Diffusion of PV in Japan and Germany-Role of Market-Based Incentive and Research and Development (R&D) Investment

The goals of increasing the use of PV energy face significant obstacles. Regulatory requirements can be used to mandate the adoption of renewable energy, but market-based incentive mechanisms can also achieve the same results by inducing voluntary behavior from stakeholders. Variations in terms of both design and implementation of market-based incentives can have meaningful effects on the outcomes of incentive programs. We examine Japan and Germany in which PV energy accounts for a relatively high portion of total net electricity energy consumption. Germany FITs were originally linked to the spot electricity price, but a fixed tariff was adopted in 2000, and revised in 2004. A grant program also funds a portion of construction costs for new PV systems. The country has experienced rapid uptake of renewables over the past decade, making it a world leader in solar PV at the end of 2008. The purpose of this study is to analyze the PV diffusion in Japan and Germany during 1990-2011. Germany chooses an effective market-based incentive mechanism which is long term and more generous than Japanese incentive program. The termination of incentive policy is the main blocking factor of the decline of PV market in Japan

A Capacity Market that Makes Sense

We argue that a capacity market is needed in most restructured electricity markets, and present a design that avoids the many problems found in the early capacity markets. The proposed locational capacity market pays suppliers based on their demonstrated ability to supply energy or reserves in shortage hours—hours in which there is a shortage of operating reserves. Thus, only supply that contributes to reliability is rewarded. The capacity price responds to market conditions. When capacity is scarce the capacity price is high; when capacity is plentiful the capacity price is low or zero. Market power in the capacity market is addressed by setting the capacity price based on actual capacity, rather than bid capacity, so generators cannot increase the capacity price by withholding supply. Ex post peak energy rents (the short-run energy profits of a benchmark peaking unit) are subtracted from the capacity price. Thus, a supplier does not have an incentive to create real-time shortages—the high shortage price resulting from a shortage is subtracted from the capacity price, so there is no net gain from the high price. By defining a capacity product closely tied to reliability and directly addressing market power both in the capacity market and in the spot energy market, the proposed design results in a market participants can trust to encourage efficient behavior both in the short run and long run.Auctions, Electricity Auctions, Capacity Auctions, Market Design

A Review of Economic Incentives for Efficient Operation of Flexible Transmission

The growing penetration of renewable energy requires upgrades to the transmission network to ensure the deliverability of renewable generation. As an efficient alternative to transmission expansion, flexible transmission technologies, whose benefits have been widely studied, can alleviate transmission system congestion and enhance renewable energy integration. However, under the current market structure, investments for these technologies only receive a regulated rate of return, providing little to no incentive for efficient operation. Additionally, a regulated rate of return creates an incentive for building more transmission lines rather than efficient utilization of the existing system. Therefore, investments in flexible transmission technologies remain rather limited. To facilitate the deployment of flexible transmission, improve system efficiency, and accommodate renewable energy integration, a proper incentive structure for flexible transmission technologies, compatible with the current market design, is vital. This paper reviews the current market-based mechanisms for various flexible transmission technologies, including impedance control, dynamic line rating, and transmission switching. This review pinpoints current challenges of the market-based operation of flexible transmission and provides insights for future endeavors in designing efficient price signals for flexible transmission operation.Comment: 2023 55th North American Power Symposium (NAPS

Competitive Bidding Behavior in Uniform-Price Auction Markets

Profit-maximizing bidding in uniform price auction markets involves bidding above marginal cost. It therefore is not surprising that such behavior is observed in electricity markets. This incentive to bid above marginal cost is not the result of coordinated action among the bidders. Rather, each bidder is independently selecting its bid to maximize profits based on its estimate of the residual demand curve it faces. The supplier bids a price for its energy capacity to optimize its marginal tradeoff between higher prices and lower quantities. Price response from either demand or other suppliers prevents the supplier from raising its bid too much. Profit maximizing bidding should be expected and encouraged by regulators. It is precisely this profit maximizing behavior that guides the market toward long-run efficient outcomes.Auctions, Electricity Auctions, Market Design

Degree of coordination in market-coupling and counter-trading

Cross-border trade remains a contentious issue in the restructuring of the European electricity market. Difficulties stem from the lack of a common market design, the separation between energy and transmission markets and the insufficient coordination between Transmission System Operators (TSOs). This paper analyzes the cross-border trade problem through a set of models that represent different degrees of coordination both between the energy and transmission markets and among national TSOs.We first present the optimal organisation, not implemented in Europe, where energy and transmission are integrated according to the nodal price paradigm and Power Exchanges (PXs) and TSOs are integrated. This is our reference case. We then move to a more realistic representation of the European electricity market based on the so-called market-coupling design where energy and transmission are operated separately by PXs and TSOs. When considering different degrees of coordination of the national TSOs’ activities, we unexpectedly find that some arrangements are more efficient than the lack of coordination might suggest. Specifically we find that even without a formal coordination of the TSOs’ counter-trading operations, non discriminatory access to common counter-trading resources for all TSOs may lead to a partial implicit coordination of these TSOs. In other words, an internal market of counter-trading resources partially substitutes the lack of integration of the TSOs. While a full access to counter-trading resources is a weaker requirement than the horizontal integration of the TSO, it is still quite demanding. We show that quantitative limitations to the access of these resources decrease the efficiency of counter-trading. The paper supposes price taking agents and hence leaves aside the incentive to game the system induced by zonal systems.Cross-Border Energy Trade, Market-Coupling, Counter-Trading, Coordination, Generalized Nash Equilibrium

