Generation capacity adequacy in interdependent electricity markets

This paper deals with the practical problems related to long-term security of supply in regional electricity markets with transmission constraints. Differences between regulatory policies and market designs in terms of generation adequacy policies may distort the normal functioning of the neighboring markets, as well as the reliability of supply. We test the effect of heterogeneous regulatory design between two interdependent markets: energy-only market, price-capped market without capacity mechanisms and price-capped markets with forward capacity contracts obligation. We rely on a long-term market simulation model in system dynamics that characterizes expansion decision in a competitive regime. The results show that differences in market designs affect both price and reliability of supply in the two markets. We examine both the short and long terms effect, and how free-riding may occur where capacity adequacy policies are adopted in one market but not the other. The main finding is that the lack of harmonization between local markets in policies to ensure capacity adequacy may lead to undesirable side effects.     

Generation adequacy and transmission interconnection in regional electricity markets

The power system capacity adequacy has public good features that cannot be entirely solved by electricity markets. Regulatory intervention is then necessary and established methods have been used to assess adequacy and help regulators to fix this market failure. In regional electricity markets, transmission interconnections play an important role in contributing to adequacy. However, the adequacy problem and related policy are typically considered at a national level. This paper presents a simple model to study how the interconnection capacity interacts with generation adequacy. First results indicate that increasing interconnection capacity between systems improves adequacy up to a certain level; further increases do not procure additional adequacy improvements. Furthermore, besides adequacy improvement, increasing transmission capacity under asymmetric adequacy criteria or national system characteristics could create several concerns about externalities. These results imply that regional coordination of national adequacy policies is essential to internalise adequacy of cross-border effects.     

A regional energy paradox—the case of Central Norway

Central Norway is expected to have a gap of 8 TWh in 2010 because of heavy investments in energy-intensive industries. The region has two landing sites for natural gas and a considerable potential for wind power to cover the gap. Small-scale hydropower and upgrading of existing hydropower plants also constitute a regional energy potential. Paradoxically, the most realistic investment prospect seems to be extensive investments in new transmission lines to cover the supply deficit. The aim of this paper is to present a problem of regional supply security and public intervention to illustrate and discuss the challenges of arriving at long-term capacity adequacy in deregulated electricity markets.     

Flexibility in Europe's power sector — An additional requirement or an automatic complement?

By 2050, the European Union aims to reduce greenhouse gases by more than 80%. The EU member states have therefore declared to strongly increase the share of renewable energy sources (RES-E) in the next decades. Given a large deployment of wind and solar capacities, there are two major impacts on electricity systems: First, the electricity system must be flexible enough to cope with the volatile RES-E generation, i.e., ramp up supply or ramp down demand on short notice. Second, sufficient back-up capacities are needed during times with low feed-in from wind and solar capacities. This paper analyzes whether there is a need for additional incentive mechanisms for flexibility in electricity markets with a high share of renewables. For this purpose, we simulate the development of the European electricity markets up to the year 2050 using a linear investment and dispatch optimization model. Flexibility requirements are implemented in the model via ramping constraints and provision of balancing power. We found that an increase in fluctuating renewables has a tremendous impact on the volatility of the residual load and consequently on the flexibility requirements. However, any market design that incentivizes investments in least (total system) cost generation investment does not need additional incentives for flexibility. The main trigger for investing in flexible resources is the achievable full load hours and the need for backup capacity. In a competitive market, the cost-efficient technologies that are most likely to be installed, i.e., gas-fired power plants or flexible CCS plants, provide flexibility as a by-product. Under the condition of system adequacy, flexibility never poses a challenge in a cost-minimal capacity mix. Therefore, any market design incentivizing investments in efficient generation thus provides flexibility as an inevi complement.     

Mothballing in power markets: An experimental study

The deregulation of many electricity markets over the last two decades raises a number of issues, among which: securing adequate investments in capacity, and the possibility of cyclical behavior in capacity, are important for security of supply. A number of policies and market mechanisms aiming for capacity adequacy and market stability exist; in this paper we focus on one of these, mothballing of generation capacity. In electricity markets, mothballing is the possibility for a power generation company to temporarily withdraw generation capacity for a time, often for a year or more. Our hypothesis is that mothballing will help to stabilize markets, but at the same time increase prices. We test this hypothesis using laboratory experiments, with a simplified model of a generic electricity market. We report an experiment with twelve markets, where subjects make investment decisions; half of them had full capacity utilization (T1) and the other half had the option to mothball capacity (T2). The predictions of the effects of mothballing were confirmed in the experimental markets: prices and generation capacity exhibit clear cycles in T1, and damped cycles in the second set of experiments, T2. Furthermore, mothballing leads to higher prices on average.     

