The performance of renewable-rich wholesale electricity markets with significant energy storage and flexibility

Abstract

This work investigates the technical and financial performance of deeply decarbonised wholesale electricity markets with uncertain variable renewable generation (VRG), uncertain demand and different types of flexibility. It first finds that different combinations of power reserves (i.e. power generation capacity) and energy reserves (i.e. energy storage capacity), can achieve adequate system reliability at similar total costs. However, use of only energy reserves never achieved adequate system reliability, and this looks to be a fundamental challenge to the reliability of systems with only energy reserves but no power reserves. Two independent aspects of wholesale market operations are then found to be the main determinants of system reliability: the length of the unit commitment (UC) schedule prior to dispatch and the degree of operational uncertainty of VRG during dispatch.

It is then argued that reliable, least cost and efficient wholesale markets with dominant renewables need acceptably low levels of operational uncertainty of VRG, sufficient flexibility in generation and/or demand, and UC schedules that are significantly longer than the longest energy storage durations present. Rather than suggesting that innovation in market design is required, these results therefore suggest that different technical approaches should have important, future roles. These include mitigating the operational uncertainty of VRG via several potential means as well as flexible generation, battery storage of a few hours duration and flexible electrolysis. Long duration energy storage, however, may challenge market performance and all participants’ returns even if it supports system reliability.