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Transactive Energy Techniques: Closing the Gap between Wholesale and Retail Markets
Transactive Energy Techniques: Closing the Gap between Wholesale and Retail Markets Farrokh A. Rahimi is Vice President of Market Design and Consulting at Open Access Technology International, Inc. (OATI), where he is currently involved in analysis and design of power and energy markets and Smart Grid solutions. He has a Ph.D. in Electrical Engineering from MIT, along with more than 40 years of experience in energy systems, electric power systems analysis, planning, operations, and control, with the most recent five years in the Smart Grid area. Ali Ipakchi is Vice President of Smart Grid and Green Power at OATI. He has more than 30 years of experience in the application of information technology to power systems, energy markets, and electric utility operations. He holds a Ph.D. from the University of California at Berkeley, and is co-holder of three U.S. patents on power systems applications and instrument diagnostics.
October 2012,
Although the main objective of microgrids is self-supply, with minimal or no reliance on the distribution grid, there are economic opportunities for microgrids to use transactive techniques strategically to their economic advantage while helping operational reliability of the overall system. Farrokh A. Rahimi and Ali Ipakchi
I. Introduction The electricity restructuring of the 1990s led to a paradigm shift away from cost-of-service to market-based pricing. This resulted in the emergence of markets for different electricityrelated products (energy, capacity, reserves, regulation, and transmission rights) and a variety of transactive techniques, including bidding, forward and spot market auctions, bilateral and centralized market clearing, pricing, and settlements. With
the advent of microgrids and Smart Grid technologies in recent years, another paradigm shift is on the horizon characterized by active demand-side participation in response to environmental policies and electricity market prices. Demand-side participation may be through a reduction of actual demand during high-price periods, or the use of local sources of supply (e.g., rooftop solar) to reduce net demand. A special case is the microgrid construct, where demand-side participation targets total self-supply of
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
29
[(Figure_1)TD$IG]
Figure 1: Conceptual View of Distributed Power Generation and Management
electricity, bringing its demand from the grid to zero. Microgrids typically have the capability for dispatch and control of local generation and demand resources; thus they can regulate their load on the distribution grid from otherwise normal levels to zero with appropriate economic signals. Some microgrids may also export power to the distribution grid, depending on their generation and load control capabilities.
D
emand-side participation is on the rise due a combination of factors, including economic incentives provided by regulators and electricity suppliers faced with higher costs due to environmental regulations, retirement of conventional generation, and more extensive use of variable sources of generation due to renewable portfolio standard (RPS) mandates. On-site generation, especially solar PV,
and building and facility energy management systems are also on the rise with net-zero facilities and campuses, providing microgriding capabilities for these facilities. Active demand-side management and use of distributed generation may result in a bi-directional flow of power, which in turn calls for a bidirectional information flow between power system operators and end-use consumers. This is shown schematically in Figure 1. Figure 2 shows the traditional pattern of power and information flow. The main drivers are economic and reliability objectives. The flow of power is from bulk generation resources through transmission and distribution systems to end-use consumers. The flow of information is primarily from distribution equipment to local or regional control centers. nder the new paradigm, environmental
U
[(Figure_2)TD$IG]
Figure 2: Traditional Flow of Information and Power 30
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
[(Figure_3)TD$IG]
Figure 3: Emerging New Paradigm
requirements provide additional objectives and constraints. Both flow of power and information are bi-directional as shown schematically in Figure 3. Feed-in Tariffs provide for distributed renewable resources to inject power from demand side assets. Demand-side devices are able to both send and receive information. Information to demand-side assets may include prices or control signals. he impact of demand-side participation in response to economic signals may sometimes undermine the operational reliability of the system. There are several ways to guard against this outcome: (1) Command and control by system operators; (2) Incentive compatible design of transactive energy mechanisms, and (3) Coordinated distributed controls across the system. Some demand–response programs are based on direct
T
October 2012,
load control capabilities. The customers sign up for programs based on economic incentives/ preferred rates provided by their utility company, or agents such as curtailment service providers (CSPs), and allow the utility or CSP to control their consumption (cycle their A/C or water heaters, etc.). Other demand response programs count on the voluntary response of the consumers to prices established either beforehand (e.g., critical peak pricing) or in real-time (dynamic pricing). Due to the voluntary nature of such programs, it is often difficult to fully consider such programs for grid reliability objectives. A combination of price signals and direct load control often provides the best results. The local control capabilities of microgrids, building energy management systems, communicating thermostats, plug-in electric vehicle (PEV)
chargers, etc., combined with distributed distribution automation switches and regulators, and secure two-way data communications provide the framework for full integration of demand-side capabilities with power system operations.
