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Capacity as a Commodity: A Framework for a New Capacity Market Paradigm that Enables Customer Choice
Date Published: November 2020
Authors: Sari Fink & Mike Borgatti
This paper proposes an alternative to PJM’s capacity market model to increase state control and customer choice in capacity resources, and decrease price volatility and economic and regulatory uncertainty. Rather than PJM procuring capacity, it would sell “Capacity Credits” to load, similarly to how Renewable Energy Credits are traded, with a residual reliability auction to procure additional required capacity. States could control the resource mix of the capacity credits by including them in their resource portfolio standards. The paper includes an example of how the capacity credits would be created, procured and utilized.
Ancillary Services in the United States: Technical Requirements, Market Designs and Price Trends
Date Published: June 2019
Authors: Erik Ela, Robin Broder Hytowitz, Udi Helman
This EPRI Technical Update defines the types of ancillary services and discusses how they are regulated, valued, procured and compensated across markets in the United States. The paper describes differences in product definitions and requirements across ISOs, and their pricing and procurement systems. Ancillary services may be procured through bid-based auction markets, fixed tariffs, or formula-based rates, or may be supplied without payment. The authors assert that the cost for variable energy resources to supply ancillary services, by forgoing energy revenues, for instance, is usually higher than the benefits. They project that this may change in the future, and suggest further research on advanced scheduling techniques and market designs, provision of ancillary services from wind, solar and emerging technologies, and converting cost-based ancillary services to competitive services, among others.
Secrets of Successful Integration: Operating Experience With High Levels of Variable, Inverter-Based Generation
Date Published: November 2019
Authors: Debra Lew, Drake Bartlett, Andrew Groom, Peter Jorgensen, Jon O’Sullivan, Ryan Quint, Bruce Rew, Brad Rockwell, Sandip Sharma, and Derek Stenclik
This paper compares the ancillary services strategies across seven system operators around the world. Each of these systems was responding to a high level of variable energy resources and/or inverter-based resources, and a corresponding decrease in synchronous generation. Each has different political, geographic and legacy factors to overcome. Technical responses include running gas turbines in synchronous-condenser mode to maintain inertia, adding voltage support and fault current contributions, adding storage capacity, using more sophisticated forecasting techniques, and enhancing automatic generation control. Market structure responses include expanding intraday markets, integrating demand-response, holding contingency reserves, and expanding ancillary service products. The paper concludes that each ancillary service response increased the system’s flexibility, and that technical challenges in ancillary services are not true barriers to renewable energy integration. The paper proposes that innovation in business models, rate structures, policy and market designs will advance decarbonization in the electricity sector.
Reserve Procurement and Flexibility Services in Power Systems with High Renewable Capacity: Effects of Integration on Different Market Designs
Date Published: December 2019
Authors: Ruth Domíngueza, Giorgia Oggionib, Yves Smeers
The paper presents three scheduling models formulated as stochastic programs that represent the day-ahead energy market, the reserve procurement, and the real-time balancing market in a renewable-dominated power system. Among the three proposed models, two are inspired by reserve procurement mechanisms currently applied in Europe, where reserves are committed either before (in the case of Model 1) or after (in Model 2) the clearing of the day-ahead energy market. The third model is used as a benchmark in which energy and reserve capacity are co-optimized. The authors assess the impact of the changes on market participants’ remuneration and test the impact of cross-border constraints such as those in the European power system. The results show that Model 1 is the least efficient market design as it leads to a misallocation of the available capacity, while Model 2 becomes as efficient as Model 3 when the transmission system operators procure reserves in a coordinated way. Finally, a coordinated procurement of reserves reduces the system operating costs in all models.
Follow the Missing Money: Ensuring Reliability at Least Cost to Consumers in the Transition to a Low-Carbon Power System
Date Published: February 2017
Author: Michael Hogan
This article offers a brief refresher on how we should expect energy prices to form in a modern system and the ways in which prices should be expected to shape critical investment decisions. The author lays out a robust and sustainable approach to ensuring a reliable, low-carbon electricity supply at the lowest reasonable cost. The author finds that some combination of improved price formation and administrative scarcity pricing mechanisms should be given an opportunity to succeed before resorting to more restrictive regulatory measures, especially where a proper resource adequacy assessment would indicate that the need for more capacity is years in the future, as is the case in most of North America and Europe. This approach can both address the problem of “missing money,” the idea that prices do not fully support new investment, and ensure that the risks and rewards for investment are not misallocated.
