Definition Intraday Trading
Since the advent of renewable energies, spot markets, on which short-term electricity procurement is handled, have rapidly gained in importance. As a flexible trading venue, the spot market offers quarter-hour contracts for the following day. It also enables continuous trading, where electrical energy can be traded up to a few minutes before physical delivery.
The main purpose of intraday trading is to keep surplus or shortfall quantities of balancing groups as low as possible through short-term trading on the exchange, in order to comply with previously issued forecasts. In this way, it is possible to counteract unforeseen changes in electricity production before having to resort to balancing energy, which is only intended to serve as a safety reserve.
How does intraday trading work?
In general, the quantities of electricity produced or consumed must be forecast in advance. For smaller consumers such as households, this is done by the electricity supplier using standard load profiles. These forecasts are called "schedules" or "profiles" and must be registered with the transmission system operator the day before the amount of electricity is produced or drawn. If these profiles are not adhered to, for example if a large steel factory consumes more electricity than forecast, the much more expensive balancing energy must be purchased to make up the difference from the original profile.
In order to avoid these costs and to be able to adhere to the schedules even in the case of short-term fluctuations, intraday trading offers the possibility to buy or sell energy during the same day of delivery.
In the quarter-hour opening auction on the day before the provision, a quantity of energy can be bought and sold for the respective 15min interval of the following day, in order to adhere as closely as possible to one's own schedules. If, for example, the weather forecast changes at short notice on the previous day, this can be reacted to in this auction.
After the opening auction, trading can continue in continuous quarter-hourly or hourly trading up to 30 min before physical provision throughout Germany. In this way, it is also possible to react to extremely short-term fluctuations. The smallest energy quantity for trading on the intraday markets is 0.1 MWh. The price is formed according to bids and is called the bid price.
Contracts which are concluded only 30 minutes before delivery or contracts for only 15 minutes enable enormous Flexibility of the electricity market. However, this is also absolutely necessary due to the strong dependence of renewable energies on weather conditions. It offers renewable energy producers in particular the opportunity to take better account of short-term weather forecasts in their calculations and to make offers that are as realistic as possible.
How does intraday trading work with large-scale battery storage?
In an energy market with a high share of renewables, forecasts of supply are very complex due to imperfect weather forecasts and an increasing share of solar and wind energy that fluctuates over time. Here, the intraday market allows for short-term correction of shortages and surpluses. Price volatility on the spot markets in Germany, France and Switzerland has increased dramatically in recent years, making flexibility increasingly valuable for the power grid, especially given the ambitious expansion targets for renewables. Increasing volatility is leading to rising price spreads. Negative prices occur more frequently on spot markets, although the price level is generally very high.
As extremely responsive Energy storage, these extremely volatile price fluctuations enable large-scale battery storage to profitably participate in intraday trading.
In addition to the balancing energy markets, the intraday trading market is one of the other revenue streams of a large-scale battery storage and part of the multi-use strategy of a storage. Depending on the situation, it is possible for the storage facility to choose the most lucrative market and to become active in it.
How do price peaks occur?
A simple model of the origin of electricity prices is the merit order. It sorts power plants according to their marginal costs. The most expensive power plant that is called upon to cover the load determines the current electricity price. Renewables are on the far left of the merit order in Germany because the Renewable Energy Sources Act mandates prioritization of renewable generation. The elimination of lignite and hard coal, as well as nuclear power, makes the merit order much steeper. The addition of renewables broadens the plateau with low prices.
The higher the electricity demand, the more expensive power plants have to be used. Renewable energies are very cheap energy sources. During the day, PV plants, for example, therefore reduce the price of electricity. In low-wind morning and evening hours, very expensive peak-load power plants are already used (shown below as an example for 09.07.2022) and generate very high price peaks. More PV generation will further reduce the price of electricity at midday, while the elimination of conventional generation components will increase price peaks in the morning and evening.
