Authors: Carl Linvill, Jim Lazar, David Littell, Jessica Shipley, David Farnsworth
This report details the technologies and market designs that can be used to meet the flexibility needs of a resilient and reliable energy system with high penetrations of intermittent resources. Mixed generation resources and geographic diversification can increase the flexibility of variable resources by providing complementary load profiles. Inverter-based generation (e.g., solar and wind) are also highly capable of providing grid service capabilities given their ability to respond quickly to signals and communications. Demand-side flexibility driven by demand response can be responsive to many grid needs and can take many forms, referred to in the report as: “shape,” changes to the load shape; “shift,” shifts in load to more optimal time periods; “shed,” reductions in demand for short periods; and “shimmy,” fast-acting changes in load to provide grid services. Market solutions from retail pricing to adoption of wholesale market rules for distributed resources improve the economics of these flexibility solutions and accelerate their adoption.
Authors: Peerapat Vithayasrichareonan, Jenny Riesz, Ian MacGill
This paper examines the impact of high renewable penetrations on spot electricity prices, generator revenues and profits. The paper also explores market mechanisms to ensure resource adequacy and long-term reliability in energy-only market. The model used in the paper is a probabilistic generation portfolio modeling tool, assuming that current reliability standard is maintained and participants deploy short run marginal cost bidding. Six different renewable penetration scenarios with different energy share are considered. The model suggests that to maintain revenue sufficiency and long-term resource adequacy, the energy only market can work, as long as the market price cap is high enough to provide a long term incentive to attract and retain needed supply.
This study examines the potential for end-use customers to adopt load flexibility in parallel with distributed energy systems in Australia. Known as The Renewable Energy and Load Management (REALM) project, the study provides insight into the opportunities for flexible load, methods for integration, and needed reforms to achieve rapid uptake. Emerging technology in data systems and controls, falling prices in clean energy onsite generation, and innovative demand response tools are creating an environment ripe for load management in Australia.
The paper highlights four key findings:
1. The potential for commercial and industrial sites to deliver load flexibility already exists through on-site storage such as thermal storage.
2. Load management (through the REALM configurations) improve the value proposition of renewable energy, facilitating high on-site and grid penetration.
3. REALM improves business case, but current tariff structures prevent sufficient incentive for sites to invest in load flexibility.
4. Falling technology costs will continue to enhance the business case for REALM systems in the short-term.
Shifts in the generation mix are presenting new challenges to system security as grids move away from turbine-based generation to inverter-based renewable energy. This report provides a detailed analysis of energy system security (i.e., maintaining grid stability and limiting disturbances) as an economic “basket of goods” with specific economic characteristics, rather than as a standard public good. The implications of this analysis of system security on market design is examined across five design models: (1) comprehensive central procurement; (2) decentralized procurement via cost or quantity allocation; and (3) decentralized access-driven procurement. In addition, two hybrid extensions are also assessed: (4) hybrid decentralized/centralized procurement; and (5) decentralized procurement with facilitated coordination.
This report provides a quantitative analysis of energy market flexibility signals including the flaws of current systems and the shortcomings of flexibility products. Current market clearing processes can oversimplify and depress energy price volatility, smoothing out pricing signals needed to attract flexibility to the system. As variable resources, such as wind and solar, grow in the market, the demand for flexible resources increases. Price signals that incentivize flexibility are essential to ensuring efficient outcomes, but can be suppressed by five current mechanisms: the use of capacity payments, ramping products, uplift and enhancing pricing, a lack of temporal granularity, and the inability of current offer formats to fully incorporate all resource types. The report goes through each flaw in detail and specifically analyzes ramping products vs. price volatility as solutions.
This report reviews the efficiency and effectiveness of the ERCOT electricity market design, including its ability to continually meet the region’s rapidly growing demand while shifting from fossil generation to higher levels of variable renewable energy. The report argues in support of the ERCOT model, demonstrating its recent success in providing reliable service and attracting investment. It synthesizes a review of the ERCOT market, discusses upcoming challenges to the system (such as increasing variable renewable generation, integration of distributed energy resources (DERs), and the impacts of climate change) and provides recommendations for integrating DERs and demand-side resources to de-risk ERCOT market into the future.
