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Title: Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability

Abstract

This paper discusses challenges that relate to assessing and properly incentivizing the resources necessary to ensure a reliable electricity system with growing penetrations of variable generation (VG). The output of VG (primarily wind and solar generation) varies over time and cannot be predicted precisely. Therefore, the energy from VG is not always guaranteed to be available at times when it is most needed. This means that its contribution towards resource adequacy can be significantly less than the contribution from traditional resources. Variable renewable resources also have near-zero variable costs, and with production-based subsidies they may even have negative offer costs. Because variable costs drive the spot price of energy, this can lead to reduced prices, sales, and therefore revenue for all resources within the energy market. The characteristics of VG can also result in increased price volatility as well as the need for more flexibility in the resource fleet in order to maintain system reliability. We explore both traditional and evolving electricity market designs in the United States that aim to ensure resource adequacy and sufficient revenues to recover costs when those resources are needed for longterm reliability. We also investigate how reliability needs may be evolving and discuss howmore » VG may affect future electricity market designs« less

Authors:
; ; ; ; ; ;
Publication Date:
Research Org.:
Argonne National Lab. (ANL), Argonne, IL (United States)
Sponsoring Org.:
USDOE Office of Energy Efficiency and Renewable Energy (EERE)
OSTI Identifier:
1390934
DOE Contract Number:  
AC02-06CH11357
Resource Type:
Journal Article
Resource Relation:
Journal Name: Electricity Journal; Journal Volume: 29; Journal Issue: 2
Country of Publication:
United States
Language:
English
Subject:
Missing money problem; Resource adequacy; VG; Variable generation

Citation Formats

Milligan, Michael, Frew, Bethany A., Bloom, Aaron, Ela, Erik, Botterud, Audun, Townsend, Aaron, and Levin, Todd. Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability. United States: N. p., 2016. Web. doi:10.1016/j.tej.2016.02.005.
Milligan, Michael, Frew, Bethany A., Bloom, Aaron, Ela, Erik, Botterud, Audun, Townsend, Aaron, & Levin, Todd. Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability. United States. doi:10.1016/j.tej.2016.02.005.
Milligan, Michael, Frew, Bethany A., Bloom, Aaron, Ela, Erik, Botterud, Audun, Townsend, Aaron, and Levin, Todd. Tue . "Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability". United States. doi:10.1016/j.tej.2016.02.005.
@article{osti_1390934,
title = {Wholesale electricity market design with increasing levels of renewable generation: Revenue sufficiency and long-term reliability},
author = {Milligan, Michael and Frew, Bethany A. and Bloom, Aaron and Ela, Erik and Botterud, Audun and Townsend, Aaron and Levin, Todd},
abstractNote = {This paper discusses challenges that relate to assessing and properly incentivizing the resources necessary to ensure a reliable electricity system with growing penetrations of variable generation (VG). The output of VG (primarily wind and solar generation) varies over time and cannot be predicted precisely. Therefore, the energy from VG is not always guaranteed to be available at times when it is most needed. This means that its contribution towards resource adequacy can be significantly less than the contribution from traditional resources. Variable renewable resources also have near-zero variable costs, and with production-based subsidies they may even have negative offer costs. Because variable costs drive the spot price of energy, this can lead to reduced prices, sales, and therefore revenue for all resources within the energy market. The characteristics of VG can also result in increased price volatility as well as the need for more flexibility in the resource fleet in order to maintain system reliability. We explore both traditional and evolving electricity market designs in the United States that aim to ensure resource adequacy and sufficient revenues to recover costs when those resources are needed for longterm reliability. We also investigate how reliability needs may be evolving and discuss how VG may affect future electricity market designs},
doi = {10.1016/j.tej.2016.02.005},
journal = {Electricity Journal},
number = 2,
volume = 29,
place = {United States},
year = {Tue Mar 01 00:00:00 EST 2016},
month = {Tue Mar 01 00:00:00 EST 2016}
}