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Title: Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency

Abstract

This presentation provides an overview of new and ongoing NREL research that aims to improve our understanding of reliability and revenue sufficiency challenges through modeling tools within a markets framework.

Authors:
Publication Date:
Research Org.:
National Renewable Energy Lab. (NREL), Golden, CO (United States)
Sponsoring Org.:
USDOE Office of Energy Efficiency and Renewable Energy (EERE), Wind and Water Technologies Office (EE-4W)
OSTI Identifier:
1254638
Report Number(s):
NREL/PR-6A20-66384
DOE Contract Number:
AC36-08GO28308
Resource Type:
Conference
Resource Relation:
Conference: Presented at the Utility Variable-Generation Integration Group (UVIG), 26-28 April 2016, Sacramento, California
Country of Publication:
United States
Language:
English
Subject:
29 ENERGY PLANNING, POLICY, AND ECONOMY; reliability; revenue sufficiency; modeling; markets; National Renewable Energy Laboratory

Citation Formats

Frew, Bethany. Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency. United States: N. p., 2016. Web.
Frew, Bethany. Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency. United States.
Frew, Bethany. Tue . "Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency". United States. doi:. https://www.osti.gov/servlets/purl/1254638.
@article{osti_1254638,
title = {Impact of Market Behavior, Fleet Composition, and Ancillary Services on Revenue Sufficiency},
author = {Frew, Bethany},
abstractNote = {This presentation provides an overview of new and ongoing NREL research that aims to improve our understanding of reliability and revenue sufficiency challenges through modeling tools within a markets framework.},
doi = {},
journal = {},
number = ,
volume = ,
place = {United States},
year = {Tue Apr 26 00:00:00 EDT 2016},
month = {Tue Apr 26 00:00:00 EDT 2016}
}

Conference:
Other availability
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  • Revenue insufficiency, or the missing money problem, occurs when the revenues that generators earn from the market are not sufficient to cover both fixed and variable costs to remain in the market and/or justify investments in new capacity, which may be needed for reliability. The near-zero marginal cost of variable renewable generators further exacerbates these revenue challenges. Estimating the extent of the missing money problem in current electricity markets is an important, nontrivial task that requires representing both how the power system operates and how market participants behave. This paper explores the missing money problem using a production cost modelmore » that represented a simplified version of the Electric Reliability Council of Texas (ERCOT) energy-only market for the years 2012-2014. We evaluate how various market structures -- including market behavior, ancillary services, and changing fleet compositions -- affect net revenues in this ERCOT-like system. In most production cost modeling exercises, resources are assumed to offer their marginal capabilities at marginal costs. Although this assumption is reasonable for feasibility studies and long-term planning, it does not adequately consider the market behaviors that impact revenue sufficiency. In this work, we simulate a limited set of market participant strategic bidding behaviors by means of different sets of markups; these markups are applied to the true production costs of all gas generators, which are the most prominent generators in ERCOT. Results show that markups can help generators increase their net revenues overall, although net revenues may increase or decrease depending on the technology and the year under study. Results also confirm that conventional, variable-cost-based production cost simulations do not capture prices accurately, and this particular feature calls for proxies for strategic behaviors (e.g., markups) and more accurate representations of how electricity markets work. The analysis also shows that generators face revenue sufficiency challenges in this ERCOT-like energy-only market model; net revenues provided by the market in all base markup cases and sensitivity scenarios (except when a large fraction of the existing coal fleet is retired) are not sufficient to justify investments in new capacity for thermal and nuclear power units. Overall, the work described in this paper points to the need for improved behavioral models of electricity markets to more accurately study current and potential market design issues that could arise in systems with high penetrations of renewable generation.« less
  • Typically, in competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, cease to exist. The burden falls to an independent system operator (ISO) to ensure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, spot markets for both electricity and ASmore » are modeled. By assuming that each participant seeks to maximize its wealth and that all markets clear, we solve for the optimal quantities of electricity and AS traded in the spot market by all participants, as well as the market clearing prices for each.« less
  • This paper focuses on how the ancillary service market designs are implemented and how they may require changes on systems with greater penetrations of variable renewable energy suppliers, in particular wind power. Ancillary services markets have been developed in many of the restructured power system regions throughout the world. Ancillary services include the services that support the provision of energy to support power system reliability. The ancillary services markets are tied tightly to the design of the energy market and to the physics of the system and therefore careful consideration of power system economics and engineering must be considered inmore » their design. This paper focuses on how the ancillary service market designs are implemented and how they may require changes on systems with greater penetrations of variable renewable energy suppliers, in particular wind power.« less
  • The new competitive electric power environment raises increased challenges for wind power. The DOE and EPRI wind programs have dealt extensively with the traditional vertically integrated utility planning and operating environment in which the host utility owns the generation (or purchases the power) and provides dispatch and transmission services. Under this traditional environment, 1794 MW of wind power, principally in California, have been successfully integrated into the U.S. electric power system. Another 4200 MW are installed elsewhere in the world. As issues have arisen, such as intermittency and voltage regulation, they have been successfully addressed with accepted power system proceduresmore » and practices. For an intermittent, non-dispatchable resource such as wind, new regulatory rules affecting power transmission services, raise questions about which ancillary services wind plants will be able to sell, which they will be required to purchase, and what the economic impacts will be on individual wind projects. This paper begins to look at issues of concern to wind in a restructured electric industry. The paper first briefly looks at the range of unbundled services and comments on their unique significance to wind. To illustrate the concerns that arise with restructuring, the paper then takes a more detailed look at a single service: regulation. Finally, the paper takes a brief look at technologies and strategies that could improve the competitive position of wind.« less