II. Transactive Energy Construct The idea behind so-called transactive energy techniques is to allow active demandside participation based on economic incentives, but also in line with the operational reliability of the system without resorting to command and control, except under emergency conditions or by the explicit request of the consumer.1 This requires information exchange among many entities, systems, devices, and users for
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
31
[(Figure_4)TD$IG]
Figure 4: End-to-End Transactions of Information, Prices and Power
enrollment (nomination), scheduling, monitoring, and control processes. It involves information exchange between demand response resources, intermittent renewable generation, storage devices, grid monitoring and control devices, and microgrids. It also requires information exchange among markets, utility operations, customers, and service providers. The traditional separation of bulk power and distribution operations narrows down under this new paradigm; the same is true of the gap between wholesale and retail energy markets. Figure 4 shows schematically the interactions (exchange of power, information, prices, and controls) among various business/operation layers under the new paradigm. 32
III. Extension of Transactive Techniques from Wholesale to Retail As stated earlier, a number of transactive techniques developed for bulk power system operation and wholesale markets can be extended to retail markets, microgrids, and distribution operations. These are briefly summarized below. A. Price-based resource scheduling and dispatch Scheduling and dispatch of resources based on market clearing of price-based bids and offers is prevalent in wholesale markets. With active demand-side participation, demand-side resources are now part of the
resource mix. Demand-side assets may be aggregated into virtual power plants (VPPs) and offered and scheduled/ dispatched similar to conventional resources. At the microgrid level, any excess energy can be transacted and scheduled as a price taker, offered with a strike price, or traded bilaterally. B. Congestion management Congestion management in the bulk power system is based on either transmission reservation (on OASIS) or bids and offers. Transmission constraints are mainly based on a combination of thermal, voltage, and stability limits. At the distribution level, the notion of distribution capacity reservation does not exist today. However, there is no reason why
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
transactive techniques cannot be used at distribution level, allowing for a combination of distribution transformer or feeder capacity subscription or actual bids and offers for the use of limited distribution capacity. This is particularly relevant if one considers the potential increase in PEVs. C. Transmission/distribution capacity auction Transmission Rights can be offered and secured in wholesale markets through annual and monthly auctions. Such auctions do not currently exist at the distribution level. However, it is quite conceivable to provide for the forward auction of potentially desirable distribution capacity. Due to the local nature of demand and supply for distribution capacity, such auctions may have to be
supplemented by position limits. Alternatively, a ‘‘use it or lose it’’ provision may be envisaged. D. Market-clearing and pricing Wholesale market product prices are either negotiated bilaterally or determined as part of the market-clearing process. At the retail/ distribution level prices may be established based on a number of arrangements between parties. These include (1) bilateral arrangements through price tenders (bids and offers); (2) establishment of locational marginal prices (LMPs) at the distribution level through coordinated peer-to-peer information exchange among parties; or (3) Wholesale LMPs with additional price adders for distribution losses and congestion.
IV. End-to-End Transactive Solutions Closing the Gap Between Wholesale and Retail The extension of transactive techniques to retail markets and distribution systems, provides not only new mechanisms for active participation of demand-side resources (and microgrids) in economic transactions, but also provides solutions for emerging bulk power operational problems in the face of the proliferation of variable generation resources. Increased use of variable generation induces the need for higher levels of services, such as regulation, and new products such as ramping/load following to address the variability of renewable resources. As stated earlier, demand-side assets can be aggregated into VPPs that can be scheduled and dispatched similarly to conventional
[(Figure_5)TD$IG]
Figure 5: Virtual Power Plants Closing the Gap between Retail and Wholesale Operations
October 2012,
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
33
[(Figure_6)TD$IG]
Figure 6: Demand Response and a ‘Dancing Partner’ of Variable Energy Resources
generation resources to provide services such as regulation, balancing energy, and ramping/ load following. Figure 5 shows the VPP concept schematically, bridging the gap between wholesale and retail domains.
Figure 6 schematically shows the framework of an end-to-end solution using distributed resources to address variable generation management. Demand-side capabilities, especially demand response, thermal storage, electric storage
(e.g., PEVs) and distributed generation, can provide some, and perhaps all, balancing and shaping service needed in support of variable generation. The local generation and control capabilities of microgrids can be leveraged for this purpose.
