Hypothesis and Overall Approach

Today in certain countries like Denmark, as well in a foreseeable future for many others, renewable energy generation will comprise one of the main energy sources in the market, as motivated by mitigation of climate change and security of supply. It ought to become the new driver of electricity markets and power systems operation, supported by other generation units and additional flexibility enabled on the demand side, potentially also accounting for different forms of storage (e.g. electrical, but potentially also water and heat) as a buffer.The central hypothesis of the ‘5s’ project is that such a rapid and radical evolution requires the introduction of new paradigms in market design and operation, allowing for an optimal use of renewable energy sources in power systems operations, maximizing

  •  social welfare without compromising system’s security and future security of supplyconsidering centralized vs. distributed approaches to market operation and power systems management, to alleviate the need for ever-increasing transmission capacities.
  •  It is advocated that forward (e.g. day-ahead) and real-time markets should be jointly cleared so as to put the physical power system and its assets in a state where they may optimally react to the range of envisaged outcomes. Indeed, the so-called coupled and coordinated clearing may allow for an optimal allocation of capacities between forward and real-time markets with different properties in terms of revenue reconciliation. Such a philosophy of market design will be extended so as to co-optimize energy dispatch and a range of necessary ancillary services.

For these various market designs and mechanisms to be of practical value, proposing approaches that may allow scaling them up to the level of real power systems (instead of the test systems often used by researchers) is of utmost importance here.
This proposal and development of market designs and mechanisms should be performed while respecting the technical and cultural context of such markets and underlying power systems. As a basis example, fundamental conceptual differences exist between European and American electricity markets: the former one uses zonal pricing while the latter one employs Locational Marginal Pricing (LMP). In addition, European electricity markets only consider gathering and sorting offers and bids, the various participants having to decide themselves on their own dispatch as a consequence of market clearing. In contrast in the US, market clearing mechanisms centralize all information on participating units, while determining and communicating their energy dispatch through market-clearing. Another important contextual aspect relates to the hierarchization of power system operations (from trans-continental to the distribution level), which may also call for a hierarchization of electricity markets linked by operational constraints. This is also relevant in the context of the coupling of electricity markets such as that currently taking place at the European level, under the guidance of ENTSO-E.

Overall, this type of work should be put into perspective with actual power system operations and incentives for investment, also considering environmental indicators (e.g. CO2 emissions) and the increase in social welfare more generally. On the more societal and longer-term point of view, this research should assess whether or not markets have proper instruments to diversify the risk originating from new production and consumption means, while improving competitiveness of renewable energy sources and providing appropriate incentives for system flexibility. Ensuring generation adequacy in evolving markets may be a challenge.
Therefore when considering future potential setups for future electricity markets, it will be aimed at characterizing the types of equilibria and market dynamics they lead to. Especially, the various resulting incentives may or may not define a healthy environment for competitiveness and investment in appropriate technologies. In parallel we will verify that the increase in social welfare brought in by the increased penetration of renewable energy, as well as better market design and operation, is shared in a fair manner between the various actors of the markets and maybe most importantly with the final consumers.