Impact of operating reserve rules on electricity prices with high penetrations of renewable energy

Frew, Bethany; Brinkman, Gregory; Denholm, Paul; Narwade, Vinayak; Stephen, Gordon; Bloom, Aaron; Lau, Jessica

doi:10.1016/j.enpol.2021.112443

Impact of operating reserve rules on electricity prices with high penetrations of renewable energy

Journal Article · Thu Jul 01 00:00:00 EDT 2021 · Energy Policy

DOI:https://doi.org/10.1016/j.enpol.2021.112443· OSTI ID:1807793

Frew, Bethany ^[1]; Brinkman, Gregory ^[1]; ^[1]; ^[1]; ^[1]; Bloom, Aaron ^[1]; Lau, Jessica ^[1]

National Renewable Energy Lab. (NREL), Golden, CO (United States)

In competitive wholesale electricity markets, significant effort is devoted to designing markets that set efficient prices for maintaining supply-demand balance. One factor that can impact prices is administratively-set scarcity pricing, which sets prices to a preset level when the market is not able to meet operating reserve or energy requirements. When energy and operating reserves are co-optimized, assumptions surrounding operating reserve requirements and scarcity pricing can impact system-wide price outcomes for both operating reserves and energy. This study uses production cost modeling of an ERCOT-like system to evaluate the impact of operating reserve eligibility, scarcity pricing, and quantity rules on electricity prices, and therefore also on generator revenues. Results reveal economic and operational benefits with allowing open participation in reserve markets, as this enables greater access to the full set of capable resources at lowest cost. Furthermore, both energy and reserve prices are strongly impacted by reserve scarcity pricing events, which reveals that reserve scarcity pricing assumptions can impact price outcomes even for units not providing reserves. This study highlights the importance of operating reserve scarcity pricing rules because of the strong coupling between energy and reserve prices and because these rules serve as proxies for true price responsive demand.

Research Organization:: National Renewable Energy Laboratory (NREL), Golden, CO (United States)

Sponsoring Organization:: USDOE Office of Energy Efficiency and Renewable Energy (EERE); USDOE Office of Energy Efficiency and Renewable Energy (EERE), Renewable Power Office. Wind Energy Technologies Office

Grant/Contract Number:: AC36-08GO28308

OSTI ID:: 1807793

Alternate ID(s):: OSTI ID: 1804844

Report Number(s):: NREL/JA-5C00-71888; MainId:6103; UUID:2fdc4d62-6081-e811-9c14-ac162d87dfe5; MainAdminID:25770

Journal Information:: Energy Policy, Journal Name: Energy Policy Vol. 156; ISSN 0301-4215

Publisher:: ElsevierCopyright Statement

Country of Publication:: United States

Language:: English

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29 ENERGY PLANNING, POLICY, AND ECONOMY
costs
demand
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operating reserves
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production cost modeling
scarcity pricing
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wholesale electricity markets
wind

Impact of operating reserve rules on electricity prices with high penetrations of renewable energy

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