The power behind the exchange

By Siàƒ¢n Green

Italy is implementing a power exchange as part of its plans to create a competitive power market.

The new trading system is now in place at GME’s site in Rome
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An international consortium is providing the system that will support this essential part of the Italian market.

When Italy decided to create a competitive power market, it reached across the Atlantic to a software company tucked away in the hills of Lexington, Massachusetts.

Rome-based Gestore del Mercato Elettrico (GME), the Italian power exchange operator, recently announced that it had selected US-based Excelergy Corporation to provide the operating software to run Italy’s newly competitive power exchange. The multi-million dollar agreement, awarded to a consortium that includes Excelergy, Italian systems integrator Elsag SpA and Amsterdam-based information technology consultant Getronics, was made earlier this year in advance of the opening of the competitive Italian energy market scheduled for October 2002.

Fabio Chiusa, Elsag’s marketing director, said there were four primary reasons why Excelergy’s software was selected. “GME needed a flexible, scalable engine for the millions of transactions that will be exchanged in this unique marketplace, a secure online portal for market participants to access on demand, a powerful physical scheduling system for efficient production planning, and an accurate settlement system to manage the billing among market participants.

“Excelergy’s products provide all this functionality to address Italian-specific market rules and requirements.”

A unique market

Serving more than 57 million people, the Italian power market will manage a capacity of over 72 000 MW from approximately 1400 generation facilities and 9700 km of transmission lines. It also interconnects within France, Switzerland, Austria, Slovenia and Greece.

The Italian market has three major entities: GME, Gestore della Rete di Trasmissione Nazionale SpA (GRTN) and Acquisente Unico (AU). GME is implementing a programme that will introduce competition to the provision of electricity in Italy through a national power exchange. It will manage the exchange, creating physical markets for offers and bids related to power.

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GRTN manages the transmission network and serves as the counterparty to balancing and congestion transactions. AU is considered the ‘single buyer’, representing Italian customers currently ineligible for participation in GME-administered markets.

The power exchange will initially be open to generators, distributors and traders and will gradually extend to eligible customers over time. All told, up to 7000 companies may be eligible to participate in the GME markets; more than 150 are expected to participate in the market from the start.

The power exchange will create day ahead, adjustment, reserve and balancing markets to facilitate competition and lower energy prices while maintaining a reliable and stable power grid. Specifically, offers will be made for supply and demand on the day-ahead and adjustment markets. In addition, GME operates balancing and congestion markets in which GRTN accepts offers and bids to maintain system stability and balance.

The mechanism to set pricing is completely market driven. In the day ahead and adjustment markets, price is set as a market-clearing price for all accepted offers and bids. The market-clearing price is the price established at the intersection of supply and demand on a zonal basis. For the balancing and congestion markets, price is set in accordance to merit order for offers and bids accepted by GRTN.

The Italian deployment

Elsag is providing project management and systems integration and security services for the phased implementation of Excelergy’s software platform, while Getronics is delivering all hardware systems to be utilized by the consortium.

Once fully operational in Italy, Excelergy’s product suite will execute the following functions:

  • Manage the power bidding process among energy generators, distributors, importers, wholesalers and eligible customers
  • Establish the market clearing price
  • Schedule the delivery of power
  • Settle market operations.

The overall Italy deployment essentially consists of several Excelergy products combined to meet the needs of Italy’s market as specified by GME. One of them, Excelergy Energy Trading, is deployed at North America’s top energy trader and generator, American Electric Power.

The framework for the portal through which market participants will access the market to carry out transactions will be provided by Excelergy eXACT. Currently operational in markets from North America, e.g., Ontario, to Asia, e.g., Australia, it has been tailored for the Italian market. eXACT allows participants to submit and receive bids and offers, and see crucial market data such as revisions to the unit production plans.

Most small participants will access the market through the portal. Larger participants will be able to interface eXACT with existing systems to automate their bidding and scheduling processes. All transactions are XML-based and security is provided by digital certificates.

Elsag worked with GME and market players to tailor the look and feel of the portal for the Italian market, and will also offer system users support, if requested, to interface eXACT with internal systems.

An integral part of the system is the market price clearing component, which uses algorithms to determine market clearing price. This, says Jackie Lemmerhirt, product marketing manager at Excelergy, is a modular component that can be revised and adjusted as the market develops. The Excelergy system will also generate unit production plans for the day-ahead market each day.

The settlement component of the system is a real-time system based on Excelergy’s Advanced Business Package product. It provides settlement results at the conclusion of each market for each participant, and determines the position of each participant, i.e., what they owe or are owed. On the basis of this, it will also adjust each participant’s credit grade accordingly, i.e. the financial limit up to which a participant can bid.

GRTN will serve as the counterparty to balancing and congestion transactions
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Each participant will be able to see both their charges and their limit on the portal. This, says Lemmerhirt, will not only help speed up the settlement process, but will also help participants with their internal planning and bid strategies.

The Italian market configuration of Excelergy’s products will be repeatable and reusable for other central market operators around the world, and the company is in discussions with several other regional and national market operators in Europe and elsewhere. The company is also in discussions with a number of major Italian market participants who are seeking to optimize their connection to the newly competitive power exchange.

Selecting technology

Fabio Chiusa, Elsag’s marketing director, provided an insider’s perspective on the selection process that ultimately led to Excelergy being chosen for the project. “We searched worldwide for the most advanced software technology available, and we determined Excelergy’s product suite offered the most cost-effective, proven, open technology that could handle the volume and complexity of the power market transactions we anticipate … Excelergy’s products matched our vision and aggressive timetable for this newly competitive wholesale market.”

During the project, Excelergy and its partners worked closely with GME and the major market players to determine and develop the functionality of the system. According to Lemmerhirt, GME spent ten days in January 2002 going over the system in detail, and giving feedback. “All the feedback was positive … the underlying structure of the system has not changed,” commented Lemmerhirt.

The system has now been installed at GME in Rome and over the next few weeks, site acceptance tests will be carried out. By June, the system will be ready for market participants to test and try out before it finally goes live.

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