Flexibility Options: A Proposed Product for Managing Imbalance Risk

Journal Article · Mon Jan 20 00:00:00 EST 2025 · IEEE Transactions on Energy Markets, Policy and Regulation

DOI:https://doi.org/10.1109/TEMPR.2025.3529689· OSTI ID:2561250

Spyrou, Elina ^[1]; Zhang, Qiwei ^[2]; Hytowitz, Robin ^[3]; Hobbs, Benjamin ^[4]; Tyagi, Siddharth ^[5]; Cai, Mengmeng ^[6]; Blonsky, Michael ^[2]

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1. Imperial College London; National Renewable Energy Laboratory
2. National Renewable Energy Lab., Golden, CO (United States)
3. Electric Power Research Institute; NextEra Energy Resources
4. Johns Hopkins University
5. Independent Electricity System Operator; Johns Hopkins University
6. National Renewable Energy Laboratory; Southeast University

The presence of variable renewable energy resources with uncertain outputs in day-ahead electricity markets results in additional balancing needs in real-time. Addressing those needs cost-effectively and reliably within a competitive market with unbundled products is challenging as both the demand for and the availability of flexibility depends on day-ahead energy schedules. Existing approaches for reserve procurement usually rely either on oversimplified demand curves that do not consider how system conditions that particular day affect the value of flexibility, or on bilateral trading of hedging instruments that are not co-optimized with day-ahead schedules. This article proposes a new product, ‘Flexibility Options', to address these two limitations. The demand for this product is endogenously determined in the day-ahead market and it is met cost-effectively by considering real-time supply curves for product providers, which are co-optimized with the energy supply. As we illustrate with numerical examples and mathematical analysis, the product addresses the hedging needs of participants with imbalances cost-effectively, provides a less intermittent revenue stream for participants with flexible outputs, promotes value-driven pricing of flexibility, and ensures that the system operator is revenue-neutral. This article provides a comprehensive design that can be further tested and applied in large-scale systems.

• Research Organization: National Renewable Energy Laboratory (NREL), Golden, CO (United States)
• Sponsoring Organization: USDOE Advanced Research Projects Agency - Energy (ARPA-E)
• DOE Contract Number: AC36-08GO28308
• OSTI ID: 2561250
• Report Number(s): NREL/JA-6A40-92570
• Journal Information: IEEE Transactions on Energy Markets, Policy and Regulation, Journal Name: IEEE Transactions on Energy Markets, Policy and Regulation Journal Issue: 3 Vol. 3
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
32 ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION
ENERGY CONSERVATION, CONSUMPTION, AND UTILIZATION,ENERGY PLANNING, POLICY, AND ECONOMY
electricity markets
flexibility
hedging
imbalance risk
operational uncertainty