Modeling long-term dynamics of electricity markets

In the last decade, many countries have restructured their electricity industries by introducing competition in their power generation sectors. Although some restructuring has been regarded as successful, the short experience accumulated with liberalized power markets does not allow making any founded assertion about their long-term behavior. Long-term prices and long-term supply reliability are now center of interest. This concerns firms considering investments in generation capacity and regulatory authorities interested in assuring the long-term supply adequacy and the stability of power markets. In order to gain significant insight into the long-term behavior of liberalized power markets, in this paper, a simulation model based on system dynamics is proposed and the underlying mathematical formulations extensively discussed. Unlike classical market models based on the assumption that market outcomes replicate the results of a centrally made optimization, the approach presented here focuses on replicating the system structure of power markets and the logic of relationships among system components in order to derive its dynamical response. The simulations suggest that there might be serious problems to adjust early enough the generation capacity necessary to maintain stable reserve margins, and consequently, stable long-term price levels. Because of feedback loops embedded in the structure of power markets and the existence of some time lags, the long-term market development might exhibit a quite volatile behavior. By varying some exogenous inputs, a sensitivity analysis is carried out to assess the influence of these factors on the long-run market dynamics.     

Simulation of the long-term dynamic of a market-based transmission interconnection

Competitive markets set a framework in which unregulated market-based interconnections are allowed and encouraged. However, the presence of merchant transmission lines in the role of interconnector raises questions about the impact of these agents on the market conditions and system operation. The interconnector could be allowed to withhold capacity in order to keep the price difference (and profit of it) or be enforced by a must-offer provision to bid all its capacity. In this paper, the long-term dynamic of a market interconnection is studied and analyzed in a test system through a bottom-up simulation model. The outcomes are measured by the level of electricity prices along the simulated period and the annual amount of energy not supplied. The results show that the prices are strongly affected in the average value and in the standard deviation. The benefits of an interconnection as regards reliability are not hidden by the merchant nature of the interconnector. The results of the simulation show that letting the interconnector to control the bids of capacity offered to the markets is not detrimental to the markets. However, there is a lost of benefits compared with the case of a mandatory must-offer provision if compared at the same capacity of transmission line.     

Inflow shortages in deregulated power markets — Reasons for concern?

In many countries hydropower constitutes a large share of the electricity producing capacity. In the earlier regulated electricity markets, production capacities exceeded demand due to security of supply concerns. The present deregulated markets base investments upon profitability alone, and security of supply issues are claimed to be less important. Market operators trust the pricing mechanism in competitive markets to clear. Then low inflow constitutes a less problem. Several markets, both under regulated and deregulated regimes, have faced serious droughts. Some of them have experienced problems with market clearance (Chile, Brazil, California) while other markets functioned well (The Nordic market). Important features to the market response are the flexibility of demand, the pattern of inflow shortage, the storage capacities, the possibility of trade between regions with different production technologies, and the market design and concentration. We apply an empirical based market model to simulate the effects under two inflow shortage scenarios in an international market with combined hydro and thermal capacities and restricted transmission capacities. We compare the scenarios with actual events and show that the model and the real market outcome are comparable. The simulations do not reveal any problems with the functioning of the market, which should calm down the anxiousness about security of supply in deregulated markets with stochastic energy supply.     

A decision support tool for the analysis of pricing,investment and regulatory processes in a decentralized electricity market

After the liberalization of the electricity generation industry, capacity expansion decisions are made by multiple self-oriented power companies. Unlike the centralized environment, decision-making of market participants is now guided by price signal feedbacks and by an imperfect foresight of the future market conditions (and competitor actions) that they will face. In such an environment, decision makers need to better understand long-term dynamics of the supply and demand sides of the power market. In this study, a system dynamics model is developed, to better understand and analyze the decentralized and competitive electricity market dynamics in the long run. The developed simulation model oversees a 20-year planning horizon; it includes a demand module, a capacity expansion module, a power generation module, an accounting and finance module, various competitors, a regulatory body and a bidding mechanism. Many features, singularities and tools of decentralized markets, such as; capacity withholding, enforced divestment, long-term contracts, price-elastic demands, incentives/disincentives, are also incorporated into the model. Public regulators and power companies are potential users of the model, for learning and decision support in policy design and strategic planning. Results of scenario analysis are presented to illustrate potential use of the model.     

