Our world is becoming more and more electric. Electric vehicles, smart devices, rooftop solar panels and even fully electric buildings are gaining ground every day. Grid experts call these âdistributed energy resources,â or DERs, and they have a bonus: they can accelerate the reliable integration of wind and solar power and increase the reliability and resilience of our power system while reducing downtime. customer invoices. The best way to unlock this potential is through wholesale electricity markets.
Yet despite their rapid growth, few DERs participate in wholesale electricity markets. Why is that? Electricity markets, originally designed for large conventional power plants, are ill-suited to fully value fast-responding, small and less predictable resources like DERs. A new publication paper by Jonathan Newman (NRDC / University of Michigan) and Pamela MacDougall (Environmental Defense Fund) explain a promising new market design that would harness the valuable benefits of DERs: An intraday electricity market.
An intraday market is exactly what it sounds like: an energy market operating several times a day that brings more efficiency to the electricity grid, more economic opportunities for owners of electric vehicles and other distributed energy resources. and accelerates the development of clean energy. These markets could boost the integration of customer-owned DERs into bulk power systems, while transforming our electricity grid to deliver clean, reliable power at a fraction of the cost of conventional resources alone.
With more variable resources like the growth of wind and solar power, grid operators are valuing resources with these attributes of âflexibilityâ. As electricity production drops at sunset, dishwashers are running, and TVs are on, versatile resources like a fleet of electric delivery vehicles (which are batteries on wheels after all) could be used. to help stabilize the electricity supply. Then, as wind power increases overnight, those batteries could be recharged and vehicles ready to go in the morning.
One of the keys to making this work is the intraday market, which would encourage more DER owners to offer their resources to the electricity markets. This would add more flexibility and reliability to the grid and facilitate higher levels of wind and solar power on a large scale, while improving the business case for the DER technologies themselves.
Today’s markets are designed for large power plants
Electricity markets in most of the United States dictate how electricity is “delivered” from power plants to homes and businesses every minute of the day. These markets operate as a form of auction, and almost all of them consist of two parts: the day-ahead market and the real-time market.
Think of today’s market as a weather forecast; reasonably accurate, but subject to change based on actual conditions 24 hours later. In the market of the day to come, resources offer, or bid for, electricity at a given price and quantity for production at a given time the next day. If they âwinâ the auction, they are guaranteed the clearing price on the day-ahead market for that hour. A day-ahead market promotes price predictability for large power plant owners and allows them to protect themselves against price volatility. It also allows the regional grid operator to âlock inâ most of the energy needed for the next day.
The real-time market is responsible for delivering electricity to homes and businesses during the day of operation, when needed. In most markets, it operates every 5 minutes a day, 24 hours a day. It is the main tool used by regional grid operators to balance the power system in real time to ensure accurate and reliable balance. between energy supply and customer demand. The real-time market balances the differences between day-ahead market commitments and real-time energy demand, taking into account the available power supply and transport congestion.
The A Day Ahead market is ill-suited to the energy owned by customers
If DERs offer network reliability and other benefits, why aren’t there more of them in wholesale markets? Because the owner of electric vehicles, rooftop solar panels and other DERs is different from the operator of a conventional power plant. Some of these technologies are weather dependent, and others are not primarily intended to generate electricity. This means that unlike traditional generation, their availability or response may not be known a day or more before they need to provide electricity. For example, an operator of an electric delivery vehicle fleet may not know until the morning of the delivery day when the individual vehicles would be connected to the grid and able to participate in real-time energy markets.
The financial consequence of this uncertainty is that anyone who sells energy in the market of the coming day and does not produce in the market in real time must pay both the price of energy in real time to cover their deficits and Other expenses.
Imagine the fleet of electric delivery trucks providing electricity in the evening when parked. They agree to provide a certain amount of energy at 6 p.m. the next day, but in real time, due to traffic, half of the trucks do not park until 8 p.m. This would mean that the fleet would both be penalized for not having achieved its target and have to pay the sometimes much higher cost of energy needed in real-time markets to close their gap during those two hours.
For this reason, many DERs avoid the day-ahead market because the financial risks are too great compared to the limited profits. As a result, more energy is purchased from the daily market than needed, the grid is less flexible than it would otherwise be, grid reliability costs are higher, and the transition to clean energy is slower.
The solution: intraday markets
Owners of these resources would have an opportunity to align their expected performance closer to shipping to market in real time, but with a certain price (similar to today’s market to come). DER owners, for example electric vehicle fleet owners or building operators, will naturally have more information about their ability to operate within hours of the market in real time. The intraday market would give them the financial motivation to participate in the market by offering the possibility of additional financially and operationally binding market regulations between the existing day ahead market and the real time market.
Intraday markets reduce forecast error
An intraday market also gives market participants better, closer to real-time information in areas such as energy demand and weather forecasts and unexpected production and transmission outages.
An intraday market is less of a leap than a small leap because it is based on the principles of existing market structures. Some electricity markets in the United States already offer âforwardâ price forecasts during the operating day, and the intraday market is based on the live and operating market. Several European markets have operated intraday markets for years, where trading volumes have grown significantly each year, reflecting the increase in both utility scale and DER scale renewables:
An intraday market only needs a few attributes to be successful:
- Gives participants the ability to hedge against volatile prices in real time when they have the data to determine their availability;
- Provides a forecast of a few hours or less to reward more accurate weather and behavioral forecasts; and
- Encourages strong participation – Higher levels of intraday market participation, notably through a diverse set of large-scale renewable and conventional resources, improve market efficiency.
Whether run continuously or at discrete intervals (e.g. 3 or 4 hours), an intraday market would take advantage of DER capacity that would otherwise be wasted, which could improve the integration of wind and solar at large. scale, improve grid reliability and reduce the costs of depending primarily on large power plants.
The Federal Energy Regulatory Commission (FERC) regulates wholesale electricity markets managed by regional grid operators. FERC has already taken innovative steps to integrate energy storage and other DERs into existing two-part energy markets. Now is the time for him and the grid operators to take the next step and consider intraday markets to unlock all the reliability and efficiency benefits of the DER grid.