Authors: Andrew D. Mills, Todd Levin, Ryan Wiser, Joachim Seel, Audun Botterud
The paper gathers available information from many sources on the degree to which growth in variable renewable energy (VRE) has impacted or might impact bulk power system prices in the United States. Most studies show that VRE reduces wholesale energy prices and capacity factors of thermal generators because of its low cost and flexibility. Although according to historical records, VRE has had relatively modest impacts on wholesale prices, the authors expect that the impacts from VRE will be more significant as VRE penetration level grows in the future.
This paper assesses the impact of system resource adequacy on market prices using the Reliability Test System-Grid Modernization Lab Consortium database. A probabilistic resource adequacy model, a capacity expansion model and a production cost model are used to evaluate prices at various resource adequacy levels and variable renewable energy penetration levels. The result suggests that prices can be significantly underestimated on both average and standard deviation bases. It also highlights the importance of scarcity pricing assumptions on the price outputs from operational models.
The paper proposes a new insurer-of-last-resort model to fix the problems created by centralized capacity mechanisms in energy-only markets. The model incorporates insurance-based risk management concepts and consumer preferences for system reliability into centralized resource adequacy decision-making. This market can function as a risk overlay on existing energy-only design.
Authors: Kathleen Spees, Samuel A. Newell, Walter Graf, Emily Shorin
This paper discusses a market design structure first proposed by the Brattle Group and NRG to procure clean energy attributes through a competitive forward auction. Similar to a REC auction, the Forward Clean Energy Market (FCEM) auctions Clean Energy Attribute Credits (CEACs) through a three-year forward market. Each CEAC is attributed to 1 MWh of clean energy. The market is a technology-neutral, centralized competition process for all zero emission technologies. Most resources that clear the auction receive a one-year price for CEACs, while new projects receive a 7-year set price to attract low-cost financing. The mechanism is further unique in that it allows corporations, states, or other organizations to submit demand bids and purchase CEACs through the market. The solution is covered in significant detail in the report and is seen as a politically feasible alternative to carbon pricing.
Authors: Dawit Gebremeske, Getachew Bekele, Erik O. Ahlgren
The study evaluates the effectiveness of power sector reforms in Ethiopia by assessing the future generation adequacy in contrast to the growing electricity demand. An analytical method calculates resource planning indices such as reserve margin and expected unserved energy. The results show that the Ethiopian power system is facing an energy shortage of about 10TWh in the future, thus pointing to the need for policy adjustments and to revamp implementation strategies.
To investigate the impact of high penetration levels of variable renewable energy alongside various market designs on achieving resource adequacy, the paper designs a market-based resource adequacy assessment framework, formulated as a bi-level optimization problem. This framework captures the capacity investment strategy and retirement decision-making of profit-maximizing generation companies. To enhance the computational performance, this framework employs a Lagrangian decomposition algorithm. In a case study of the ERCOT system, the model shows a higher planning efficiency compared with a traditional centralized least-cost planning model. The results also emphasize the importance of considering strategic behavior in a competitive market framework when studying resource adequacy.
Authors: Steven Corneli, Eric Gimon, Brendan Pierpont
This paper focuses on a centralized market structure to procure an efficient portfolio and ensure ample long term financing of clean energy resources in competitive markets. In the authors’ view, current market designs with high levels of variable renewable energy resources with negligible short-run marginal costs face a serious risk of failing to produce market price signals sufficient to sustain the investment needed for successful decarbonization of the electricity system. The authors see a growing need for adding a coordinated central long-term procurement mechanism to today’s short-term spot markets.
Three long-term market proposals are presented. They share six core features:
Long-term contracts, power purchase agreements, or offtake agreements for all projects for which price risk otherwise inhibits or limits low-cost financing.
Voluntary participation, by resources seeking mitigation of price risk, in competition to meet the market’s objectives.
Coordination and co-evolution with the short-term market.
Incremental and innovation-supporting implementation.
Greater cooperation with an optimization of policy guidance.
Incremental development and implementation pathways.
