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ID: 177111

Dynamic operating reserve procurement improves scarcity pricing in PJM / Lavin, Luke

Lavin, Luke	Journal Article
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Summary/Abstract

Competitive electricity markets can procure reserve generation through a market in which the demand for reserves is administratively established. A downward sloping or stepped administrative demand curve is commonly termed an operating reserve demand curve (ORDC). We propose a dynamic formulation of an ORDC with generator forced outage probabilities conditional on ambient temperature to implement scarcity pricing in a wholesale electricity market. This formulation improves on common existing methods used by wholesale market operators to articulate ORDCs by explicitly accounting for a large source of observed variability in generator forced outages, whereby for a fixed load, more reserves are required during times of extreme heat and cold to maintain a constant risk of reserve shortage. Such a dynamic ORDC increases social welfare by $17.1 million compared to current practice in the PJM Interconnection during a high load week in a welfare-maximizing electricity market with co-optimized procurement of energy and reserves. A dynamic ORDC increases reserve prices under scarcity conditions, but has minimal effects on total market payments. The results are directly relevant to the modeled two-settlement electricity market in PJM, which is currently undergoing enhancements to its ORDC.

Key Words

Electricity Markets ; Operating Reserves ; Operating Reserve Demand Curve ; Correlated Failures ; Generating Availability Data System (GADS) ; Scarcity Pricing

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ID: 180165

Importance of peak pricing in realizing system benefits from distributed storage / Lavin, Luke; Apt, Jay

Apt, Jay	Journal Article
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Summary/Abstract

A fundamental policy question for distributed energy resources (DER) is whether they create system benefits shared by all utility customers in addition to being profitable for the installing customer. This question has received considerable attention in “value of DER” and net metering reform proceedings for behind-the-meter solar photovoltaics in recent years. Commercial customer-sited lithium-ion batteries with a primary use case of demand charge management are forecast to greatly increase in the coming decade due to falling storage costs, making comparison of their customer and system benefits a timely topic in DER valuation. We conduct an overview of the system benefits of standalone commercial customer-sited storage on United States’ electric tariffs and find system benefits will not be realized for many standalone commercial customer-sited storage installations in the absence of incentives for storage dispatch during the top 50–100 annual hours that drive grid infrastructure investment. Regulatory implementation of default peak pricing during a small subset of annual hours for customer-sited storage can realize additional system benefits and offer Pareto improvement. Additional transparency in regulatory estimates of these system benefits helps catalyze longer-term visions for increased competition at the retail level using DERs.

Key Words

Avoided Costs ; Critical Peak Pricing ; Demand Charges

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