Faculty Advisor: Dr. Vijay Gupta
Electricity Market Design to Increase Integration of Renewables in the Power Grid
Reliable on-demand electricity supply is a fundamental requirement for ensuring public safety, health and welfare, as well as for developing a nation's economy and standard of living. Growing concern about the negative effects of burning fossil fuels has made increasing renewable energy penetration in the electricity grid a major social and policy goal. However, renewable sources such as wind and solar are inherently intermittent and unpredictable, making the goal of reliable on-demand electricity difficult to achieve at high levels of renewable penetration. The proposed project addresses that challenge by developing a grid that can deliver reliable on-demand electricity inexpensively, while increasing renewable participation. This goal will be achieved through the design and analysis of new structures for electricity markets which promote collaboration among different energy sources. With that, despite renewable variability, the total energy supply will equal the total demand at all times. The flexibility of a power grid refers to the ability to modify electricity production or consumption to counterbalance mismatches between supply and demand. Developing a flexible grid that reliably accommodates the variability and uncertainty of renewable energy sources has been recognized as a major challenge in the transition towards higher renewable usage. To achieve that goal, some other source should consume energy when renewables produce more than the demand and provide energy when renewables produce less, so that the total energy supply equals the total demand at every time. Such flexibility may be provided by batteries, flexible demand, or even natural gas power plants that can ramp up or down their supply quickly. However, flexible sources are not yet available at a grid scale at the efficiency-cost points required for large scale integration of renewables. Current practices do not provide enough economic incentives for innovation and development of such sources. Energy markets currently pay for quantity of electricity supplied and do not price flexibility, except ad hoc fixes that have failed to provide adequate motivations for investors. For instance, a battery that provides no net electricity will gain limited revenue in current markets even though it can be crucial for accommodating renewable variability and uncertainty. In my preliminary work, I proposed the design of a market in which flexible power sources offer to reserve some fuel to be used in case of renewable shortage, while renewable generators purchase the right to ask those sources to use that reserve if needed. Using optimization and economics theories, I derived expressions for the optimal pricing and size of such trades. I validated my analytical results through numerical simulations of a case study, and I showed that such mechanism stimulates the participation of renewables in the market. Furthermore, it provides adequate payment for flexibility providers and does not increase the energy price paid by consumers.