Pricing the value of flexibility – findings from the “The Power of … · 2019-11-27 · Pricing the value of flexibility – findings from the “The Power of Transformation”

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Pricing the value of flexibility – findings from the “The Power of Transformation”

Simon Müller

Analyst – System Integration of Renewables

Electricity Security Advisory Panel Workshop on

SCARCITY AND FLEXIBILITY PRICING, 2 July 2014, Paris

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The Grid Integration of Variable Renewables Project - GIVAR

Third project phase at a glance 7 case studies covering 15

countries, >50 in-depth interviews

Technical flexibility assessment with revised IEA FAST tool

Detailed economic modelling at hourly resolution

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© OECD/IEA 2014

What shapes the integration challenge?

Properties of variable renewable energy (VRE)

Flexibility of other power system components

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Variable

Uncertain

Non-synchronous

Location constrained

Modularity

Low short-run cost

sec

yrs

1 km

100s km

Grids Generation

Storage Demand Side

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2. Make better use of

what you have

Operations

1. Let wind and solar play their

part

3. Take a system wide-strategic

approach to investments!

System friendly

VRE

Technology spread

Geographic spread

Design of power

plants

Three pillars of system transformation

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Investments

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* Compound annual average growth rate 2012-20 , slow <2%, dynamic ≥2%; region average used where country data unavailable This map is without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Transformation depends on context

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Stable Power Systems

• Little general investment need short term

Dynamic Power Systems

• Large general investment need short term

Slow demand growth*

Dynamic demand growth*

Maximise the contribution from existing flexible assets

Decommission or mothball inflexible polluting surplus capacity to foster system transformation

Implement holistic, long-term transformation from onset

Use proper long-term planning instruments to capture VRE’s contribution at system level

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Variability high temporal resolution of price signals,

i.e. prices are valid only for short time periods

allowing large differences in prices, i.e. negative and very high prices

Uncertainty short-term price signals,

i.e. prices formed close to real-time and based on current system status

operating reserves and balancing, i.e. how to deal with forecast errors

Location constraints and modularity high spatial resolution of price signals, i.e. prices differ from place to

place

Non-synchronous technology (additional) system service markets, i.e. substitutes for classical inertial

response in certain systems

Efficient prices at high shares of VRE

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© OECD/IEA 2014

Large room for improvement in design of system services markets

How do today’s markets fare?

Example: DEU + FRA Example: ERCOT

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Short scheduling intervals (5min best practice)

Adjust schedules up to real time (5min best practice)

Generation and transmission schedules

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6 7 8 9

Capa

city

(MW

)

Time (hours)

Actual load curve

Load schedule -15 minutes

Load schedule -60 minutes

Balancing need 15 min schedule

Balancing need60 min schedule

Impact of scheduling interval on reserve requirements, illustration

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Germany has four balancing areas (historic reasons)

Reserve sharing mechanism across four areas

Reduced requirements despite rapid increase of VRE

Co-operation with neighbours

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0

10

20

30

40

50

60

0

1

2

3

4

5

6

7

8

2008 2009 2010 2011 2012

Inst

alle

d VR

E ca

paci

ty (G

W)

Rese

rve

requ

irem

ent

(GW

) VRE capacity

Upward reserves

Downward reserves

+100%

+0%

-40%

Required frequency restoration reserves in Germany

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Do we price flexibility at its value?

We already have markets for flexibility: In particular: balancing markets

Three main problems: Product definition often not robust at high shares of VRE

Services sometimes not remunerated or markets under-developed

Trading ill-aligned with trading on wholesale market

Value of flexibility is not appropriately priced

Wholesale market prices do not reflect value during scarcity (including flexibility)

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© OECD/IEA 2014

Are your operating reserve and system service definitions VRE ready? Example Ireland DS3 programme

System service definitions Prepared for a variable future?

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• Synchronous Inertial Response• Fast Frequency Response• Fast Post-Fault Active Power

Recovery

• Ramping Margin

0 – 5s 5 – 90s 90s – 20min 20min – 12hr

Inertial Response

Reserve

Ramping

POR

SOR

TOR1

TOR2

RR

Ramping

SIR

FFR

time

Source: EirGrid • Dynamic Reactive Power

ms – s

Transient Voltage Response

Voltage Regulation

Network

Dynamic Reactive

Power

NetworkAdequacy

Grid 25

s – min min – hr

Steady-state Reactive

Power

• Steady-state Reactive Power

Frequency Services

Voltage Services

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0.010.020.030.040.050.060.070.080.0

1 3 5 7 9 11 13 15 17 19 21 23

GW

Total generation

0.010.020.030.040.050.060.070.080.0

0 2 4 6 8 10 12 14 16 18 20 22

GW

Conventional Wind PV

0.010.020.030.040.050.060.070.080.0

0 2 4 6 8 10 12 14 16 18 20 22

GW

Conventional Wind PV

But does flexibility have a value today?

Medium-term: PV reduces value of pumped storage

Long-term: Mutual increase of market value

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© OECD/IEA 2014

[email protected]

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