Fostering economic demand response in the Midwest ISO

The Midwest Independent System Operator (MISO) runs the power grid in 14 states and one Canadian province and has a peak demand of some 116,000 MW. Its operational area is richly supplied with reliability-triggered demand response programs such as direct load control of residential appliances and curtailable/interruptible rates for commercial and industrial customers. However, economic demand response programs are lacking. This paper discusses three different ways in which such programs can be introduced in the wholesale energy markets run by MISO. These include, first, an approach in which utilities and load serving entities move retail customers to dynamic pricing and other time-based pricing rates; second, an approach in which these same entities and possibly third-parties bid price responsive demand curves into the wholesale market; and third, an approach in which demand response is bid as a supply resource into the wholesale market.     

Examining market power in the European natural gas market

In this paper, we develop a mixed complementarity equilibrium model for the European natural gas market. This model has producers as Cournot players with conjectured supply functions relative to their rivals. As such, these producers can withhold production to increase downstream prices for greater profits. The other players are taken to be perfectly competitive and are combined with extensive pipeline, seasonal, and other data reflecting the current state of the market. Four market scenarios are run to analyze the extent of market power by these producers as well as the importance of pipeline and storage capacity.     

The British Model in Britain: Failing slowly

In 1990, Britain reorganised its electricity industry to run on competitive lines. The British reforms are widely regarded as successful and the model used provides the basis for reforms of electricity industries worldwide. The main reason for this perception of success is major reductions in the real price of electricity with no reduction in service quality. This paper examines whether the reputation of the British reforms is justified. It concludes that the reputation is not justified and that serious fundamental problems are beginning to emerge. The central question is: have the British reforms resulted in the creation of efficient wholesale and retail markets? On this criterion, the reforms have failed. The wholesale market is dominated by obscure long-term contracts, privileged access to the market and self-dealing within integrated generator/retailers, leaving the spot markets with minimal liquidity and unreliable prices. The failure to develop an efficient wholesale market places the onus on consumers to impose competitive forces on electricity companies by switching regularly. Small consumers will not do this and they are paying too much for their power. For the future, there is a serious risk that the electricity industry will become a weakly regulated oligopoly with a veneer of competition.     

Technical and economic aspects of ancillary services markets in the electric power industry: an international comparison

We present a comparative analysis of technical and economic aspects of ancillary services on the markets of England and Wales, Nordic Countries, California, Argentina, Australia and Spain, comparing the services of voltage control, frequency regulation and system restoration. All the analyzed markets rely on the existence of an administrator of ancillary services, function that leads to the figure of the system operator. Among the services analyzed, the mandatory nature of voltage control and primary frequency regulation stands out, being both the ancillary services with the higher market price and the shortest period of time requirements. In general, the recognized costs of the services correspond to investments operation, maintenance, and opportunity costs. In the provision of these ancillary services, there are no clear preferences for a particular resource allocation mechanism, where mandatory provision, auctions, competitive offers and different time length bilateral contracts are combined.     

Business models for distributed energy storage

分布式储能系统的应用正日益改变着整个电力供需体系的格局。分布式储能不仅能够解决用户的用电不稳定、用电成本高等问题,还能降低配电网高峰容量需求,弥补分布式电源出力随机性对电网的冲击,带动电网整体投资效益的提升。但从全球来看,分布式储能的发展模式还处于前期摸索阶段,如何最大化发挥分布式储能的价值还需要各国积极探讨研究。目前国内外已经初步形成了一些创新的商业模式,除了良好的市场环境基础和激励政策等外部支撑,这些新兴商业模式通常还需要具备以下条件：一是能够与需求响应资源融合;二是具有完善、能够抵御外部政策或市场环境改变的解决方案;三是易于被用户接纳。好的商业模式在内外部条件兼具的情况下,才能经得住市场的考验。     

Electric energy storage systems in a market-based economy: Comparison of emerging and traditional technologies

Unlike markets for storable commodities, electricity markets depend on the real-time balance of supply and demand. Although much of the present-day grid operate effectively without storage technologies, cost-effective ways of storing electrical energy can make the grid more efficient and reliable. This work addresses an economic comparison between emerging and traditional Electric Energy Storage (EES) technologies in a competitive electricity market. In order to achieve this goal, an appropriate Self-Scheduling (SS) approach must first be developed for each of them to determine their maximum potential of expected profit among multi-markets such as energy and ancillary service markets. Then, these technologies are economically analyzed using Internal Rate of Return (IRR) index. Finally, the amounts of needed financial supports are determined for choosing the emerging technologies when an investor would like to invest on EES technologies. Among available EES technologies, we consider NaS battery (Natrium Sulfur battery) and pumped-storage plants as emerging and traditional technologies, respectively.     

