Pricing Energy in the Presence of Renewables

Abstract

The intermittent nature of renewable energy generation implies that renewable producers rely on non-renewable producers to ensure the aggregate power delivered meets the promised quality of service. Therefore, the intermittent nature of renewable energy generation affects the committed power and market price of energy. We consider an electricity market where renewable and non-renewable generators bid by proposing their asking price per unit of energy to an independent system operator (ISO). The ISO solves a dispatch optimization problem to minimize the cost of purchased energy on behalf of the consumers. We incorporate the notion of net-load variance using the Conditional Value-at-Risk (CVAR) measure in the dispatch optimization problem to ensure that the generators are able to meet the load within a desired confidence level. We analytically derive the market clearing price of energy and dispatched powers as a function of CVAR and show that a higher penetration of renewable energies may increase the market clearing price of energy. Finally, we present descriptive simulations to illustrate the impact of renewable energy penetration on the market price of energy.