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Flexibility Benefits of Demand-Side Programsin Electric Utility Planning

Eric Hirst

Year: 1990
Volume: Volume 11
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No1-13
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Abstract:
Electric utilities face a variety of uncertainties that complicate their long-term resource planning and acquisition. Many utilities deal with these uncertainties by pursuing flexible strategies that allow changes to be made incrementally with little difficulty and at low cost. Thus, utilities today avoid construction of large, baseload power plants because of their long construction times and high capital costs. On the other hand, utilities view combustion turbines as flexible because they have small unit sizes, take only a few years to build, are inexpensive, and can later be converted to combined-cycle units (to increase capacity and improve performance). Energy-efficiency and load-management programs, because of their inherently small unit size and opportunities to adjust participation over time, are attractive for the same reasons.



Gas Storage Valuation: Price Modelling v. Optimization Methods

Petter Bjerksund, Gunnar Stensland, and Frank Vagstad

Year: 2011
Volume: Volume 32
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No1-8
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Abstract:
In the literature, one approach is to analyse gas storage within a simple one-factor price dynamics framework that is solved to optimality. We follow an alternative approach, where the market is represented by a forward curve with daily granularity, the price uncertainty is represented by six factors, and where we impose a simple and intuitive storage strategy. Based on UK natural gas market price data, we obtain the gas storage value using our approach, and compare with results from a one-factor model as well as with perfect foresight. We find that our approach captures much more of the true flexibility value than the one-factor model.



Remuneration of Flexibility using Operating Reserve Demand Curves: A Case Study of Belgium

Anthony Papavasiliou and Yves Smeers

Year: 2017
Volume: Volume 38
Number: Number 6
DOI: 10.5547/01956574.38.6.apap
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Abstract:
Flexibility is becoming an increasingly important attribute of conventional generators due to the challenges imposed by the unpredictable, highly variable and non-controllable nature of renewable supply. Paradoxically, flexible units are currently being mothballed or retired in Europe due to financial losses. We investigate an energy-only market design, referred to as operating reserve demand curves, that rewards flexibility by adjusting the real-time energy price to a level that reflects the value of capacity under conditions of scarcity. We test the performance of the mechanism by developing a model of the Belgian electricity market, which is validated against the historical outcomes of the market over a study period of 21 months. We verify that (i) based on the observed market outcomes of our study period, none of the existing combined cycle gas turbines of the Belgian market can cover their investment costs, and (ii) the introduction of price adders that reflect the true value of scarce flexible capacity restores economic viability for most combined cycle gas turbines in the Belgian market.



Investigating Price Formation Enhancements in Non-Convex Electricity Markets as Renewable Generation Grows

Ali Daraeepour, Eric D. Larson, and Chris Greig

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.adar
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Abstract:
Continued growth in wind energy penetration increases the demand for operational flexibility on the grid. It is not well-understood if the price formation process in current U.S. electricity markets will appropriately reward the provision of operational flexibility. This study investigates how continued growth in wind penetration impacts conventional marginal pricing efficiency and assesses its ability to remunerate operational flexibility. It also investigates the extent to which alternative marginal pricing schemes that seek to minimize out-of-market payments enhance remuneration of flexibility. Using a custom-built model, we simulate PJM's hourly electricity market outcomes under conventional and alternative marginal pricing schemes for three wind penetration levels. We find that the increasing demand for operational flexibility increases the frequency and magnitude of unrepresentative price events that suppress energy prices and thus the market's ability to remunerate flexibility. We find that the alternative of convex-hull pricing, which minimizes out-of-market payments, can largely overcome these issues.



Fat Tails due to Variable Renewables and Insufficient Flexibility: Evidence from Germany

Ronald Huisman, Evangelos Kyritsis, and Cristian Stet

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.rhui
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Abstract:
The large-scale integration of renewable energy sources requires flexibility from power markets in the sense that the latter should quickly counterbalance the renewable supply variation driven by weather conditions. Most power markets cannot (yet) provide this flexibility effectively as they suffer from inelastic demand and insufficient flexible storage capacity or flexible conventional suppliers. Research accordingly shows that the volume of renewable energy in the supply system affects the mean and volatility of power prices. We extend this view and show that the level of wind and solar energy supply affects the tails of the electricity price distributions as well and that it does so asymmetrically. The higher the supply from wind and solar energy sources, the fatter the left tail of the price distribution and the thinner the right tail. This implies that one cannot rely on symmetric price distributions for risk management and for valuation of (flexible) power assets. The evidence in this paper suggests that we have to rethink the methods of subsidizing variable renewable supply such that they take into consideration also the flexibility needs of power markets.



The Social Efficiency of Electricity Transition Policies Based on Renewables. Which Ways of Improvement?

Manuel Villavicencio and Dominique Finon

Year: 2022
Volume: Volume 43
Number: Number 6
DOI: 10.5547/01956574.43.6.mvil
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Abstract:
Climate and energy policies use to be embedded in joint packages with seeming coherent goals on which the electricity sector is targeted. However, the complexity of power systems is rarely fully apprehended while setting up such packages, particularly when technical externalities from variable renewable energies (VRE) become widespread and different sources of flexibility need to be considered. We use a detailed power system model subject to a combination of RE goals and CO2 caps to seize their interplays and propose a methodology to rank the resulting equilibriums in terms of environmental effectiveness and economic efficiency. We show that: only modest levels of VRE develop without subsidies regardless the level of the CO2 cap; technical externalities create trade-offs between VRE penetration and environmental effectiveness; new flexibility technologies may correct or exacerbate these externalities, impacting effectiveness, costs, and coherence of such packages, requiring a sensitive target hierarchization and fine-tuning of such instruments.



The Economics of Demand-side Flexibility in Distribution Grids

Athir Nouicer, Leonardo Meeus, and Erik Delarue

Year: 2023
Volume: Volume 44
Number: Number 1
DOI: 10.5547/01956574.44.1.anou
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Abstract:
To avoid unnecessary distribution network investments, distribution tariffs are expected to become more cost-reflective, and DSOs are expected to procure flexibility. This will provide an implicit and an explicit incentive to provide demand-side flexibility. In this paper, we develop a long-term bi-level equilibrium model. In the upper level, the DSO optimizes social welfare by deciding the level of investment in the distribution network and/or curtailing consumers. The regulated DSO also sets a network tariff to recover the network and flexibility costs. In the lower level, the consumers, active and passive, maximize their own welfare. We find that implicit and explicit incentives for demand-side flexibility are complementary regulatory tools, but there are limits. If network tariffs are too imperfect, the resulting consumption profiles can become too expensive to fix with curtailment. We also find that it is difficult to set an appropriate level of compensation because of the reaction by prosumers.





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