TITLE:
Electricity Market Mechanism regarding the Operational Flexibility of Power Plants
AUTHORS:
Cem Kiyak, Andreas de Vries
KEYWORDS:
Electricity Market, Market Mechanism, Renewable Energy, Operational Flexibility of Power Plants, Energy Transition
JOURNAL NAME:
Modern Economy,
Vol.8 No.4,
April
27,
2017
ABSTRACT: Electricity
market mechanisms designed to steer sustainable generation of electricity play an important role for the energy transition intended to
mitigate climate change. One of the major problems is to complement volatile
renewable energy sources by operationally flexible capacity reserves. In this
paper, a
proposal is given to determine prices on electricity markets taking into
account the operational flexibility of power plants, such that the costs of
long-term capacity reserves can be paid by short-term electricity spot markets.
For this purpose, a measure of operational flexibility is introduced enabling
to compute an inflexibility fee charging each individual power plant on a
wholesale electricity spot market. The total sum of inflexibility fees is accumulated on the spot
markets and then can be used to finance a capacity mechanism keeping the necessary
reserves to warrant grid reliability. Here each reserve power plant then gets a
reliable payment depending on its operational flexibility. The proposal is
applied to an exemplary
small grid, illustrating its main idea and also revealing the caveat that too
high fees paradoxically could create incentives to employ highly flexible power
plants on the spot market rather than to run them as backup capacity.