Economics of electric energy storage for energy arbitrage and regulation in New York

Unlike markets for storable commodities, electricity markets depend on the real-time balance of supply and demand. Although much of the present-day grid operates effectively without storage, cost-effective ways of storing electrical energy can help make the grid more efficient and reliable. We investigate the economics of two emerging electric energy storage (EES) technologies: sodium sulfur batteries and flywheel energy storage systems in New York state's electricity market. The analysis indicates that there is a strong economic case for EES installations in the New York City region for applications such as energy arbitrage, and that significant opportunities exist throughout New York state for regulation services. Benefits from deferral of system upgrades may be important in the decision to deploy EES. Market barriers currently make it difficult for energy-limited EES such as flywheels to receive revenue for voltage regulation. Charging efficiency is more important to the economics of EES in a competitive electricity market than has generally been recognized.     

Liberalising European electricity markets: opportunities and risks for a sustainable power sector

The process of liberalising European electricity markets, encompassing a wide range of restructuring activities, has mainly been spurred by the attempt to increase the economic efficiency of the whole sector. This process might be used to trigger a development towards a sustainable power sector by increasing the use of renewable energy sources and enhancing energy efficiency on the supply and demand side. However, by taking a closer look at the current trends of the European electricity markets, it becomes obvious that the liberalisation not only implies opportunities but also risks for the creation of a sustainable power sector. Many of these risks are due to market distortions and imperfections caused by the delay in creating a fully functional single European market. Thus, in the short-term, the market liberalisation tends to constitute more risks than opportunities without government actions to prevent these risks. In the long run, though, the efficiency gains of the sector and the appearance of new market factors are likely to bring forth the opportunities of liberalisation and actively foster a transformation towards a sustainable electricity sector.     

The emerging liquid biofuel market in Argentina: Implications for domestic demand and international trade

While the world's transport energy matrix is still strongly linked to limited and heavily polluting fossil fuels, new markets are appearing for the production and use of alternative transport fuels, such as liquid biofuels. Due to an interconnected global economy, such markets today are developing on a global scale with actors looking to meet local as well as potential international demand. The aim of this paper is to describe and evaluate the emergence of markets for liquid biofuels in Argentina. It reveals that biodiesel production for international supply is likely to emerge in the short run (up to 2010), giving the opportunity to be switched back to local supply in the medium run (post-2010). It also suggests that a bioethanol market (demand and supply) does not seem to be likely in the short run, and it is highly uncertain in the medium run as the most influential actors oppose its development. On the other hand, the current constellations of the biodiesel market appear to leave many uncertainties regarding its sustainability, especially in regard to a limited role of small and medium sized enterprises, and a suitable and diversified biodiesel feedstock. Currently, the focus lies solely on (very) large-scale production of biodiesel derived from soybean oil for the export market.     

基于类BCG模型的产业集聚区供电保障能力评估

分析了产业集聚区供电保障能力评估的研究框架,提出了用电关联度、用电充裕度指标,结合BCG模型及集聚区供用电现状构建了基于优先关注度矩阵的产业集聚区供电保障能力评估模型,并以河南省产业集聚区供用电为例进行分析,为优化河南省电力公司集聚区后期的电网规划方案提供了依据。     

The effect of ethanol policies on the vertical price transmission in corn and food markets

This paper analyzes the impact of ethanol policies on price transmission along the food supply chain. We consider the US corn sector and its vertical links with food and ethanol (energy) markets. We find that ethanol is a source of imperfect price transmission in the food supply chain. Ethanol, however, alters price transmission only under a binding blender's tax credit and only from food to corn (not vice versa). Our results indicate that ethanol weakens the response of corn and food prices in terms of their level changes to shocks occurring in agricultural (corn and food) markets. The results are robust to different assumptions on the model parameters. Although market power has previously been identified as a source of imperfect price transmission in the food supply chain, our findings show that in the presence of ethanol, the imperfect price transmission may occur even if markets are perfectly competitive. This warrants careful evaluation of markets before any policy intervention.