Reliability Contracts Between Renewable and Natural Gas Power Producers

Abstract

Renewable power adoption has required policies that protect intermittent generators, such as wind and solar, from system-level costs of resource shortfalls. It has been shown that if renewable generators were to accommodate these costs in an energy market settlement, significant renewable generation curtailments would ensue, especially as the penetration of renewables grows. Based on the current evolution of policies toward unmet commitment penalties for intermittent generators, we propose a reliability contract between a renewable power producer (RPP) and a natural gas power plant (NGPP), where the NGPP fulfills the RPP unmet commitments in low resource scenarios. We consider a day-ahead energy market where players are scheduled based on quantity-price bids in a least-cost manner by an independent system operator. We analyze the contract against a baseline scenario where the RPP faces the shortfall penalty, deriving optimal commitments and a condition where the adoption of the reliability contract increases social welfare. Using data from an RPP-NGPP pair in the Northeastern U.S., the contract is shown to improve renewable utilization, increase the profits of both partners, and decrease total unmet commitments by the introduction of a lower cost alternative to the shortfall penalty.