Pricing electricity in constrained networks dominated by stochastic renewable generation and electric energy storage

Per Aaslid,Magnus Korpås,Michael M Belsnes,Olav B Fosso

doi:10.1016/j.epsr.2021.107169

Abstract

This paper studies the electricity price formation in a competitive market when introducing generation from variable renewable energy technologies with zero marginal cost and electric energy storage systems. A power system is analyzed with a stochastic optimization model combining multi-period optimal power flow with stochastic dynamic programming. The results illustrate how variable renewable energy, in this case solar photo-voltaic generation, displaces some of the expensive thermal generation and reduces the price. Electric energy storage will reduce the price variations caused by the variable renewable generation and demand as the time with price cap and zero price is reduced. In systems with only variable renewable generation and energy storage, the price will be set by the probability of scarcity similar to the price formation in hydro power dominated systems. The price will indicated the future cost of scarcity as a stochastic expectation value. This paper assumes that the demand is inflexible. However, the resulting electricity prices will remunerate provision of flexibility, which in turn will contribute to securing the supply and reducing the price volatility.

Highlights

The share of Variable Renewable Energy (VRE) generation world wide is increasing, and most electricity markets still are dominated by thermal generation, projections show that VRE will be the dominant energy source by 2050 both in terms of electricity generation and and installed capacity [1]
While previous studies primarily focus on the electricity price in systems combining VRE with thermal generation, this paper focuses on the price formation when most of the generation is supplied by VRE sources
While capacity inadequacy is the main driver for high prices in markets dominated by thermal generation, energy in adequacy is the main driver for high price in markets dominated by VRE and Energy Storage (EES)

Summary

Introduction

The share of Variable Renewable Energy (VRE) generation world wide is increasing, and most electricity markets still are dominated by thermal generation, projections show that VRE will be the dominant energy source by 2050 both in terms of electricity generation and and installed capacity [1]. VRE has a marginal operating cost close to zero and will displace some of the dispatchable generation due to the merit order effect, which has been extensively studied [3,4,5,6,7,8]. This in turn will reduce the profit of the conventional generation units, and make large-scale deployment of competitive VRE more difficult due to the energy price reduction [9]. The new market equilibrium will have a significant duration of zero price, a higher amount of energy not supplied, and there will be rela tively more power stations with higher variable costs and lower fixed costs [12]

Methods

Discussion

Conclusion