Monthly Archives: October 2013

A Supply/Demand Curve for “Grid Flexibility” Products – The Price of “Optionality”

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Dom Geraghty


Operators of the power system are facing a paradox – on the one hand, the grid is becoming smarter which gives operators an extra “edge” in managing the grid, but, on the other hand, policy changes associated with the promotion of renewable power and customer choice are creating increased uncertainty in both supply and demand. Yet operators must still deliver power with an average service reliability of 3 x 9s (the LOLP or LOEP target in system planning models), while also maintaining short-term stability and security of supply, even as the inertia of the system decreases.

Supply Uncertainty

Increases in supply uncertainties are caused by the steadily increasing penetration of renewable energy production as a result of RPS mandates. Delivery uncertainties are on the rise due to lagging transmission construction leading to congestion.

Demand Uncertainty

Pole w/Wires 150x150Demand uncertainty is increasing as self-optimizing end-users install distributed energy and storage, smart appliances that use M2M controls and chargers for EVs, and take advantage of time-differentiated pricing.

Electricity dispatch is based on minute-to-minute forecasting and clearing of customers’ “net load”. That is, the end-use customer’s load minus any local power generation or discharging of energy storage devices.

But the utility or system operator usually does not have visibility into, or interconnection with, this generation behind the meter – creating demand uncertainty and an inability to take advantage of the distributed generation in reliability emergencies.

Price Volatility and Price Elasticity-Created Uncertainty

The market as structured also creates short-term operational challenges for the grid operators. Prices in wholesale markets can change rapidly over short periods of time, e.g., 15 minutes, leading to sharp changes in the availability of supply and in the level of demand, driven by price elasticity. These impacts of price volatility, combined with the increased percentage of intermittent resources, creates the need for additional fast-acting reserves to maintain the grid operator’s target service reliability level.

Managing Uncertainty

How can the power system operator cope with the increased physical- and market-driven uncertainties?

We suggest that a “least cost” coping approach can consist of a combination of (1) investments in the “smart grid” (smart sensors, advanced controls, data analytics), and (2) investments in flexibility products (to be defined below). Continue reading