Understanding How Generation Flexibility and Renewable Energy Affect Power Market Competition

Abstract

We study supply function competition among conventional power generators with different levels of flexibility and the impact of intermittent renewable power generation on the competition. Inflexible generators commit production before uncertainties are realized, whereas flexible generators can adjust their production after uncertainties are realized. Both types of generators compete in an electricity market by submitting supply functions to a system operator, who solves a two-stage stochastic program to determine the production level for each generator and the corresponding market prices. We aim to gain an understanding of how conventional generators' (in)flexibility and renewable energy's intermittency affect the supply function competition and the market price. We find that the classic supply function equilibrium model overestimates the intensity of the market competition, and even more so when more intermittent generation is introduced into the system. The policy of economically curtailing intermittent generation intensifies the market competition, reduces price volatility, and improves the system's overall efficiency. Furthermore, these benefits of economic curtailment are most significant when the production-based subsidies for renewable energy are absent.

Sustainable Operations Management Through the Perspective of Manufacturing & Service Operations Management

“…The second topic is the adoption of energy-efficient or clean production technologies-for example, how adoption can be incentivized by regulation (Plambeck andTaylor 2013, Drake 2018) or impacted by market forces (Wang et al 2013). The third topic is the analysis of renewable energy strategies-for example, how the investment and marketing decisions between renewable and traditional energy sources should be coordinated (Wu and Kapuscinski 2013, Hu et al 2015, Aflaki and Netessine 2017, Al-Gwaiz et al 2016.…”

“…Atasu et al: Sustainable Operations Management Through the Perspective of M&SOM the transition to a low-carbon economy. M&SOM has already published research on the business implications of carbon reporting and regulation (Kroes et al 2012, Caro et al 2013, Jira and Toffel 2013, Sunar and Plambeck 2016, Drake 2018, the operations of renewable energy sources (Wu and Kapuscinski 2013, Hu et al 2015, Aflaki and Netessine 2017, Al-Gwaiz et al 2016, and new products/technologies such as electric vehicles and waste-to-energy plants (Ata et al 2012, Lee 2012, Lim et al 2015. However, there are still many open questions in these areas that we hope to see addressed in more depth and with a practical impact over the next two decades.…”

A Responsive Pricing Grid Operator Sourcing from Competing Generators under Uncertain Supply and Demand

“…Last but not least, most countries adopt a merging mode, generating electricity from traditional and renewable energy at the same time. Accordingly, researchers have shown interest in systems that consist of different types of generator: inflexible, flexible, and variable (or intermittent) [14]. This paper focuses on all these scenarios and discusses each of them in technical terms.…”

Investments in Renewable and Conventional Energy: The Role of Operational Flexibility

“…Wu and Kapuscinski (2013) also consider operational flexibility to determine ways to cope with intermittency, but capacity investment is not endogenous in their model. In a similar vein, Al-Gwaiz et al (2016) and Sunar and Birge (2017) characterize the supply function equilibrium in an electricity market with renewable and conventional sources without considering capacity investments.…”