ESAP Expert Workshop I: Scarcity and Flexibility Pricing

Background

Scarcity and flexibility pricing are promising fields for the improvement of electricity markets. Electricity wholesale pricing during situations of capacity shortage is a classical topic of electricity market design. While over the last few years policy makers in many jurisdictions have mainly focused on the development of capacity markets, efficient energy prices during tight market conditions remains a key ingredient to send the right signals both for new investments and for economic demand response. The large scale deployment of wind and solar power will impact the frequency and size of price spikes, although exactly how and to what extent remains unclear.

Integrating high shares of renewables also requires tapping into the flexibility potential of electricity systems. New market arrangements have been tested and introduced in isolation in many balancing areas. After more than ten years of market design experience in many competitive energy markets, lessons can be learned on how to design short term energy markets efficiently.

Demand response can help reduce demand during peak hours and provide the flexibility needed to accommodate high shares of wind and solar power. The rapid scaling up of demand response is being enabled by the internet, smart meters and automation that lowers its costs. Many governments are pursuing active policies to promote demand response, using a broad range of instrument.

The expert workshops will cover the following questions: 

• How should markets be designed in order to yield efficient prices during scarcity conditions (when there is a shortage of operating reserves) and in order to ensure overall system flexibility?
• Is there a need to support the deployment of demand response, and, if so, how this should be done? 

Programme and Presentations

Welcome and opening remarks, Keisuke Sadamori, Director, Energy Markets and Security, IEA

Session 1: Polar vortex and extreme heat: how did the market perform?

All electricity markets periodically face tight system conditions and price spikes. Will peak load become more extreme due to climate change? What impact will increasing shares of renewables have on price spikes? Topics to be discussed include: increasing price caps – convergence between day ahead and real-time/balancing prices – operating reserve pricing.

Moderator: Manuel Baritaud, Senior Energy Analyst, IEA

•The Impact of the January 2014 Polar Vortex
  Craig Glazer, Vice President-Federal Government Policy, PJM
•Price spikes: the traders perspective
  Nicolas Barbannaud, Electricity Committee EFET, EDF Trading
•Market power during periods of scarcity
  Arnie Quinn, Director Division of Economic and Technical Analysis, FERC

Session 2 : Options to improve scarcity pricing

What reserve margins are needed to factor in the uncertainty of extreme weather events associated with climate change, or the uncertainty of power plant retirements? Topics to be discussed include: scarcity pricing for operating reserves – capacity markets and proposed options to address the generation adequacy challenge.

Moderator: Jean-Michel Glachant, Director, Florence School of Regulation

• Peak Prices in Australia
   Neville Henderson, Commissioner, Australian Energy Market Commission
• Market design implications of resource adequacy requirements 
   Hannes Pfeifenberger, Principal, The Brattle Group

Session 3: Markets for flexibility

This session will present ongoing initiatives to increase the flexibility potential in order to accommodate increasing shares of renewables. Topics to be discussed include: 5 minute dispatch – gate closure – new flexibility products.

Moderator: Stephen Woodhouse, Director, Poyry

• Pricing the value of flexibility. Findings from "The Power of Transformation"
   Simon Mueller, Energy Analyst, IEA
• FERC recent changes to market rules to accommodate increasing levels of renewable resources
   Lola Infante, Director, Generation Fuels and Market Analysis, Edison Electric Institute
• Energy Balancing Changes in the UK 
   Mike Edgar, Contract Services Manager UKT Market Operation, National Grid
• A dynamic renewables surcharge - inducing stronger market signals to reap the flexibility potential of demand
   Peter Stratmann, Head of section Renewable Energy, BNetzA

Session 4:  Smart renewables

The need for flexibility often starts with the assumption that renewable generation can not be controlled. This is only partially true. This session will look at experiences to make renewable energy production smarter.

Moderator: Stefan Ulreich, Political and Regulatory Affairs, EON

• Benefits from participation of renewables in system balancing
   Jorge Hidalgo, Control Center for Renewable Energy, Red Electrica de Espana
• Investing in smart renewables
   Felice Egidi, Head of the Regulatory Affairs Department, Enel Green Power
• System friendly wind turbines (presentation not available for distribution)
   Sofia Sauvageot, Product Leader Power Conversion, GE & Stephan Wachtel, GE Energy consultant