Wholesale Electricity Market Design with Increasing Levels of Renewable Generation: Incentivizing Flexibility in System Operations

This paper discusses the importance and challenges of incentivizing flexibility during short-term operations of the bulk power system due to the increasing variability and uncertainty from growing penetrations of variable generation (VG). Operational flexibility can refer to many aspects of a resource's capability to support the power system, such as the speed, range, and duration of power output, as well as the ability to autonomously respond to frequency or voltage changes. Inefficient utilization of existing flexibility, or unwillingness of resources to provide flexibility, can compromise system reliability by not meeting the changing net load, and it can also lead to higher costs when an inefficient use of flexibility resources occurs. There are many existing characteristics of market design that incentivize flexibility in some manner. How they incentivize the provision of flexibility as well as the level of flexibility is still debated. We explore some of these existing market designs, as well as new market mechanisms, such as pay-for-performance regulating reserve and flexible ramping products, that aim to explicitly incentivize the provision of more flexibility to the system, particularly as a result of increasing VG penetration levels.