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Exploring the Profitability and Efficiency of Variable Renewable Energy in Spot Electricity Market: Uncovering the Locational Price Disadvantages

Author

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  • Ruhang Xu

    (School of Economics and Management, North China Electric Power University, Changping, Beijing 102206, China
    Beijing Key Laboratory of New Energy and Low-Carbon Development, North China Electric Power University, Changping, Beijing 102206, China)

  • Zhilin Liu

    (Beijing Engineering Consulting Company, Chaoyang, Beijing 100124, China)

  • Zhuangzhuang Yu

    (School of Economics and Management, North China Electric Power University, Changping, Beijing 102206, China
    State Grid Corporation of China, Xicheng, Beijing 100031, China)

Abstract

While variable renewable energy (VRE) has been developed for decades, VRE market participation is developing relatively slowly, despite the potential economic efficiency it may bring. This paper tries to specify the efficiency of VRE in a deregulated pool-based electricity market. Based on standard pool-based market design, this paper built a direct current optimal power flow (DC-OPF) based simplified 2-settlement spot electricity market model conjugating electricity and ancillary service clearing. To address the outcomes of the imperfect market in the real world, this paper studied the consequences brought by agents’ learning and strategic behaviors. Simulations under different ancillary service levels and reliability cost levels are carried out. The results show that VRE may be unprofitable in the market, especially when learning and strategic behavior is considered. Learning and strategic market behavior will also hamper the role of VRE as a “better” energy source. This paper shows and proves a locational marginal price (LMP) disadvantage phenomenon, which will lead to low profitability of VRE. Three major suggestions are given based on the results.

Suggested Citation

  • Ruhang Xu & Zhilin Liu & Zhuangzhuang Yu, 2019. "Exploring the Profitability and Efficiency of Variable Renewable Energy in Spot Electricity Market: Uncovering the Locational Price Disadvantages," Energies, MDPI, vol. 12(14), pages 1-30, July.
    • Handle: RePEc:gam:jeners:v:12:y:2019:i:14:p:2820-:d:250580
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