IEEE Power & Energy Magazine - July/August 2015 - 26

In addition to solar, wind power generation is increasingly
improving yield and reliability, controlling costs, and contributing
to market share globally.

prosumer and minimize the cost of energy, ancillary, and
capacity payments to meet a minimum level of reliability
using energy efficiency, demand response, energy storage,
and other resource options if it is more economic than central station generation reference technologies? What is the
value of the reliability to the prosumer?

Demand and Response
The western world, motivated by vertical utility "cost plus"
regulatory structures, could be unbundled with supply competing in wholesale power markets. Now the trend is to overlay public policy and regulatory of adoption of renewables
in resource developments where many renewables choices
cannot be profitable via wholesale market revenues only and
instead require out-of-market incentives such as in-feed tariffs and/or production tax credits and investment incentives.
Yet the renewable technologies then deflate spot prices
in wholesale markets, increasing revenue risk for traditional supply mix that is needed for reliability when the
renewables are intermittent. Should power market structures be adapted to provide price signals and financing for
public policy resource developments alongside providing
the necessary pricing signals for reliability and energy supply, or should the world continue with out-of-market incentives for renewables?
For certain options, we see trends of this taking place in
advanced power markets with demand response and energy
efficiency gaining access as products in capacity markets
and competing against central station generation. Also, there
are must-take feed-in tariffs that get renewables dispatched
ahead of other resources and evolving market rules for dispatch of renewables and locational marginal pricing.
Competitive power markets have fallen short of leveling
the economic playing field of cooptimizing transmission
investments and other resources. Transmission can provide
resource options to serve demand, and resource options and
demand options can reduce transmission development signals. Most power markets have yet to accomplish placing all
options on a level playing field and producing market signals
for different types of options such as transmission instead of
local resources or vice versa.

Fossil Fuels
There has been a fundamental shift in the underlying fossil
fuel markets, influencing changes in the electric sector. In

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ieee power & energy magazine	

general, fuel diversity encourages new generation entrants
when the new unit is more efficient or has cheaper fuel costs
than the system marginal unit. During peak periods, if oilfired generation is setting price, then other more efficient or
cheaper fuel units are normally profitable.
There has been a recent change in the generation fleet
in many markets with the retirement of older coal- and oilfired generators in favor of natural gas, typically the more
efficient combined-cycle generator. With a decrease in fuel
diversity, electric prices in both deregulated spot markets
and vertically integrated or regulated electric markets have
trended toward the short-run marginal costs of the combined
cycle plant fired with natural gas. This has made it more difficult for new entrants to justify the cost of building additional resources in an environment of low market prices and
how to pay for the continuing fixed costs.
As the penetration of intermittent renewable generation
increases, short-term production costs for electricity will
gradually fall below the production cost of natural gas combined-cycle plants as well. This change will require additional incentives in macroeconomic futures of renewables
plus natural-gas-fired fleets, either through the wholesale
market or utility rates for vertically integrated utilities, to
compensate future generation for the shortfalls in shortterm production costs as well as fixed charges to cover debt,
equity, and return on capital.
Fuel diversity also encourages security of generation supply in the event of a particular disruption event in another
competing fuel source. An example is the overreliance of generation on natural gas and the operating risks that then places
on the natural gas pipelines; potential outages from the natural gas pipelines impacts generation supply where dual fuel
may be relied on. With the retirement of coal and phenomena
such as polar vortex, the natural gas systems may be leaned on
more for energy security of large population centers.
Some electric systems have limited fuel supplies for their
generation fleet. For example, small island economies or
isolated grids must often rely on oil as the primary source
of fuel due to a lack of natural gas or other fuel infrastructure. In this case, these systems tend to operate relatively
inexpensive combustion turbines from an initial capital cost
or fixed cost perspective. The tradeoff however is the high
operating costs associated with fuel oil. Replacing these units
with wind or solar units becomes a economic proposal due
to the relative high capital costs for renewable technologies

july/august 2015



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - July/August 2015

IEEE Power & Energy Magazine - July/August 2015 - Cover1
IEEE Power & Energy Magazine - July/August 2015 - Cover2
IEEE Power & Energy Magazine - July/August 2015 - 1
IEEE Power & Energy Magazine - July/August 2015 - 2
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IEEE Power & Energy Magazine - July/August 2015 - 112
IEEE Power & Energy Magazine - July/August 2015 - Cover3
IEEE Power & Energy Magazine - July/August 2015 - Cover4
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