[(Figure_7)TD$IG]
Figure 7: Typical Balancing Energy Requirements of a Region with High Wind Power Generation under Hourly Scheduling Practices 34
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
[(Figure_8)TD$IG]
V. Conclusions
Figure 8: Reduction of Balancing Energy Requirements under Sub-Hourly Scheduling
T
he use of VPPs can go handin-hand with other measures adopted to address variable energy resource issues. These include FERC Order 764 on sub-hourly scheduling. Figures 7 and 8 show the impact of sub-hourly scheduling in reducing the ramping and balancing energy needs to mitigate variable generation. Figure 7 shows the levels of balancing energy requirements associated with the current hourly scheduling practice. Figure 8 shows the impact of sub-hourly scheduling on reduction of balancing energy and ramping requirements in the face of high penetration of variable energy resources. Under both hourly and subhourly scheduling, demand-side resources (including microgrids capable of two-way communication and power import/export) can be used effectively to provide the needed ramping and balancing energy needs in the
October 2012,
face of increased variable generation. n summary, provided the availability of two-way data communications and local control capabilities, demandside resources can provide shortterm balancing (and load following) capabilities. Local control and management of load, storage, and generation resources are becoming a common capability of modern buildings, campuses, and commercial and industrial facilities. Great economic, environmental, and reliability benefits can be gained when the operation of such facilities are coordinated with the bulk power and grid operation. The aggregation of such resources as virtual power plants, determination of the virtual power plant’s capabilities, e.g., capacity for increasing and decreasing load, and updating and communicating such parameters on an ongoing basis, and response to dispatch signals can provide significant value.
I
Microgrids have the ability of local control of their demand and distributed supply. Although their main objective is self-supply with minimal or no reliance on the distribution grid, there are economic opportunities for microgrids to use transactive techniques strategically to their economic advantage while helping operational reliability of the overall system. Economic opportunities include the ability to engage in emerging retail markets for energy and other tradable products. Also, a number of microgrids can collectively provide their capability to control demand and supply as virtual power plants that enable them to provide bulk power level tradable products such as ramping, balancing energy, and ancillary services. The Transactive techniques developed during the last couple of decades since the advent of Electricity Restructuring in bulk power and wholesale markets, can be used at the retail and distribution levels to augment such capabilities and align economic objectives of microgrids and other demand side participating entities with system operational reliability.&
Endnote: 1. Some consumers enrolled in specific demand response programs, may prefer to have the utility control their consumption (e.g., cycle their A/ C or water heater) during high price periods to avoid inadvertent high consumption and high bills.
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
35
October 2012,
Although the main objective of microgrids is self-supply, with minimal or no reliance on the distribution grid, there are economic opportunities for microgrids to use transactive techniques strategically to their economic advantage while helping operational reliability of the overall system. Farrokh A. Rahimi and Ali Ipakchi
I. Introduction The electricity restructuring of the 1990s led to a paradigm shift away from cost-of-service to market-based pricing. This resulted in the emergence of markets for different electricityrelated products (energy, capacity, reserves, regulation, and transmission rights) and a variety of transactive techniques, including bidding, forward and spot market auctions, bilateral and centralized market clearing, pricing, and settlements. With
the advent of microgrids and Smart Grid technologies in recent years, another paradigm shift is on the horizon characterized by active demand-side participation in response to environmental policies and electricity market prices. Demand-side participation may be through a reduction of actual demand during high-price periods, or the use of local sources of supply (e.g., rooftop solar) to reduce net demand. A special case is the microgrid construct, where demand-side participation targets total self-supply of
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
29
[(Figure_1)TD$IG]
Figure 1: Conceptual View of Distributed Power Generation and Management
electricity, bringing its demand from the grid to zero. Microgrids typically have the capability for dispatch and control of local generation and demand resources; thus they can regulate their load on the distribution grid from otherwise normal levels to zero with appropriate economic signals. Some microgrids may also export power to the distribution grid, depending on their generation and load control capabilities.
