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Simulating the Operation of Markets for Bulk-Power Ancillary Services

Eric Hirst and Brendan Kirby

Year: 1998
Volume: Volume19
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No3-3
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Abstract:
The U.S. Federal Energy Regulatory Commission (FERC) requires electric utilities to offer six ancillary services. Most of the tariffs filed with FERC price these services on the basis of traditional cost-of-service (embedded) costs, Because most of these services are provided by generating units, however, it should be possible to create competitive markets for them. This paper describes, the structure of, and results from, a spreadsheet model that simulates markets for seven services: losses, regulation, spinning reserve, supplemental reserve, load following, energy imbalance, and voltage support. The model also analyzes, system control, although this service will continue to be provided solely by the system operator under cost-based prices. Developing this computer model demonstrated the likely complexity of markets for energy and ancillary services. This complexity arises because these markets are highly interdependent. For example, the cost of regulation (the frequent change in generator outputs to track the minute-to-minute fluctuations in system load) depends strongly on which units, are already being dispatched to provide energy and losses, their variable costs, and their operating levels relative to their maximum and minimum loading points.



Modeling Strategic Electricity Storage: The Case of Pumped Hydro Storage in Germany

Wolf-Peter Schill and Claudia Kemfert

Year: 2011
Volume: Volume 32
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol32-No3-3
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Abstract:
We study the strategic utilization of storage in imperfect electricity markets. We apply a game-theoretic Cournot model to the German power market and analyze different counterfactual and realistic cases of pumped hydro storage. Our main finding is that both storage utilization and storage-related welfare effects depend on storage ownership and the operator's involvement in conventional generation. Strategic operators generally under-utilize owned storage capacity. Strategic storage operation may also lead to welfare losses, in particular if the total storage capacity is controlled by an oligopolistic generator that also owns conventional generation capacity. Yet in the current German situation, pumped hydro storage is not a relevant source of market power.



Is Mandating "Smart Meters" Smart?

Thomas-Olivier Leautier

Year: 2014
Volume: Volume 35
Number: Number 4
DOI: 10.5547/01956574.35.4.6
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Abstract:
The advent of "smart meters" will make possible Real Time Pricing (RTP) of electricity: customers will face and react to wholesale spot prices, thus consumption of electric power will be aligned with its opportunity cost. This article determines the marginal value of a fraction of demand (or a consumer) switching to RTP, conditional on smart meters installation. First, it establishes sufficient conditions for the marginal value of RTP to be decreasing as the fraction of customers on RTP increases. Second, it derives this marginal value for a simple yet realistic specification of demand. Finally, using data from the French power market, it estimates that, for the vast majority of residential customers whose peak demand is lower than 6 kVA, the net surplus from switching to RTP is lower than 1 €/year for low demand elasticity, 4 €/year for high demand elasticity. This finding casts a doubt on the economic value of rolling out smart meters to all residential customers, for both policy makers and power suppliers.



Short-term Hedging for an Electricity Retailer

Debbie Dupuis, Geneviève Gauthier, and Fréderic Godin

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.ddup
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Abstract:
A dynamic global hedging procedure making use of futures contracts is developed for a retailer of the electricity market facing price, load and basis risk. Statistical models reproducing stylized facts are developed for the electricity load, the day-ahead spot price and futures prices in the Nord Pool market. These models serve as input to the hedging algorithm, which also accounts for transaction fees. Back-tests with market data from 2007 to 2012 show that the global hedging procedure provides considerable risk reduction when compared to hedging benchmarks found in the literature.



Renewable Energy Technologies and Electricity Forward Market Risks

Derck Koolen, Derek Bunn, and Wolfgang Ketter

Year: 2021
Volume: Volume 42
Number: Number 4
DOI: 10.5547/01956574.42.4.dkoo
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Abstract:
We analyse how the introduction of the same renewable energy technology at different parts of the electricity supply chain has different price formation effects on wholesale power markets. We develop a multi-stage competitive equilibrium model to evaluate the effects on short-term price formation of a technology shift from conventional to both large-scale renewable energy production (e.g. wind and solar farms) and distributed renewable energy sources (e.g. rooftop solar). We find that wind and solar technologies oppositely affect the forward risk premium, and this is related to technology-varying, risk-related hedging pressures of producers and retailers. We form a multi-factor propositional framework and empirically validate the model by analyzing data from California and Britain; two markets which recently experienced significant increases of renewable power, in terms of utility scale and distributed sources. The work is innovative in showing theoretically and empirically how different types of renewable technologies influence market price formation differently. This has implications for market participants facing wholesale price risks, as well as regulators and policy-makers.



Financing Power: Impacts of Energy Policies in Changing Regulatory Environments

Nils May and Karsten Neuhoff

Year: 2021
Volume: Volume 42
Number: Number 4
DOI: 10.5547/01956574.42.4.nmay
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Abstract:
Power systems with increasing shares of wind and solar power generation have higher capital costs and lower operational costs than power systems based on fossil fuels. This increases the importance of the financing costs for total system cost. We quantify how renewable energy support policies can affect the financing costs by addressing regulatory risk and facilitating hedging. We use interview data on wind power financing costs from the EU and model how long-term contracts signed between project developers and energy suppliers impact financing costs. Regression analysis of investors' financing costs and an analytical model of off-takers financing costs reveal that between the support policies, the costs of renewable energy deployment differ by around 30 percent, but can be significantly lower or higher, depending on the financial situation of energy suppliers.



Riding the Nordic German Power-Spread: The Einar Aas Experiment

Christian-Oliver Ewald, Erik Haugom, Gudbrand Lien, Pengcheng Song, and Ståle Størdal

Year: 2022
Volume: Volume 43
Number: Number 5
DOI: 10.5547/01956574.43.5.cewa
View Abstract

Abstract:
Inspired by the initial success and eventual failure of Einar Aas' trading strategy exploiting dynamical patterns in the spread between Nordic and German electricity futures, we investigate the question whether there is evidence for possible arbitrage from engaging in both markets simultaneously and the possibility of constructing a trading strategy that ultimately beats the markets. To do this, we first assess the risk premium and relevant Sharpe values for the two markets and observe significant differences. This is followed by a discussion as to how far the different risk premia and Sharpe values alone are evidence of arbitrage. The answer is, they are not. However, we then show that an intelligently chosen long-short strategy constructed in the Einar Aas spirit can generate a positive alpha in the CAPM sense, hence providing evidence of arbitrage.





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