How do capacity markets affect demand
flexibility: Welfare effects of dynamic capacity
pricing
Christian Gambardella, RDIII (ESED),PIK Potsdam
Michael Pahle, RDIII (ESED), PIK Potsdam
Wolf-Peter Schill, EVU, DIW Berlin
MCC-Berlin, 29.08.2014
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Content
1.
2.
3.
4.
Motivation
Method
Preliminary Results
Conclusion
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MOTIVATION
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Motivation
Research Questions
•
How to ensure both resource adequacy and dynamically
efficient deployment of flexibility options?
•
Capacity Market Design: How should consumers pay for
adequate generation capacity? What is the welfare effect
of time-variable capacity pricing?
•
Are welfare effects of dynamic pricing pronounced in a
system with large capacities of fluctuating renewables?
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METHOD
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Method: Model Basic Framework
Borenstein & Holland (2005), Hunt Alcott (2012)
• Two-Stage-Entry model of a perfectly competitive
1. Electricity wholesale market
2. Retail market
3. Forward capacity market
• Exogenous reliability constraint = exogenous capacity reserve
margin (RM);
• Discriminatory (only dispatchable generation technologies)
• Total electricity demand = Price-elastic + Price-inelastic demand
• First Stage: Capacity investment decisions
• Atomistic generators maximize annual revenues from energy (and
capacity) sales under perfect foresight
• Second Stage: Output, Pricing and consumption decisions
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Method: Model Setting Alcott (2012)
Two capacity pricing regimes
1.
Time varying cost-pass-through (DICAP):
• In addition to their electricity bill, customers pay a dynamic tariff for
capacity according to the time varying scarcity of capacity (Bindingness
of RM-Constraint);
2.
Constant cost-pass-through (CICAP): Customers face a flat tariff for
capacity on top of each unit of electricity consumed.
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Method: Main Mechanism
“Excess” capacity entry under CICAP
RM%
RM%
Price
DICAP
CICAP
SCICAP(Q)
SDICAP(Q)
P(Qpeak)
Entry
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Quantity
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Method: Main Mechanism
Effect of different capacity pricing regimes on retail prices
Price [€/MWh]
140.00
120.00
100.00
Energy & Capacity Price DICAP
Energy & Capacity Price CICAP
80.00
Energy Price
Constant Capacity Adder
60.00
Dynamic Capacity Adder
40.00
20.00
0.00
1
7
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
103
109
115
121
127
133
139
145
151
157
163
169
175
181
187
Hour
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Method: Numerical Analysis
•
•
•
•
Mixed Complementary Problem (MCP) in GAMS [NLP, work in progress];
Model calibrated to German
• clearing price and load data (2010),
• RES infeeds/availability factors (2010);
Time resolution: 6000 hours [one full year, work in progress];
Scenarios (preliminary):
Comparative
Statics (Welfare)
DICAP
RTP Share
CICAP
RTP share
High RES share
No Res
High Cost DR
Low Cost DR
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PRELIMINARY RESULTS
INCREASING RTP UNDER DICAP
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Preliminary Results: Increasing RTP Share under DICAP
Total Capacity Entry and Technology Portfolio
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Preliminary Results: Increasing RTP Share under DICAP
Total Capacity Entry and Technology Portfolio
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Preliminary Results: Increasing RTP Share under DICAP
Decreasing Reduction of Total Capacity Entry
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Preliminary Results: Increasing RTP Share under DICAP
Increasing Total Welfare (decreasingly)
1000
Total Welfare [€million/a]
900
800
700
600
500
CO2 =0
CO2 =150
400
300
200
100
0
0
0.1
0.2
0.3
0.4
0.5
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0.6
0.7
0.8
RTP share
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PRELIMINARY RESULTS
CHANGING FROM CICAP TO DICAP
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Preliminary Results: (Alcott 2012)
Capacity Entry
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Preliminary Results: Change from CICAP to DICAP
Change in Total Capacity Entry/Differed by Technology
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Preliminary Results: (Alcott 2012)
Welfare Change
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Preliminary Results: Change from CICAP to DICAP
Change in Total Welfare
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CONCLUSION
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Conclusion
• Replication of previous model results (Alcott 2012):
1. Increasing RTP share decreases total (peaker) capacity entry;
2. Increasing RTP share increases total welfare;
3. Welfare gains from changing to DICAP much higher than from
increasing RTP share (not shown here!);
•
New Results w.r.t. Low/High RES-System Comparison for DICAP:
1. Higher decrease in total capacity entry from increasing RTP shares in
low RES-Market;
2. But, (dispatchable) peaker-capacity-exit is almost the same; RES entry
partially compensates exit more than coal entry in low RES-market;
3. Welfare/Welfare gains from RTP much higher in High RES-market;
4. Changing from CICAP to DICAP reduces total & peaker capacity entry
approximately by the same amount for each RTP share;
5. But, Welfare gains from changing from CICAP to DICAP much higher
in High RES-market; Higher surplus change for RTP consumers???
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References
Alcott, H., 2012. Real-Time Pricing and Electricity Market Design. Working
Paper, NYU (March). Available at:
https://files.nyu.edu/ha32/public/research/Allcott%20-%20RealTime%20Pricing%20and%20Electricity%20Market%20Design.pdf
Borenstein, S., Holland, S., 2005. On the Efficiency of Competitive Electricity
Markets with Time-Invariant Retail Prices. RAND Journal of Economics, Vol.
36, No. 3, pages 469-493.
Borenstein, S., 2005. The Long-Run Efficiency of Real-Time Electricity Pricing.
The Energy Journal, Vol. 26., No. 3 (April), pages 93-116.
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