The paper has three different variants that differ on portfolio selection, scope, and products and pricing
Convex-hull pricing is often discussed as the best solution to the non-convexities that exist in wholesale electricity markets. This report examines potential pricing mechanisms, in particular: Lagrangian dualization, convex-hull relaxation and integer relaxation. The report demonstrates that the quasi- equilibrium pricing mechanism successfully produces convex pricing principles in a non-convex system. The report specifically highlights the integer relaxation method (which was approved for PJM fast-start unit pricing) and its ability to realize outcomes close to or exactly matching convex-hull pricing.
Dr. Hogan argues that real-time spot markets are a better solution for future power markets, compared to creating new products to value flexibility or reliability attributes needed to support a generation mix dominated by variable renewable generation. He addresses two assumptions that are used to justify the former approach: that zero-variable-cost supply will produce low spot prices which will not support efficient investment, and that demand participation can be managed without efficient pricing mechanisms. He then advocates for changes to spot market implementation that improve market incentives, including better scarcity pricing and greater attention to multi-period dispatch and pricing.
This paper quantitatively highlights the potential resource complementarity between solar and wind resources with geographic diversity, using discrete locations throughout ERCOT as a case study. Analyzing both power production capabilities and resource variability, the report demonstrates the benefits of diversification using metrics such as combined capacity factors, coefficients of variance, firm capacity and peak average capacity percentage (PACP). The quantitative findings suggest that certain wind and solar resource pairs are potentially able to increase reliable power production on an annual basis, while geographically diverse combinations may optimize for daily reliable production.
Authors: Michael Goggin, Rob Gramlich, Steven Shparber, Alison Silverstein
This paper offers recommendations for how to update wholesale electric market rules, most of which were designed in earlier decades when the grid was dominated by large, slow-moving fossil-fired, nuclear and hydroelectric resources, to better suit the evolving resource mix. These recommendations seek to align wholesale market rules more closely with several considerations: the growing demand for clean, low-cost renewable generation, energy efficiency and distributed generation; the need for reliable, affordable electricity necessitated by a challenging global economy; and federal and state mandates requiring fair, non-discriminatory opportunities for all providers, technologies and customers. The reforms recommended will produce four highly beneficial features: markets that are flexible, fair, far, and free. Summary of recommended changes:
Attract flexible resources including demand response and storage through open participation and efficient market pricing;
Reduce inappropriate compensation and commitment of inflexible units;
Allow renewable resources to participate in all reliability services markets;
Respect resource choices by states without mitigation.
Authors: Nestor A. Sepulveda, Jesse D. Jenkins, Fernando J. de Sisternes, Richard K. Lester
This study models the cost of electric power system decarbonization based on generation technologies, emissions limits and grid services technologies. It proposes a new taxonomy for generation resources: “Fuel-Saving Variable Renewables,” “Firm Low-Carbon Resources” and “Fast-Burst Balancing Resources.” The results of the modeling show that Firm Low-Carbon Resources reduce both the cost (10-62% reduction) and risk (or range of possible costs) across scenarios. Depending on the scenario, Firm Resources may function as either “Flexible Base” (generating more often than not) or “Firm Cyclers” (rarely generating.) The carbon limits or modeled efficacy of carbon capture determine the role of the Firm Resources.
Regarding demand response, the model finds that demand flexibility improves the marginal value and optimizes utilization of Firm Resources, rather than replacing them completely. The results of the model were non-monotonically sensitive to the constraints on Firm Resources, suggesting that long-term decarbonization policy incorporates flexibility around emerging technologies.
This report argues that the complexities of the energy transition in an energy-only market design require the design to be expanded to an “energy+services” model, establishing additional market products focused on system security, such as inertia or system strength. The report puts forth that other market design reforms are also needed in the Australian market to maintain system security, including generator notice of closure, the development of forward markets for energy, dynamic reserves and flexibility markets.
Authors: Christos K. Simoglou, Emmanouil A. Bakirtzis, Pandelis N. Biskas, Anastasios G. Bakirtzis
This paper uses an integrated software tool to evaluate long-term resource adequacy of the Greek interconnected power system. The tool solves the long-term scheduling problem using a sophisticated unit commitment model addressing both traditional capacity and flexibility adequacy. The results indicate that currently available thermal generating units and timely realization of all scheduled construction plans are important for long-term secure and reliable operation of the Greek interconnected power system.
