MADRID, Spain – There are so-called complex conditions, including technical constraints, that are likely to affect trading of electricity in a spot market and managing them will expectedly improve the outcomes.

In the case of Spain’s Mercados de Electricidad (OMEL) which runs both physical and financial markets for energy, there are at least four circumstances falling under “complex conditions” and these are being addressed accordingly in their market processes. Apart from technical constraints, the other conditions include load gradient or one that refers to the ramping up and down of plants; indivisibility wherein a generation facility like hydro could either be totally in or out in the system; and minimum income wherein a block bid will not be accepted by the matching algorithm if the minimum income requested by the participant is not fulfilled.

Technical constraint, in particular, is seen as a critical concern because this covers condition when some power plant shutdowns are scheduled. This is one condition then that can trigger higher price bids in the market since there would be some capacity to be plugged in the system.

Auction for capacity to cover technical constraints used to be traded with OMEL. But since 2006, it was transferred to their system operator Red Electrica because of problems raised on alleged “interchangeability” of bids for energy traded in the power exchange.

“There have been issues raised by the regulator that participants are offering their capacity taking into account that there are technical constraint condition in the system, and the offers could be higher. Yet at times, these bids are also matched for the energy traded in the market,” noted Mr Jose Barcelo, head of analysis and external relations department of OMEL.

Red Electrica undertakes auction for supply covering technical constraint via its ancillary services market; along with secondary and tertiary reserves as well as on capacity needs for emergency. It is also running its own settlement processes.

The only qualified participants in the ‘technical constraint’ bidding are power generators and end-users with contracted load for interruptibility. Retailers and suppliers are not allowed to join the auction process.

The Wholesale Electricity Spot Market (WESM) in the Philippines is still working on parameters for its ancillary services and/or reserve market, and industry participants are hoping that this will be set up soon to address lingering market infirmities.

Mr. Barcelo qualified that tight supply situation is “bad news for the market”. Spain’s experience with three-hour power interruptions in 2002 led to price spikes of up to 16 euro cents per kilowatt hour (kWh), nearly breaching OMEL’s price cap of 18.03 euro cents per kWh (or 180.3 euros per megawatt). He explained though that any bids not within the floor price of zero or the bid ceiling will be automatically rejected by the system.

“From the point of view of a market, it is very important to have excess capacity, because if it happens otherwise, it is impossible to supply the consumers. Tight supply is a very bad signal for a market,” he stressed.

Since its inception in 1998, OMEL noted that intense competition flourished in the market. As of January 2010, it counts 673 trading participants comprising of retailers, power producers, end-consumers and retailers of last resort supply. OMEL has integrated operations with Portugal’s Operador do Mercado Iberico de Energia (OMIP) and merger of the two markets is due this year based on an international agreement sealed by the two countries.

For year 2009, the volume of energy traded in OMEL reached 272,067 gigawatt hours with value turnover hitting 10.352 billion euros.