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Addressing Imbalance Risk with Reserves and Flexibility Options: An ERCOT-like Case Study

Elina Spyrou, Robin Hytowitz, Benjamin F. Hobbs, Ibrahim Krad, Liping Li, Mengmeng Cai, Michael Blonsky

Abstract

As the role of variable renewables in electricity markets expands, new market products help system operators manage imbalances caused by uncertainty and variability. Whereas work in the last decade has focused on constructing demand curves for central procurement of those products, little attention has been paid to designing their settlement scheme and understanding the connections between the economic value of these products, the schedule of variable resources, and the cost of flexibility. In this article, we compare a new product called Flexibility Options, which addresses these gaps, with a traditional reserve product using a case study similar to the 2019 Texas (ERCOT) system. Our findings suggest that both products are equally effective in managing imbalances, but Flexibility Options have superior risk management properties and keep the system operator revenue adequate.

Addressing Imbalance Risk with Reserves and Flexibility Options: An ERCOT-like Case Study

Abstract

As the role of variable renewables in electricity markets expands, new market products help system operators manage imbalances caused by uncertainty and variability. Whereas work in the last decade has focused on constructing demand curves for central procurement of those products, little attention has been paid to designing their settlement scheme and understanding the connections between the economic value of these products, the schedule of variable resources, and the cost of flexibility. In this article, we compare a new product called Flexibility Options, which addresses these gaps, with a traditional reserve product using a case study similar to the 2019 Texas (ERCOT) system. Our findings suggest that both products are equally effective in managing imbalances, but Flexibility Options have superior risk management properties and keep the system operator revenue adequate.

Paper Structure

This paper contains 18 sections, 19 equations, 14 figures, 4 tables.

Table of Contents

  1. Introduction
  2. Background: IR and FO Products
  3. Methodology
  4. Case study
  5. Test System
  6. Product Parameters
  7. Results
  8. System Operator
  9. System Costs
  10. Revenue Adequacy
  11. Flexibility Price Signals
  12. Suppliers of Flexibility
  13. Supplier Mix
  14. Financial Incentives
  15. Resources introducing DA-RT Imbalances
  16. ...and 3 more sections

Figures (14)

  • Figure 1: FESTIV flowchart in this study.
  • Figure 2: Supply curve excluding wind and solar with cost $\leq$ 250 $/MWh (left) and $\geq$ 250 $/MWh (right).
  • Figure 3: (Left) Width of [5,95] prediction interval as a percentage of median net load. (Right) Observed rank vs forecasted percentile of net load.
  • Figure 4: Net Load Forecast error
  • Figure 5: Relative size of FO tiers/steps in IR demand curve. Each boxplot includes the width of respective prediction intervals normalized by the width of the [5,95] prediction interval.
  • ...and 9 more figures