch costs can be tested; trading arrangements will also impact the ‘capture price’ that individual assets can earn in countries with a wholesale market. Do get in touch if you are interested to learn more about our market models and our power market analytics capabilities.
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