Economic analysis of transmission enhancement through merchant projects

The lack of economic incentives and uncertainties in recovering the cost of a merchant / economic transmission project is an area of great concern as aging and heavy loading conditions limit the capability of the U.S. transmission networks. Merchant transmission projects are envisioned as market based solutions to enhance the power grid and to import cheaper energy from power suppliers in other areas. However, due to uncertainties in the electric energy market, market based cost recovery mechanisms have not been successful in guaranteeing a full recovery of the investment. As a result, few merchant projects have been built. This dissertation presents a comprehensive analysis of merchant transmission projects and the required economic incentives that are necessary to enhance the power grid. The concept of perpetual options theory is initially introduced to analyze merchant transmission investment through an approved rate. Since the electric usages and the associated revenue are stochastic in nature, applying the perpetual options theory allows an investor to determine the most opportunistic time to start a transmission project and obtain the maximum revenue returns or let the option expire when the economic incentive is not sufficient. In today\u27s environment, this decision approach is more appropriate since it provides transmission investors a better evaluation of its return on investment and an exit strategy for an investment. The probability of not recovering the capital investment associated with an exercise of the option to build is calculated using Kolmogorov forward equation. The risk of an exercise is needed for decision making of the investment and for assessing the incentive needed to encourage transmission investment. A market based transmission rate is designed as an additional incentive for merchant projects. The new rate design provides additional revenues to transmission developers in order to attract the transmission investment. The rate takes into consideration the revenue requirement by the developer and benefits to transmission customers. Finally, a conceptual framework to analyze the strategic interaction between power plant investment and transmission line investment is proposed. The model, which is based on game theory, helps to evaluate different market incentives and the impact of generator\u27s decision on transmission enhancement projects

MULTICRITERIA PRIORITIZATION OF POLICY INSTRUMENTS IN BUILDINGS ENERGY RETROFIT

Improvement of energy-efficiency in residential buildings is a crucial issue in Italy, where 55% of the building stock is older than 40 years and real estate assets are responsible for 33% of primary energy consumption. Consequently, the Italian residential sector offers considerable potential for reducing energy use and GHG emissions, particularly through energy-efficient renovations. Governments can introduce a wide range of policy instruments to encourage households in undertaking energy-efficient renovations: direct financial investments, regulatory instruments (e.g., performance and technology standards), economic and market-based instruments, support information and voluntary actions. Since 2006, the Italian Government has introduced fiscal incentive programs to enhance energy efficiency in residential buildings. During the period 1998-2016 the cost for the Italian Government to due to fiscal incentives (i.e. tax deductions) was extremely high compared to tax revenues. Thus incentives turned out to be excessively costly and not cost-effective. The design and implementation of incentive policies to buildings energy retrofit is a complex process involving a great number of decision variables and actors. Cost-effective incentive policies should prove capacity in stimulating investments, reducing social and environmental costs and promoting innovation. This complexity is exacerbated in the presence of stringent public budget constraints and lack of financial resources. In order to favor the implementation of cost-effective retrofit strategies, the policy maker must take into consideration along with buildings age and construction materials, social costs and benefits, EU and national targets, and environmental concerns. In this context, where multiple objectives need to be pursued, multiple criteria approaches provide a methodological framework to address the complexity of economic, physical, social, cultural and environmental factors which characterize incentive policies. In this paper we propose a multi-criteria decision model to support the policy maker in ranking sustainable incentive policies. In detail, we provide an AHP model for multiple-criteria prioritization of policy instruments to foster investments in energy retrofit of existing buildings

Incentive Design for Direct Load Control Programs

We study the problem of optimal incentive design for voluntary participation of electricity customers in a Direct Load Scheduling (DLS) program, a new form of Direct Load Control (DLC) based on a three way communication protocol between customers, embedded controls in flexible appliances, and the central entity in charge of the program. Participation decisions are made in real-time on an event-based basis, with every customer that needs to use a flexible appliance considering whether to join the program given current incentives. Customers have different interpretations of the level of risk associated with committing to pass over the control over the consumption schedule of their devices to an operator, and these risk levels are only privately known. The operator maximizes his expected profit of operating the DLS program by posting the right participation incentives for different appliance types, in a publicly available and dynamically updated table. Customers are then faced with the dynamic decision making problem of whether to take the incentives and participate or not. We define an optimization framework to determine the profit-maximizing incentives for the operator. In doing so, we also investigate the utility that the operator expects to gain from recruiting different types of devices. These utilities also provide an upper-bound on the benefits that can be attained from any type of demand response program.Comment: 51st Annual Allerton Conference on Communication, Control, and Computing, 201

Reform and Regulation of the Electricity Sectors in Developing Countries

Reform and Regulation of the Electricity Sectors in Developing Countrie