Working Paper Number
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.
Shortened version published as "Facilitating appropriate compensation of energy and reserve through standardized contracts with swing", in Journal of Energy Markets, Vol. 8 no. 4 (December 2015): 93-121.
D4, G1, Q4
Latest revision: 16 June 2015 (Original version: November 2013).
Heo, Deung-Yong and Tesfatsion, Leigh, "Standardized contracts with swing for the market-supported procurement of energy and reserve: illustrative examples" (2015). Economics Working Papers (2002–2016). 53.