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

Determining Utility System Value of Demand Flexibility From Grid-interactive Efficient Buildings

This report focuses on ways current methods and practices that establish the value to electric utility systems of distributed energy resource (DER) investments can be enhanced to determine the value of demand flexibility in grid-interactive efficient buildings that can provide grid services. The report introduces key valuation concepts that are applicable to demand flexibility that these buildings can provide and links to other documents that describe these concepts and their implementation in more detail.The scope of this report is limited to the valuation of economic benefits to the utility system. These are the foundational values on which other benefits (and costs) can be built. Establishing the economic value to the grid of demand flexibility provides the information needed to design programs, market rules, and rates that align the economic interest of utility customers with building owners and occupants. By nature, DERs directly impact customers and provide societal benefits external to the utility system. Jurisdictions can use utility system benefits and costs as the foundation of their economic analysis but align their primary cost-effectiveness metric with all applicable policy objectives, which may include customer and societal (non-utility system) impacts.This report suggests enhancements to current methods and practices that state and local policymakers, public utility commissions, state energy offices, utilities, state utility consumer representatives, and other stakeholders might support. These enhancements can improve the consistency and robustness of economic valuation of demand flexibility for grid services. The report concludes with a discussion of considerations for prioritizing implementation of these improvements

Carbon Pricing in New York ISO Markets: Federal and State Issues

New York’s Clean Energy Standard (“CES”), adopted in August 2016, aims to steer the state’s electricity sector away from carbon-intensive generation sources. It supports low-carbon alternatives by requiring retail electricity suppliers to purchase credits, the proceeds from which are paid to renewable and nuclear generators. Recognizing that this will affect the operation of wholesale electricity markets, New York’s electric transmission grid operator (the “New York Independent System Operator” or “NYISO”) has commenced a review to assess possible means of incorporating the cost of carbon emissions into market prices. This Article explores two approaches to carbon pricing in NYISO markets: the first would involve NYISO adopting a carbon price of its own initiative with a view to improving the operation of wholesale electricity markets (“Approach 1”), while the second would involve adoption of a carbon price designed to reflect and harmonize state-level policies aimed at reducing electricity sector emissions (“Approach 2”). Under either approach, NYISO would adopt a per megawatt hour carbon price and use it to establish a fee for each generating unit, consistent with its emissions profile. This fee would be added to the prices generators bid into the wholesale electricity market and those adjusted prices used by NYISO to determine the dispatch order. The result would likely be a re-ordering of dispatch, with high-emitting generators dispatched (and paid) less frequently, and cleaner alternatives more frequently. Our proposal, while conceptually simple, is likely to be difficult to implement

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