8. SYSTEM INTEGRATION OF VARIABLE RENEWABLE ENERGY

Power market design to support system integration of renewables

International experience suggests that in a system with rising shares of VRE, thermal power plants may offer increasingly important flexibility services to the power system, which are however, not always rewarded in the power market design. Depending on the time horizon, such services can be rewarded by several options: as dedicated strategic reserves, ancillary services and short-term grid reserves, or via dedicated capacity remuneration mechanisms alongside the wholesale energy market.

The independent electricity system operator in Ontario, Canada, is pursuing ongoing energy market reform to better match flexibility requirements with existing system resources through the introduction of a day-ahead market and enhanced real-time unit commitment, which will complement the real-time market. Similar discussions are ongoing in Australia’s energy-only market. Other options include the introduction of scarcity pricing

– such as in Electricity Reliability Council of Texas (ERCOT) – or capacity-based remuneration mechanisms.

The adjustment of market rules and codes is needed to determine the participation of flexibility resources in the power system. For jurisdictions with wholesale energy markets, regulators and market operators collaborate to implement changes to a variety of market rules, to ensure that all sources of flexibility can bid (such as storage, aggregators and the demand side) and act as both a wholesale buyer and seller of electricity. In the United States, for example, the Federal Energy Regulatory Commission (FERC) issued Order 841 in February 2018, which directs independent system operators and regional transmission organisations to open wholesale energy, ancillary services and capacity markets to energy storage resources (FERC, 2018). Once the rules are fully implemented by the deadline of December 2019, an enormous increase is expected in the participation of batteries in electricity markets across the United States.

As illustrated in Chapter 7 on electricity, India’s power system has become more reliable following large-scale investment in capacity. The reduction in non-supplied energy is the result of the synchronisation and reduction in frequency deviation over the past decade. However, the use of this capacity remains inflexible, as the current market design does not ensure the efficient dispatch and use of the existing capacity. Of the total electricity procured in India in 2017/18, the short-term power market provided 11%. The balance was procured mainly by DISCOMs through long-term contracts and short-term intrastate transactions. But market participants are increasingly looking for short-term trades across India to optimise their portfolio. During 2009/10 to 2017/18 the volume of short-term electricity transactions increased at a higher yearly rate (9%) than gross electricity generation (6%). In the past decade, the volume traded at power exchanges has increased steadily, but is still very low (see Chapter 7 on electricity).

Experience around the world shows that a shift to more liquid and short-term markets with shorter gate closure periods helps foster the optimal dispatch and trading of renewable electricity and allow efficient use of all power system resources.

India is moving in this direction – an intraday market was specifically introduced at the power exchange to address the need to meet energy requirements closer to real time. However, the overall volume of trades is still very low at the exchanges compared to the volume of contracts in the market. The need for an efficient short-term market design

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