What is an indirect auction

Non-fossil market, base load market, capacity market, supply and demand adjustment market, indirect power transmission right, indirect auction. The electricity market is becoming more and more complex. The market is extremely fragmented, making it difficult for many stakeholders to understand its content.

This time, We would like to think about what an indirect auction is. The Ministry of Economy, Trade and Industry(METI), Organization of Cross-regional Coordination of Transmission Operators(OCCTO), Japan Electric Power Exchange(JEPX), all explain indirect auction, but all are difficult to understand, so We will explain as easily as possible.

Indirect auction = usage rule of inter-company connection line

An indirect auction is one of the rules when using a power company’s interconnection line (for example, frequency conversion equipment between Tokyo and Chubu). Let’s look back at the conventional rule first.

Power utilities have been promoting power supply development focusing on rural areas rather than urban areas. As a result, current has arisen across power companies such as Tohoku → Tokyo, or Kyushu → Chugoku → Kansai. With regard to the power flow of these power sources, priority to using inter-company interconnections is given to them, and the remaining interconnection capacity is used for other power sources. In this way, the inter-company interconnect line first allows specific power supplies to be prioritized and opens the remaining part to unspecified other power supplies.

Interconnection use by auction

The remaining connection lines are open to auction participants of JEPX. For example, in the case of a frequency conversion facility (FC) between Tokyo and Chubu, if FC remaining capacity in the direction of Chubu → Tokyo is 100,000 kW, JEPX will trade within this interconnection line remaining capacity. Specifically, the excess supply on the west side of FC (= excess demand on the east side) is limited to 100,000 kW. Even if there is an excess of supply in the west (= an excess of demand on the east side), the excess width is limited to 100,000 kW, resulting in so-called market disruption between west and east.

Indirect auction is a mechanism to open all use of interconnection lines to auction

Well, which of the conventional rules for giving priority to specific power sources and the rules for using JEPX auction participants, is economically rational? The current idea is that it is reasonable to open all to auction participants. The reason is that if you leave it to the auction, you can generate from a low-cost power source and the interconnection line utilization will be released to the economic power source.

In this way, as a result of the auction, without using interconnection lines directly assigned to specific power sources, it is expressed as “indirect auction” (which is very difficult to understand) in order to be assigned to unspecified power sources.

Mitigation measures for conventional power supply

Indirect auction has been introduced in JEPX since October 1, 2018. Nevertheless, certain relief measures have been taken for long-term power development, especially for power supplies developed locally to ensure stable supply in urban areas. This is the mechanism for obtaining monetary compensation from JEPX for the disadvantages arising from the auction.