IEEE Power & Energy Magazine - November/December 2015 - 65

to operate the system, and energy prices in the market should for instance, long-run resource adequacy is often viewed as a
usually be relatively stable. Energy or reserve shortages may state responsibility, while energy markets are in the domain
cause higher prices in the energy market, and these prices of ISOs and generally subject to federal oversight. This has
significantly complicated the coordination of system planning,
will signal the need for investment.
Some market designers view short- and long-term deci- and the expansion and operation of real-time markets may be
sions as requiring different markets, while others believe further complicated by new developments such as the U.S.
that price signals in the energy market should suffice to iden- Clean Power Plan, which might be implemented by individual
tify and fund the development of needed resources in the states due to the lack of federal legislation to set a national
planning time frame. This is a topic of much debate, so let's price on carbon. On this basis, where the market is working
effectively at present, the most sensible approach may be to
take a look at these alternative viewpoints in more detail.
Energy markets typically define a price cap to protect cautiously monitor the existing market and address issues as
customers from extreme prices and because consumers are they arise.
typically not participating in setting the price. Ideally, this
price cap would reflect the value of lost load to customers. Distributed Generation and
A price this high, however, is often not politically attractive, Demand-Side Participation
so lower market price caps may be established, as during So far, we've discussed the market design impacts from the
the 2001 California crisis. Tight price caps together with the introduction of utility-scale wind and solar power plants
uncertainty of how often scarcity pricing may occur make it connected to the bulk power system. Now we turn to the
challenging to build new generators. To address this, many issue of distributed generation, such as distributed PVs, and
regions have established additional market products for the growing role of demand-side participation as an active
long-term capacity, as we discussed above.
part of the power system.
The introduction of renewable technologies into this
In most power systems today, distributed solar PV instaldebate does not change the fundamental underlying issues, lations are connected through net metering or fixed tariff
but it is likely to exacerbate many of them. In markets where agreements. System operators generally have no real-time
the only payments come from the energy markets, either the visibility or control of this generation, so it is treated more as
price cap or the frequency of scarcity periods may need to negative load than as generation. New standards may require
increase to maintain sufficient aggregate revenues.
distributed PV solar systems to ride through voltage and freScarcity pricing can be implemented in various ways. One quency dips, but it is currently difficult (from a political and
way is to lift the energy price cap.
At present, the Australian NEM
operates successfully with a market
price cap of AUS$13,500/MWh,
but preliminary modeling suggests
this may need to increase to as high
as AUS$80,000/MWh to support a
100% renewable market and mainEnergy Market
Energy-Only
and Capacity
tain the same reliability standard.
Long-Term
Market
Mechanism
Contracts
Another way is to introduce penalties or demand curves for operating
Capability Markets
Strategic Reserve
reserves that raise energy prices in
Ensure Remuneration
Demand-Side
cooptimized markets when there
of System Services
Window
are capacity shortfalls. In ERCOT, a
Demand-Side
Grid Code
Programs
dynamic operating reserve demand
Requirements
curve was recently implemented,
which provides a price adder to the
Cost-Based
"Pure" Paradigm
Regulation
energy price based on the loss of
Typical Reality
load probability throughout the day.
In the end, political and institutional factors may be as important
to market design as engineering and
economics. As shown in Figure 2,
we do not expect market designs to
be identical, and practical realities figure 2. Different market designs can work, and markets will use a variety of
make it unrealistic to achieve per- market designs and products. (Courtesy of IEA-RETD from the RES-E-Next report;
fect markets. In the United States, see the "For Further Readings" section.)
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - November/December 2015

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