Abstract
Increasing infeed from renewable energy sources poses considerable challenges to system operators (SOs) who are in charge of power system reliability. Accordingly, the frequency of network congestion and the corresponding congestion management costs have increased dramatically over the last years and give reason to extensively discuss alternative approaches. Among these, flexibility markets bear the potential to complement existing congestion management practices by incentivising decentralised resources with large potentials of flexibility to participate in relieving congestion. For this reason, multiple demonstration projects across Europe are currently testing different flexibility market designs.We contribute to this on-going discussion by investigating the auction design of such a flexibility market. We analytically derive the optimal procurement strategy of a SO within a flexibility market platform, recurring to the well-established methodology of the classical Newsvendor problem and extending it in a stochastic programming framework with two stages. We apply our model to a case study of a transformer that is frequently congested due to high infeed from wind farms. Based on an analysis of relevant sources of flexibility, differentiated concerning lead time and cost structure, we explore the effects of demand uncertainty and information updates between auctions. The results of the case study, including a comprehensive sensitivity analysis, reveal insights that are used to provide policy advice on how to design flexibility procurement markets under specific conditions.
Highlights
In the zonal market design, typically implemented in European countries, congestion management is applied in order to relieve internal congestion
Our model shows that the two-stage Newsvendor Problem is applicable to the context of auctionbased flexibility markets
These include the costs of different flexibility sources, which in turn depend on characteristics such as lead times and penalty costs for curtailment
Summary
In the zonal market design, typically implemented in European countries, congestion management is applied in order to relieve internal congestion. Flexibility markets bear the potential to complement existing congestion management practices by incentivising decentralized resources with large potentials of flexibility to participate in congestion management Such market-based approaches require an efficient market design to mobilise sufficient flexibility sources on the supply side and to deal with uncertain flexibility demand. A diversity of suppliers in terms of required lead time implicates that two or more auctions broaden the range of flexibility supply and help suppliers to place their bids at the individually optimal stage. This is a precondition for the SO to efficiently exploit the existing flexibility options.
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