Impacts of Price Formation Efforts Considering High Renewable Penetration Levels and System Resource Adequacy Targets

Future markets with very high penetrations of renewable energy could have many low- to zero-cost periods, which would reduce energy revenues for the generation fleet. This can impact the ability of resources that are needed for long-term reliability to recover operating and capital costs. This paper explores the impact of an alternative pricing mechanism, relaxed minimum pricing, on revenue sufficiency on existing and future resource mixes, including those with high penetrations of wind and solar. This study evaluates eight scenarios encompassing three different sensitivity categories: (1) one alternative pricing mechanism versus traditional LMP pricing, (2) high versus low renewable penetration levels, and (3) using a resource mix that has been adjusted to a preset resource adequacy target versus one that contains a full set of resources. Results show renewable penetration has a greater impact on pricing and resulting profits than does the adjusted resource mix, the two pricing methods have modest variations in profits, and prices under the higher renewable penetration case were higher than under low renewable penetration. These conclusions are not intended to be direct predictions for future outcomes but rather to lead to additional research on the impacts of pricing on investment incentives and future resource adequacy targets.