IEEE Power & Energy Magazine - November/December 2021 - 42

In principle, market operators could manage risk
at a system level and compensate market participants
according to their performance.
changing value propositions. The existing models were developed
for conventional resources with fairly static marginal
fuel costs and operational strategies. The owner/operator of
a hybrid resource may use an optimized strategy that incorporates
perceptions of how and when to use its stored
energy, its confidence in its renewable generation forecast,
its battery degradation costs, and its acceptable risk around
the products that it offers. Similarly, for longer-term system
planning, existing models tend to view current and planned
resources as relatively static components. The models
may not realize that in response to price signals reflecting
changing system needs, some hybrid resources will react
within weeks with enhanced operating strategies, and in
some cases, internal equipment could be upgraded within
months. Even so, the growing fleet of these new resources
is likely to provide advantages to the power system. Society
has seen plasticity emerge in other industries, with the
inevitable progression toward more sophisticated digital
devices, such as smartphones. These changes are often disruptive
to the status quo but lead to many benefits for users
and customers.
Structural Considerations:
Market Design Implications
The previous section highlighted the ability of hybrid resources
to meet the performance standard set by traditional resources.
The flexible nature of hybrid resources, however, suggests
that they could, in many cases, exceed that standard. This
capability raises questions for market design. Would a higher
level of performance be valuable to the system, and if so, do
existing market products, price formation policies, and cost
allocation mechanisms offer a way to capture that value?
Should market participation standards change with the ability
to hybridize?
In practice, current market processes may lead to the
undercompensation of flexible resources in several ways.
For example, U.S. power markets have implemented a
variety of uplift and enhanced price formation strategies
to accommodate the " three-part offers " (energy, start-up
costs, and no-load costs) of most thermal generators. Utilities
historically used three-part offers to make commitments
and dispatch decisions, and U.S. electricity markets
adopted the approach to help ensure efficient production
decisions. Uplift payments, however, can act as an
implicit subsidy for inflexibility, while enhanced pricing
schemes may suppress the cost volatility on which flexible
resources thrive.
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ieee power & energy magazine
Hybrid resources that incorporate a significant battery
storage component do not have the operating constraints
common to many conventional resources since they have
fast, accurate, controllable, continuous ramping, down to
a minimum output of 0 MW with no start-up time, minimum
run time, and minimum downtime. They can make
fully convex one-part offers without advance commitment
requirements, uplift payments, and other constraints. As
hybrid resources increase their penetration in power systems,
market designers may need to reevaluate pricing
and payment schemes that were designed to support the
efficient use of conventional resources. The assumptions
used to craft such policies may have the unintended consequence
of degrading long-run efficiency for more flexible
hybrid resources.
Another open topic of discussion is whether it is sufficient
for hybrid resources to join a market with an existing
participation model (emulating a conventional resource
or using an existing RE participation model) or whether
a new model should be developed for them. This will
depend on whether the parameters and options of an existing
model are sufficient to enable a hybrid resource to
operate effectively and what inefficiencies are otherwise
incurred by emulating a conventional resource. This raises
some related questions: Do existing forward markets, conducted
by the ISO or otherwise, sufficiently enable market
participants to hedge real-time price risk? Does the speed
and flexibility of newer resources suggest that even 5-min
real-time markets do not have sufficient granularity? The
hourly granularity of the day-ahead market leaves shape
risk (how closely the energy blocks map to the actual
demand curve) relative to the 5-min market, and the 5-min
real-time market leaves shape risk that falls to regulation
ancillary services. Given the flexibility, accuracy, and
speed of hybrid resources and storage, will this still be the
best approach?
Finally, as with all resources for which opportunity costs
play a large part in offer strategies, the growth of hybrid
resources poses a challenge for traditional methods of market
power mitigation. Compared to the simplicity of auditing
fuel prices (the primary component of cost-based offers for
thermal generators), assessing efficient cost-based offers for
a hybrid resource will be more difficult. This is due to its
dependence on the distinctive capabilities, beliefs, and risk
preferences of the owner, all of which may be reflected to
various degrees in sophisticated (perhaps artificial intelligence-enhanced)
dispatch algorithms.
november/december 2021
IEEE Power & Energy Magazine - November/December 2021

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