D
emand-side participation is on the rise due a combination of factors, including economic incentives provided by regulators and electricity suppliers faced with higher costs due to environmental regulations, retirement of conventional generation, and more extensive use of variable sources of generation due to renewable portfolio standard (RPS) mandates. On-site generation, especially solar PV,
and building and facility energy management systems are also on the rise with net-zero facilities and campuses, providing microgriding capabilities for these facilities. Active demand-side management and use of distributed generation may result in a bi-directional flow of power, which in turn calls for a bidirectional information flow between power system operators and end-use consumers. This is shown schematically in Figure 1. Figure 2 shows the traditional pattern of power and information flow. The main drivers are economic and reliability objectives. The flow of power is from bulk generation resources through transmission and distribution systems to end-use consumers. The flow of information is primarily from distribution equipment to local or regional control centers. nder the new paradigm, environmental
U
[(Figure_2)TD$IG]
Figure 2: Traditional Flow of Information and Power 30
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
[(Figure_3)TD$IG]
Figure 3: Emerging New Paradigm
requirements provide additional objectives and constraints. Both flow of power and information are bi-directional as shown schematically in Figure 3. Feed-in Tariffs provide for distributed renewable resources to inject power from demand side assets. Demand-side devices are able to both send and receive information. Information to demand-side assets may include prices or control signals. he impact of demand-side participation in response to economic signals may sometimes undermine the operational reliability of the system. There are several ways to guard against this outcome: (1) Command and control by system operators; (2) Incentive compatible design of transactive energy mechanisms, and (3) Coordinated distributed controls across the system. Some demand–response programs are based on direct
T
October 2012,
load control capabilities. The customers sign up for programs based on economic incentives/ preferred rates provided by their utility company, or agents such as curtailment service providers (CSPs), and allow the utility or CSP to control their consumption (cycle their A/C or water heaters, etc.). Other demand response programs count on the voluntary response of the consumers to prices established either beforehand (e.g., critical peak pricing) or in real-time (dynamic pricing). Due to the voluntary nature of such programs, it is often difficult to fully consider such programs for grid reliability objectives. A combination of price signals and direct load control often provides the best results. The local control capabilities of microgrids, building energy management systems, communicating thermostats, plug-in electric vehicle (PEV)
chargers, etc., combined with distributed distribution automation switches and regulators, and secure two-way data communications provide the framework for full integration of demand-side capabilities with power system operations.
II. Transactive Energy Construct The idea behind so-called transactive energy techniques is to allow active demandside participation based on economic incentives, but also in line with the operational reliability of the system without resorting to command and control, except under emergency conditions or by the explicit request of the consumer.1 This requires information exchange among many entities, systems, devices, and users for
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
31
[(Figure_4)TD$IG]
Figure 4: End-to-End Transactions of Information, Prices and Power
enrollment (nomination), scheduling, monitoring, and control processes. It involves information exchange between demand response resources, intermittent renewable generation, storage devices, grid monitoring and control devices, and microgrids. It also requires information exchange among markets, utility operations, customers, and service providers. The traditional separation of bulk power and distribution operations narrows down under this new paradigm; the same is true of the gap between wholesale and retail energy markets. Figure 4 shows schematically the interactions (exchange of power, information, prices, and controls) among various business/operation layers under the new paradigm. 32
III. Extension of Transactive Techniques from Wholesale to Retail As stated earlier, a number of transactive techniques developed for bulk power system operation and wholesale markets can be extended to retail markets, microgrids, and distribution operations. These are briefly summarized below. A. Price-based resource scheduling and dispatch Scheduling and dispatch of resources based on market clearing of price-based bids and offers is prevalent in wholesale markets. With active demand-side participation, demand-side resources are now part of the
resource mix. Demand-side assets may be aggregated into virtual power plants (VPPs) and offered and scheduled/ dispatched similar to conventional resources. At the microgrid level, any excess energy can be transacted and scheduled as a price taker, offered with a strike price, or traded bilaterally. B. Congestion management Congestion management in the bulk power system is based on either transmission reservation (on OASIS) or bids and offers. Transmission constraints are mainly based on a combination of thermal, voltage, and stability limits. At the distribution level, the notion of distribution capacity reservation does not exist today. However, there is no reason why
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
transactive techniques cannot be used at distribution level, allowing for a combination of distribution transformer or feeder capacity subscription or actual bids and offers for the use of limited distribution capacity. This is particularly relevant if one considers the potential increase in PEVs. C. Transmission/distribution capacity auction Transmission Rights can be offered and secured in wholesale markets through annual and monthly auctions. Such auctions do not currently exist at the distribution level. However, it is quite conceivable to provide for the forward auction of potentially desirable distribution capacity. Due to the local nature of demand and supply for distribution capacity, such auctions may have to be
supplemented by position limits. Alternatively, a ‘‘use it or lose it’’ provision may be envisaged. D. Market-clearing and pricing Wholesale market product prices are either negotiated bilaterally or determined as part of the market-clearing process. At the retail/ distribution level prices may be established based on a number of arrangements between parties. These include (1) bilateral arrangements through price tenders (bids and offers); (2) establishment of locational marginal prices (LMPs) at the distribution level through coordinated peer-to-peer information exchange among parties; or (3) Wholesale LMPs with additional price adders for distribution losses and congestion.
