Market simulator paves the way for better investment decisions in the electricity market

Challenge

The electricity market is at the core of the green transition. With electrification, many investment decisions must be made, where the biggest risk factor lies in the uncertainty about how electricity prices will evolve in the future. The Power Market Simulator (PMS) is a calculation tool that increases knowledge about the electricity market. Therefore, PMS can help raise the level of understanding about the electricity market and improve the decision-making foundation for future investments in the green transition. Unlike other market models, PMS can be used by non-experts in IT models, and it calculates very quickly, allowing users to analyze many different market situations. The challenge is that the solution model in PMS is not scientifically documented, so users have no guarantee of the quality of the calculations. Therefore, an important part of PMS’s marketing will be to refer to a scientific test of the model in the promotional material. In addition to TSO and DSO, universities are also an important target group for PMS, and for them to use the model, at least one academic article documenting the model is required.

The current version of PMS does not include the option to incorporate Power Transfer Distribution Factors (PTDF) in the optimization. This is a shortcoming that should be addressed because Transmission System Operators (TSOs) in the EU have agreed that PTDF should be part of the optimization of the Day-Ahead market. It is, therefore, important for PMS to be further developed so that the model can also handle PTDF.

Solution

Imada at the University of Southern Denmark, Danish Energy Economics, and Strategirummet reviewed the theory behind the existing unique solution model in PMS and described the theory in scientific terms. They also tested the solution model against a scientifically recognized solution model (Gurobi) to determine calculation accuracies and speeds. The result was documented in at least one scientific article.

Power Transfer Distribution Factors were implemented in the mathematical solver in PMS in the same way as in the model used by European exchanges.

Result

The project has resulted in an upgraded version of the Power Market Simulator (PMS), which now includes Power Transfer Distribution Factors (PTDF) and meets the upcoming EU requirements for optimization of the electricity market's Day-Ahead markets. PMS has been scientifically validated through comparison with the recognized solution model Gurobi, documenting the model's accuracy and efficiency. The simulator combines high calculation precision with user-friendliness, making it accessible for both commercial actors and educational institutions. PMS allows businesses, energy traders, and researchers to make more informed investment decisions and contribute to the green transition. The tool is available via an intuitive online platform, offering quick access to data and simulations.

Read more and try the market simulator: Power Market Simulator.