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Standardized Contracts with Swing for the Market-Supported Procurement of Energy and Reserve: Illustrative Examples

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  • Heo, Deung-Yong
  • Tesfatsion, Leigh

Abstract

The current design of wholesale electric power markets makes it difficult to ensure appropriate compensation for many important services, such as flexibility in start-up times, ramp-rates, power dispatch levels, and duration. This study examines the possibility of facilitating appropriate compensation through the introduction of standardized energy/reserve contracts with swing (flexibility) in their contractual terms. Concrete examples are used to demonstrate how the trading of these standardized contracts can be supported by linked day-ahead and real-time markets in a manner that permits efficient real-time load balancing subject to system constraints and reserve requirements. Comparisons with existing wholesale electric power markets are given, and key policy implications are highlighted.

Suggested Citation

  • Heo, Deung-Yong & Tesfatsion, Leigh, 2013. "Standardized Contracts with Swing for the Market-Supported Procurement of Energy and Reserve: Illustrative Examples," Staff General Research Papers Archive 36747, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:36747
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    References listed on IDEAS

    as
    1. Deng, S.J. & Oren, S.S., 2006. "Electricity derivatives and risk management," Energy, Elsevier, vol. 31(6), pages 940-953.
    2. Oren, Shmuel S., 2005. "Generation Adequacy via Call Options Obligations: Safe Passage to the Promised Land," The Electricity Journal, Elsevier, vol. 18(9), pages 28-42, November.
    3. Peter Cramton & Axel Ockenfels, 2012. "Economics and Design of Capacity Markets for the Power Sector," Papers of Peter Cramton 12cocap, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    4. Bidwell, Miles, 2005. "Reliability Options: A Market-Oriented Approach to Long-Term Adequacy," The Electricity Journal, Elsevier, vol. 18(5), pages 11-25, June.
    5. Chao, Hung-Po & Wilson, Robert, 2002. "Multi-dimensional Procurement Auctions for Power Reserves: Robust Incentive-Compatible Scoring and Settlement Rules," Journal of Regulatory Economics, Springer, vol. 22(2), pages 161-183, September.
    6. Andrew N. Kleit & L. Lynne Kiesling, 2009. "Electricity Restructuring: The Texas Story," Books, American Enterprise Institute, number 50474, September.
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    Cited by:

    1. Neda Hajibandeh & Mehdi Ehsan & Soodabeh Soleymani & Miadreza Shafie-khah & João P. S. Catalão, 2017. "The Mutual Impact of Demand Response Programs and Renewable Energies: A Survey," Energies, MDPI, vol. 10(9), pages 1-18, September.

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    More about this item

    Keywords

    Electric power; standardized contracts; swing (flexibility); energy/reserve co-optimization; linked day-ahead and real-time markets; variable energy resources;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • G1 - Financial Economics - - General Financial Markets
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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