Capacity mechanisms in imperfect electricity markets

Finon, Dominique; Pignon, Virginie

doi:10.1016/j.jup.2008.01.006

Cited by 25 publications

(11 citation statements)

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“…They explore the use of a capacity payment [30] to provide stronger incentives for a CSP plant to have stored energy available during high-LOLP periods. This mechanism provides generators with supplemental payments that depend on their ability to provide generating capacity during system operator-designated shortage events.…”

Section: A Dynamic Program-based Methodsmentioning

confidence: 99%

A Dynamic Programming Approach to Estimate the Capacity Value of Energy Storage

Sioshansi

Madaeni

Denholm

2014

IEEE Trans. Power Syst.

147

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We present a method to estimate the capacity value of storage. Our method uses a dynamic program to model the effect of power system outages on the operation and state of charge of storage in subsequent periods. We combine the optimized dispatch from the dynamic program with estimated system loss of load probabilities to compute a probability distribution for the state of charge of storage in each period. This probability distribution can be used as a forced outage rate for storage in standard reliability-based capacity value estimation methods. Our proposed method has the advantage over existing approximations that it explicitly captures the effect of system shortage events on the state of charge of storage in subsequent periods. We also use a numerical case study, based on five utility systems in the U.S., to demonstrate our technique and compare it to existing approximation methods.

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Section: A Dynamic Program-based Methodsmentioning

confidence: 99%

A Dynamic Programming Approach to Estimate the Capacity Value of Energy Storage

Sioshansi

Madaeni

Denholm

2014

IEEE Trans. Power Syst.

147

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“…In locations without capacity markets, scarcity prices signal the need for new generation capacity and allow for recovery of these costs (Finon and Pignon 2008). As a result, some of the arbitrage revenue calculated in simulations using historic prices would include these scarcity prices and therefore potentially capture some of the value of storage providing system capacity (Sioshansi et al 2012).…”

Section: Previous Estimates Of Energy Storage Valuementioning

confidence: 99%

Value of Energy Storage for Grid Applications

Denholm¹,

Jorgenson²,

Hummon³

et al. 2013

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NOTICEThis report was prepared as an account of work sponsored by an agency of the United States government. Neither the United States government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States government or any agency thereof. Printed on paper containing at least 50% wastepaper, including 10% post consumer waste.iii AcknowledgmentsThe authors would like to thank the following individuals for their valuable input and comments during the analysis and publication process: Kerry Chung, Mary Lukkonen, Trieu Mai, Robin Newmark, Ramteen Sioshansi (who also provided the price-taker value in Section 4.1), and Aaron Townsend. Any errors or omissions are solely the responsibility of the authors.iv ForwardThis report is one of a series stemming from the U.S. Department of Energy (DOE) Demand Response and Energy Storage Integration Study. This study is a multi-national-laboratory effort to assess the potential value of demand response and energy storage to electricity systems with different penetration levels of variable renewable resources and to improve our understanding of associated markets and institutions. This study was originated, sponsored, and managed jointly by the Office of Energy Efficiency and Renewable Energy and the Office of Electricity Delivery and Energy Reliability.Grid modernization and technological advances are enabling resources, such as demand response and energy storage, to support a wider array of electric power system operations. Historically, thermal generators and hydropower in combination with transmission and distribution assets have been adequate to serve customer loads reliably and with sufficient power quality, even as variable renewable generation like wind and solar power become a larger part of the national energy supply. While demand response and energy storage can serve as alternatives or complements to traditional power system assets in some applications, their values are not entirely clear. This study seeks to address the extent to which demand response and energy storage can provide cost-effective benefits to the grid and to highlight institutions and market rules that facilitate their use.The project was initiated and informed by the results of two DOE workshops: one on energy storage and the other on demand response. The workshops were attended by members of the electric power industry, researchers, and policymakers, and the study design an...

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“…All errors and omissions are my responsibility. 16 As a first step, Green and Léautier (2014) derive an extension of the peak-load pricing model when subsidized renewables are included.…”

Section: Resultsmentioning

confidence: 99%

“…Therefore, SOs and policy makers worldwide have designed and implemented a variety of mechanisms to correct this apparent market failure (Finon and Pignon, 2008). …”

Section: Introductionmentioning

confidence: 99%

The Visible Hand: Ensuring Optimal Investment in Electric Power Generation

Léautier

2012

SSRN Journal

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This article formally analyzes the various corrective mechanisms that have been proposed and implemented to alleviate underinvestment in electric power generation. It yields three main analytical findings. First, physical capacity certificates markets implemented in the United States restore optimal investment if and only if they are supplemented with a "no short sale" condition, i.e., producers can not sell more certificates than they have installed capacity. Then, they raise producers' profits beyond the imperfect competition level. Second, financial reliability options, proposed in many markets, are effective at curbing market power, although they fail to fully restore investment incentives. If "no short sale" conditions are added, both physical capacity certificates and financial reliability options are equivalent. Finally, a single market for energy and operating reserves subject to a price cap is isomorphic to a simple energy market. Standard peak-load pricing analysis applies: under-investment occurs, unless production is perfectly competitive and the cap is never binding.

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Capacity mechanisms in imperfect electricity markets

Cited by 25 publications

References 0 publications

A Dynamic Programming Approach to Estimate the Capacity Value of Energy Storage

A Dynamic Programming Approach to Estimate the Capacity Value of Energy Storage

Value of Energy Storage for Grid Applications

The Visible Hand: Ensuring Optimal Investment in Electric Power Generation

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