IV. End-to-End Transactive Solutions Closing the Gap Between Wholesale and Retail The extension of transactive techniques to retail markets and distribution systems, provides not only new mechanisms for active participation of demand-side resources (and microgrids) in economic transactions, but also provides solutions for emerging bulk power operational problems in the face of the proliferation of variable generation resources. Increased use of variable generation induces the need for higher levels of services, such as regulation, and new products such as ramping/load following to address the variability of renewable resources. As stated earlier, demand-side assets can be aggregated into VPPs that can be scheduled and dispatched similarly to conventional
[(Figure_5)TD$IG]
Figure 5: Virtual Power Plants Closing the Gap between Retail and Wholesale Operations
October 2012,
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
33
[(Figure_6)TD$IG]
Figure 6: Demand Response and a ‘Dancing Partner’ of Variable Energy Resources
generation resources to provide services such as regulation, balancing energy, and ramping/ load following. Figure 5 shows the VPP concept schematically, bridging the gap between wholesale and retail domains.
Figure 6 schematically shows the framework of an end-to-end solution using distributed resources to address variable generation management. Demand-side capabilities, especially demand response, thermal storage, electric storage
(e.g., PEVs) and distributed generation, can provide some, and perhaps all, balancing and shaping service needed in support of variable generation. The local generation and control capabilities of microgrids can be leveraged for this purpose.
[(Figure_7)TD$IG]
Figure 7: Typical Balancing Energy Requirements of a Region with High Wind Power Generation under Hourly Scheduling Practices 34
1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
The Electricity Journal
[(Figure_8)TD$IG]
V. Conclusions
Figure 8: Reduction of Balancing Energy Requirements under Sub-Hourly Scheduling
T
he use of VPPs can go handin-hand with other measures adopted to address variable energy resource issues. These include FERC Order 764 on sub-hourly scheduling. Figures 7 and 8 show the impact of sub-hourly scheduling in reducing the ramping and balancing energy needs to mitigate variable generation. Figure 7 shows the levels of balancing energy requirements associated with the current hourly scheduling practice. Figure 8 shows the impact of sub-hourly scheduling on reduction of balancing energy and ramping requirements in the face of high penetration of variable energy resources. Under both hourly and subhourly scheduling, demand-side resources (including microgrids capable of two-way communication and power import/export) can be used effectively to provide the needed ramping and balancing energy needs in the
October 2012,
face of increased variable generation. n summary, provided the availability of two-way data communications and local control capabilities, demandside resources can provide shortterm balancing (and load following) capabilities. Local control and management of load, storage, and generation resources are becoming a common capability of modern buildings, campuses, and commercial and industrial facilities. Great economic, environmental, and reliability benefits can be gained when the operation of such facilities are coordinated with the bulk power and grid operation. The aggregation of such resources as virtual power plants, determination of the virtual power plant’s capabilities, e.g., capacity for increasing and decreasing load, and updating and communicating such parameters on an ongoing basis, and response to dispatch signals can provide significant value.
I
Microgrids have the ability of local control of their demand and distributed supply. Although their main objective is self-supply with minimal or no reliance on the distribution grid, there are economic opportunities for microgrids to use transactive techniques strategically to their economic advantage while helping operational reliability of the overall system. Economic opportunities include the ability to engage in emerging retail markets for energy and other tradable products. Also, a number of microgrids can collectively provide their capability to control demand and supply as virtual power plants that enable them to provide bulk power level tradable products such as ramping, balancing energy, and ancillary services. The Transactive techniques developed during the last couple of decades since the advent of Electricity Restructuring in bulk power and wholesale markets, can be used at the retail and distribution levels to augment such capabilities and align economic objectives of microgrids and other demand side participating entities with system operational reliability.&
Endnote: 1. Some consumers enrolled in specific demand response programs, may prefer to have the utility control their consumption (e.g., cycle their A/ C or water heater) during high price periods to avoid inadvertent high consumption and high bills.
Vol. 25, Issue 8 1040-6190/$–see front matter # 2012 Elsevier Inc. All rights reserved., http://dx.doi.org/10.1016/j.tej.2012.09.016
35