Contract Design for Energy Demand Response

Power companies such as Southern California Edison (SCE) uses Demand Response (DR) contracts to incentivize consumers to reduce their power consumption during periods when demand forecast exceeds supply. Current mechanisms in use offer contracts to consumers independent of one another, do not take into consideration consumers' heterogeneity in consumption profile or reliability, and fail to achieve high participation. We introduce DR-VCG, a new DR mechanism that offers a flexible set of contracts (which may include the standard SCE contracts) and uses VCG pricing. We prove that DR-VCG elicits truthful bids, incentivizes honest preparation efforts, enables efficient computation of allocation and prices. With simple fixed-penalty contracts, the optimization goal of the mechanism is an upper bound on probability that the reduction target is missed. Extensive simulations show that compared to the current mechanism deployed in by SCE, the DR-VCG mechanism achieves higher participation, increased reliability, and significantly reduced total expenses.Comment: full version of paper accepted to IJCAI'1

Generation Adequacy and Investment Incentives in Britain: from the Pool to NETA

Three years after the controversial change of the British market design from compulsory Pool with capacity payments to decentralised energy-only New Electricity Trading Arrangements (NETA) market framework, we compare the two designs in terms of investment incentives. We review the biases of the Pool capacity payments design, the drought of investment following the introduction of NETA, and the reaction of the market during the first “stress-test” of NETA during the winter 2003. In an energy-only market such as NETA, it is essential that price signals are right and the system operator has a crucial role in contracting ahead for reserve. We recommend that NETA adopt a single marginal imbalance price as dual imbalance pricing distorts price signals in times of scarcity. The lack of long-term contracting that causes hedging and financing difficulties for power projects can becompensated by vertical and horizontal reintegration at a cost of increased market power

Reasoning about the Reliability of Diverse Two-Channel Systems in which One Channel is "Possibly Perfect"

This paper considers the problem of reasoning about the reliability of fault-tolerant systems with two "channels" (i.e., components) of which one, A, supports only a claim of reliability, while the other, B, by virtue of extreme simplicity and extensive analysis, supports a plausible claim of "perfection." We begin with the case where either channel can bring the system to a safe state. We show that, conditional upon knowing pA (the probability that A fails on a randomly selected demand) and pB (the probability that channel B is imperfect), a conservative bound on the probability that the system fails on a randomly selected demand is simply pA.pB. That is, there is conditional independence between the events "A fails" and "B is imperfect." The second step of the reasoning involves epistemic uncertainty about (pA, pB) and we show that under quite plausible assumptions, a conservative bound on system pfd can be constructed from point estimates for just three parameters. We discuss the feasibility of establishing credible estimates for these parameters. We extend our analysis from faults of omission to those of commission, and then combine these to yield an analysis for monitored architectures of a kind proposed for aircraft

Reliability-based economic model predictive control for generalized flow-based networks including actuators' health-aware capabilities

This paper proposes a reliability-based economic model predictive control (MPC) strategy for the management of generalized flow-based networks, integrating some ideas on network service reliability, dynamic safety stock planning, and degradation of equipment health. The proposed strategy is based on a single-layer economic optimisation problem with dynamic constraints, which includes two enhancements with respect to existing approaches. The first enhancement considers chance-constraint programming to compute an optimal inventory replenishment policy based on a desired risk acceptability level, leading to dynamically allocate safety stocks in flow-based networks to satisfy non-stationary flow demands. The second enhancement computes a smart distribution of the control effort and maximises actuators’ availability by estimating their degradation and reliability. The proposed approach is illustrated with an application of water transport networks using the Barcelona network as the considered case study.Peer ReviewedPostprint (author's final draft

Electricity transmission: an overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising powermarkets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivize TSOs, especially with respect to cross-border issues

Insufficient Incentives for Investment in Electricity Generation

In theory, competitive electricity markets can provide incentives for efficient investment in generating capacity. We show that if consumers and investors are risk averse, investment is efficient only if investors in generating capacity can sign long-term contracts with consumers. Otherwise the uncovered price risk increases financing costs, reduces equilibrium investment levels, distorts technology choice towards less capital-intensive generation and reduces consumer utility. We observe insufficient levels of long-term contracts in existing markets, possibly because retail companies are not credible counter-parties if their final customer can switch easily. With consumer franchise, retailers can sign long-term contracts, but this solution comes at the expense of the idea of retail competition. Alternative capacity mechanisms to stimulate investment are discussed

Market Design for Generation Adequacy: Healing Causes rather than Symptoms

Keywords JEL Classification This paper argues that electricity market reform – particularly the need for complementary mechanisms to remunerate capacity – need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand side response, short-term reliability management procedures and uncompetitive ancillary services procurement often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators. electricity market, generation adequacy, market design, capacity mechanis