Capacity adequacy assessment and pricing for power systems with high penetration of renewable energy

Renewable energy is gradually becoming the primary energy source in power systems with its steadily increasing penetration. However, the output characteristics of renewable energy and retirement trends for conventional units (i.e., thermal power plants) increase the potential power shortage risk. In this context, market operators and regulators need to establish effective market mechanisms to ensure generation capacity adequacy, which means such mechanisms should effectively incentivize conventional units to transition from primary energy suppliers to capacity providers. To this end, this paper proposes a novel capacity adequacy assessment and pricing approach, which combines the idea of the spot market and the capacity market. The established model effectively transfers generation capacity requirements and price signals from the spot market to forward capacity estimates by carefully accounting for the physical constraints in real-time operations. Specifically, first, two types of indicators are defined to quantify generation and transmission capacity which are the minimum necessary capacities to meet the system requirements; Second, a capacity assessment model based on a long-term unit commitment problem is formulated to determine these indicators. Then, a new capacity pricing approach grounded in marginal price theory is established to provide stable long-term price signals, which have the potential to incentivize investment in reliable generation and transmission capacity given appropriate market conditions. Finally, a modified parallel horizon splitting (MPHS) method is developed to enhance computational efficiency. Numerical tests indicate that the demand for dispatchable capacity (such as thermal units) to ensure stable operation increases with the penetration level of renewable energy.