Authors: Arne Olson, Nick Schlag, Jasmin Ouyang, Kush Patel, Oluwafemi (Femi) Sawyer
E3 used the Renewable Energy Solutions (RESOLVE) model to select an optimal portfolio of resources that met energy, capacity and balancing needs for the Pacific Northwest to comply with different environmental policies. The model shows the feasibility of very high renewable energy penetration as well as conditions such as multi-day winter periods during which long duration firm resources are needed.
Authors: Erik Ela, Congcong Wang, Sai Moorty, Kenneth Ragsdale, Jon O’Sullivan, Mark Rothleder, Benjamin Hobbs
The evolution of market design in the United States is described in three waves: (1) the introduction of competition into the electric power sector, (2) incremental improvements for economic efficiency and (3) demand-side, renewables and distributed resources integration. The first is explored in depth, with academic, political and economic context leading to market restructuring through the 1990s. The California Electricity Crisis of 2000-2001 is marked as the transition to the second wave, when regulators moved to address imbalance in market power, the failure to promote forward contracting, and better reflection of the physical needs of the grid in power markets. The third wave of market and industry reform is presented as an emerging challenge, with the market-distorting effects of net-metering rates and renewable energy subsidies addressed in detail. Flexibility and resource adequacy issues are also considered. The question of whether to make the market ISO-centric or distribution-level centric is posed as a dichotomy for integrating distributed energy resources. The paper concludes that market designs have not kept pace with technological innovation, and that there are untapped economic and environmental benefits ready for market designers to unlock.
This report highlights misalignments between current European Union market designs and physical and financial renewable energy integration and support. The report proposes a seven-step condition-dependent evolution of power market design, where the government or regulatory authority plays the role of meta-coordinator, matching the adaptation of market-based coordination modules with a hybrid future where distributed energy resources coexist with centralized generation, while decentralized market participants trade with each other and with incumbents.
Authors: Niels Berghout, Machteld van den Broek, Ernst Worrell, Dolf Gielen, Deger Saygin, Nicholas Wagner
When renewable energy and energy efficiency are pursued together, they result in higher shares of renewable energy, a faster reduction in energy intensity, and a lower cost for the energy system. The International Renewable Energy Agency has explored this synergy under its REmap program, a global roadmap to significantly increase the share of renewable energy by 2030 compared to today’s level (19% of global generation), and to explore what this would mean for decarbonization of the energy system in the longer term, to 2050, in line with the Paris Agreement. Three primary cases are examined from 2010 to 2030: a business-as-usual case (the Reference Case, which examines change predicted under current national plans), an accelerated renewable uptake case (REmap), and a case that combines accelerated renewables with enhanced efficiency (REmap + EE). The study concludes that renewable energy and energy efficiency measures can potentially achieve 90% of the carbon reductions required to limit global temperature rise to a maximum of 2°C above pre-industrial levels with a 66% probability. The cost-competitiveness of technologies varies by country, but deployment of renewable energy and energy efficiency technologies together results in overall savings to the energy system across all countries.
The report provides recommendations on how to adapt electricity market design (wholesale & distributed) to high shares of variable renewable energy. The report recommends reinforcing the design of short-term markets, balancing markets, and long-term investment signals. The report also emphasizes the importance of decoupling distribution remuneration from the volume of energy distributed, calls for shifting the goal of regulation from investment adequacy alone to a broader set of performance indicators, and recommends distribution companies change to act as system operators.
Authors: Jay Morrison, Paul Breakman, Allison Clements, Lisa Schwartz
Eastern RTOs should restore the mandatory capacity markets as residual markets that supplement and do not override the judgments made by utilities, their regulators and consumers. In those parts of the country with high penetrations of variable generation, organized markets need to develop new ancillary services to ensure they have access to the essential reliability services they need to manage the system reliably. It is also important that market design changes made to compensate these new services should be carefully targeted to those who provide the needed value. Long-term bilateral contracts and retail consumer relationships should be respected and not interfered with by grid operators.
Authors:Bethany Frew, Giulia Gallo, Gregory Brinkman, Michael Milligan, Kara Clark, Aaron Bloom
Revenue insufficiency problem is becoming more worthy of attention as variable renewable generators with near-zero marginal cost are implemented increasingly. Estimating the extent of revenue insufficiency requires representing both power system operation and market participants behaviors.