Advances in Clean and Low-Carbon Power Generation Planning
Date Published: August 2018
Authors: Siyuan Chen, Zheng Quo, Pei Liu, Li Zheng
This paper focuses on the power generation expansion planning (GEP) problem which plays an important role in global energy supply, renewable energy utilization and carbon dioxide mitigation. The GEP problem can incorporate several important issues including renewable energy sources integration, operating reserve, deregulated power market, demand response and carbon pricing mechanisms. This paper provides a methodological framework to address the complex energy, economic and environmental considerations by adopting an integrated systematic approach featuring superstructure-based modeling, mixed-integer programming, multi-objective optimization, and optimization under uncertainty. Comparative advantages of these approaches in GEP problems are reviewed and discussed.
A Regional Power Market for the West: Risks and Benefits
Date Published: July 2018
Author: Bentham Paulos
This paper has a broad and accessible introduction to the fundamentals of Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) and their governance. It covers the California ISO (CAISO) in particular, and looks at the operation of the rest of the Western Grid, which does not have an ISO or RTO. In appendices, Mr. Paulos explains the basics of price formation in electricity markets and some of the challenges of operating today’s grid with high variable renewable generation. The paper studies the advantages and risks of regionalizing CAISO, from technical, operational, economic and political perspectives. The specific proposal under consideration to expand CAISO’s jurisdiction at the time of publication was ultimately rejected by the California legislature.
Flexibility for the 21st Century Power System
Date Published: October 2019
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.See Full Study
Impact of High Variable Renewable Generation on Future Market Prices and Generator Revenue
Date Published: November 2015
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.
Renewable Energy and Load Management
Date Published: February 2019
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.
Missing Incentives for Flexibility in Wholesale Electricity Markets
Date Published: June 2020
Authors: Jacob Mays
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.
Impacts of Variable Renewable Energy on Wholesale Markets and Generating Assets in the United States: A Review of Expectations and Evidence
Date Published: March 2020
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.
Evaluating Resource Adequacy Impacts on Energy Market Prices Across Wind and Solar Penetration Levels
Date Published: October 2019
Authors: Bethany Frew, Gord Stephen, Devon Sigler, Jessica Lau, Wesley B. Jones, Aaron Bloom
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.
Assessment of Resource Adequacy in Power Sector Reforms of Ethiopia
Date Published: August 2019
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.
Incentives for Efficient Price Formation in Markets with Non-Convexities
Date Published: May 2019
Authors: Hung-Po Chao
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.
In My View: Market Design Practices: Which Ones Are Best?
Date Published: January 2019
Authors: William W. Hogan
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.
Assessing Solar and Wind Complementarity in Texas
Date Published: November 2018
Authors: Joanna H. Slusarewicz, Daniel S. Cohan
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.
The Role of Firm Low-Carbon Electricity Resources in Deep Decarbonization of Power Generation
Date Published: November 2018
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.
Electricity Sector Transition in the National Electricity Market of Australia: Managing Reliability and Security in an Energy-Only Market
Date Published: November 2018
Authors: Farhad Billimoria, Pierluigi Mancarella, Rahmatallah Poudineh
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.
Probabilistic Evaluation of the Long-Term Power System Resource Adequacy – the Greek Case
Date Published: June 2018
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.
Pacific Northwest Low Carbon Scenario Analysis: Achieving Least-Cost Carbon Emissions Reductions in the Electricity Sector
Date Published: December 2017
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.
Electricity Markets and Renewables: A Survey of Potential Design Changes and Their Consequences
Date Published: November 2017
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.
Synergies between Renewable Energy and Energy Efficiency: a Working Paper Based on REmap
Date Published: August 2017
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 âUtility Perspective:â Not All Megawatts Are Created Equal
Date Published: March 2017
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.
Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency
Date Published: June 2016
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.
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Electricity Market Design for Generator Revenue Sufficiency with Increased Variable Generation
Date Published: December 2015
Authors: Todd Levin, Audun Botterud
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.
The Evolution of the Market: Designing a Market for High Levels of Variable Generation
Date Published: November 2015
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.
Synergies Between Wind and Solar Generation and Demand Response
Date Published: November 2014
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.
Evolution of Wholesale Electricity Market Design with Increasing Levels of Renewable Generation
Date Published: September 2014
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.
Market Designs for the Primary Frequency Response Ancillary Service
Date Published: January 2014
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.