Day-Ahead vs Hour-Ahead

Cheatsheet Content

### Introduction to Electricity Markets Electricity markets operate on various timelines to ensure a continuous and reliable supply of power. The two primary markets for energy scheduling are the Day-Ahead Market and the Hour-Ahead Market, often complemented by Real-Time Markets. These markets allow for the buying and selling of electricity, managing supply and demand, and setting prices. ### Day-Ahead Market (DAM) The Day-Ahead Market is a financial market where electricity is bought and sold for delivery on the following operating day. It's designed to allow market participants (generators, load-serving entities, etc.) to commit to transactions in advance, providing price certainty and enabling efficient resource commitment. #### Key Characteristics - **Timeline:** Bids and offers are submitted and cleared typically 24-36 hours in advance of the operating day. Prices are usually announced by midday for the next day's 24-hour period. - **Purpose:** To establish a primary schedule for generation and consumption, minimize congestion, and manage transmission constraints. It helps in committing generation units that require significant start-up time. - **Pricing:** Prices are determined through an auction process, often using a security-constrained economic dispatch (SCED) model, which considers transmission limits and generator ramp rates. The Locational Marginal Price (LMP) is a common pricing mechanism, reflecting the cost of supplying the next increment of electricity at a specific location. - **Participants:** Large generators, industrial consumers, utilities, and financial traders. - **Risk Management:** Offers a hedge against price volatility in the Real-Time Market. Participants can lock in prices for future delivery. #### Advantages - **Price Certainty:** Reduces exposure to real-time price fluctuations. - **Resource Commitment:** Allows for the efficient scheduling of large, slow-start power plants. - **Congestion Management:** Proactive identification and mitigation of transmission congestion. #### Disadvantages - **Forecast Dependency:** Relies heavily on accurate load and generation forecasts, which can be imperfect. - **Inflexibility:** Less adaptable to sudden, unforeseen changes in supply or demand. ### Hour-Ahead Market (HAM) The Hour-Ahead Market, also known as the intra-day market or adjustments market, serves as a bridge between the Day-Ahead Market and the Real-Time Market. It allows for adjustments to the Day-Ahead schedule based on updated forecasts and unforeseen events. #### Key Characteristics - **Timeline:** Transactions occur within hours (typically 1-4 hours) before actual delivery. It's cleared more frequently than the DAM, often on an hourly basis. - **Purpose:** To fine-tune generation schedules, integrate variable renewable energy sources (like wind and solar) whose output can change rapidly, and respond to short-term changes in demand or outages. - **Pricing:** Similar to DAM, prices are determined by supply and demand, often LMPs, but they reflect more immediate market conditions. - **Participants:** Generators (especially flexible ones), smaller load-serving entities, and renewable energy producers. - **Flexibility:** Provides an opportunity to correct imbalances or capitalize on new information that was not available during the Day-Ahead bidding. #### Advantages - **Flexibility:** Adapts to real-time changes in load, generation, and renewable output. - **Efficiency:** Improves the operational efficiency of the system by allowing for last-minute adjustments. - **Renewable Integration:** Crucial for managing the intermittency of renewable energy sources. #### Disadvantages - **Price Volatility:** Prices can be more volatile than in the DAM due to shorter notice and less certainty. - **Limited Capacity:** Less capacity available for trade compared to the DAM, as most major commitments are made Day-Ahead. ### Comparison Table: Day-Ahead vs. Hour-Ahead | Feature | Day-Ahead Market (DAM) | Hour-Ahead Market (HAM) | | :------------------ | :------------------------------------------------------ | :-------------------------------------------------------- | | **Timeline** | 24-36 hours before delivery | 1-4 hours before delivery (intra-day) | | **Primary Goal** | Long-term scheduling, price certainty, resource commitment | Short-term adjustments, balancing, renewable integration | | **Forecasting** | Relies on long-term load/generation forecasts | Uses updated, more accurate short-term forecasts | | **Price Volatility**| Generally lower, more stable | Higher, more responsive to immediate conditions | | **Flexibility** | Less flexible, set in advance | Highly flexible, dynamic adjustments | | **Key Participants**| Large generators, industrial loads, utilities | Flexible generators, renewable energy, smaller loads | | **Risk Profile** | Hedge against real-time volatility | Manages real-time operational risks and imbalances | ### Real-Time Market (RTM) While not the focus, it's important to note the Real-Time Market (or Balancing Market) as the final stage. This market operates continuously, typically 5-15 minutes before and during delivery, to balance supply and demand in real-time, correcting any remaining deviations from the Day-Ahead and Hour-Ahead schedules. It handles unforeseen events like sudden outages or unexpected load spikes. Prices in the RTM are often the most volatile. ### Conclusion The Day-Ahead and Hour-Ahead markets are integral components of modern electricity market operations. The DAM provides a stable foundation for scheduling and resource commitment, while the HAM offers essential flexibility to adapt to dynamic conditions, particularly with the increasing penetration of intermittent renewable energy sources. Together, they ensure the reliable and efficient operation of the power grid.