This paper introduces a production cost model that represented a simplified version of ERCOT energy-only market for 2012 to 2014. This model evaluates how different market structures affect net revenues in the ERCOT-like system. The paper tests different sets of market participant strategic bidding behaviors by means of different sets of markups and finds the markups can help generators increase their overall net revenues. Results also confirm that conventional variable-cost-based production cost simulations do not capture prices accurately.
Overall, this paper intends to raise the attention for improved behavioral models of electricity markets to more accurately study market design issues that could arise in systems with high penetrations of renewable generation. See Full Study
This paper models three different market policies for resource adequacy in power systems with increasing wind penetration. Three market policies are Operating Reserve Demand Curves (ORDC), Fixed Reserve Scarcity Prices (FRSP) and fixed capacity payments (CP). The paper compares generation capacity, average energy prices, relative profitability and generator revenues under different market policies and different levels of renewable energy penetration. As a conclusion, ORDC and FRSP show the same level of ability on resource adequacy in power systems. At the same time, a hybrid framework combining capacity payments which encourage long-term resource sufficiency and complementary ORDC framework which provides shorter-term operational incentives and promotes revenue sufficiency for all units should be considered.
Authors: Mark Ahlstrom, Erik Ela, Jenny Riesz, Jonathan O’Sullivan, Benjamin Hobbs, Mark O’Malley, Michael Milligan, Paul Sotkiewicz, Jim Caldwell
This paper surveys the impacts of growing renewable energy generation on energy markets, identifying where problems are expected to appear and market design solutions to address them. Examples of market design changes from around the world and in different U.S. markets are weighed as solutions to the emerging needs of the grid. Procuring flexibility (especially ramping resources), efficient planning and investment, and integration of distributed generation and demand-side participation are given special attention.
Authors: Sheila Nolan, Daniel Burke, Hassan Wajahat Qazi, Damian Flynn, Mark O’Malley, Juha Kiviluoma, Brendan Kirby, Marissa Hummon, Michael Milligan
This paper reviews and evaluates various demand response studies, projects and programs from different countries, examining the synergies with renewables integration. It also identifies some of the main barriers to the deployment of such demand response at greater scale. The paper has some information on existing U.S. demand response programs and barriers to participation and optimization, but doesn’t offer specific policy options for the U.S. markets.
Authors: Erik Ela, Michael Milligan, Aaron Bloom, Audun Botterud, Aaron Townsend, Todd Levin
This report provides a comprehensive review of wholesale electricity markets and how the introduction of variable generation (VG) has impacted these markets. The paper considers VG’s impacts on market schedules and prices, ancillary service markets, Financial Transmission Rights markets and forward capacity markets. These impacts are analyzed in relation to two particular issues related to market design: (1) revenue sufficiency for long-term reliability and (2) incentivizing flexibility in short-term operations. For the first issue, the report reviews two primary existing market mechanisms for providing revenue sufficiency: scarcity pricing and forward capacity markets. Then it introduces changes to the market design such as how scarcity prices are calculated and the implementation of an operating reserve demand curve. For the second issue, the report defines “power system flexibility” as “the ability of a resource, whether any component or collection of components of the power system, to respond to the known and unknown changes of power system conditions at various operational timescales.” The paper reviews existing mechanisms to incentivize flexibility in short-term operations, and looks at newer market mechanism proposals such as new ancillary service market designs and implementation of flexible ramping products. In the end of this report, a list of research topics on the two major challenges are specified.
Authors: Erik Ela, Vahan Gevorgian, Aidan Tuohy, Brendan Kirby, Michael Milligan, Mark O’Malley
As emerging technologies are introduced and begin to replace generation that offers frequency response in the U.S., innovative market designs could enable the provision of this grid service. This paper suggests implementing a primary frequency response (PFR) market in restructured pool-based power markets as a market design that incentivizes the provision of response reliably. It proposes to include PFR in the market clearing engine, with requirements for achieving sustainable and reliable response. Part II of the paper compares simulation results of various cases with and without PFR constraints, coming to the conclusions that (1) new market designs can affect other linked markets when performing co-optimization, (2) incorporation of PFR constraints may become critical in future systems and (3) pricing can reduce make-whole payments and ensure resources needed for reliability reasons are adequately incentivized.
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