Title

Facilitating appropriate compensation of electric energy and reserve through standardized contracts with swing

Campus Units

Economics, Electrical and Computer Engineering, Mathematics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

2015

Journal or Book Title

Journal of Energy Markets

Volume

87

Issue

4

First Page or Article ID Number

93

Last Page

121

Abstract

Three key issues have arisen for centrally-managed wholesale electric power markets in Europe and the United States as they attempt to handle an increased penetration of variable energy resources. First, rigid definitions for energy and reserve products make it difficult to ensure appropriate compensation for important needed flexibility in start-up times, ramp-rates, power dispatch levels, and duration. Second, participation restrictions hinder the achievement of an even playing field for potential providers of flexible services. Third, reliance on out-of-market compensation for the provision of some valued services encourages strategic manipulation. This study examines the possibility of addressing these three issues through the introduction of standardized energy and reserve contracts with swing (flexibility) in their contractual terms. Concrete examples are used to demonstrate how the trading of these standardized contracts can be supported by linked forward markets in a manner that permits efficient real-time balancing of net load subject to system and reserve-requirement constraints. Comparisons with existing wholesale electric power markets are given, and key policy implications are highlighted.

JEL Classification

D4, G1, Q4

Comments

This is a working paper of an article from Journal of Energy Markets, Vol. 8 no. 4 (December 2015): 93-121.