It’s sometimes said that renewables are ‘inflexible’, referring to the fact that wind and solar photovoltaics are inherently variable and therefore do not provide firm capacity. This is a misnomer.
‘Flexibility’ is probably best described as the ability of a generator to respond to sudden rapid changes, and operate at a wide range of levels. This means things like:
1. Fast ramp rates (both up and down)
2. Short start-up and shut-down times
3. Low minimum loads
By these measures, the variable renewable technologies are actually particularly flexible. They feature very fast ramp rates, being able to ramp rapidly to any level between zero and their maximum available capacity. They don’t have start-up or shut-down times to speak of, and their minimum loads are zero.
These features can provide a lot of flexibility to the fingertips of system operators, providing a big benefit in helping to manage the system effectively.
The variability of wind and solar photovoltaics has nothing to do with ‘inflexibility’, it’s really about their contribution of firm capacity towards meeting system reliability. The distinction really matters, because these things are managed in very different ways in the market.
Some level of flexibility has always been required in power systems, to ensure matching of supply against demand that varies significantly over time. Generators need to ramp up in the morning, ramp down at night, match the constant minute to minute variations in demand, and respond rapidly in the event of a sudden outage (either from a generator or a large load).
In the past the aggregate flexibility available in the system has always far exceeded the requirement, and so the provision of ‘flexibility services’ to the system has largely been of low value.
In future, with more variable generators entering, more flexibility will undoubtedly be required from the power system. The question therefore arises, ‘how should we incentivise generators to provide sufficient flexibility to the system?’
One possibility would be to introduce a penalty fee payable by inflexible generators. This would be broadly similar to the suggestion that wind farms should be charged a penalty fee for not providing firm capacity to the system. Neither idea really makes a lot of sense – the inflexible generators aren’t causing the need for flexibility, just as wind generators aren’t causing the need for firm capacity. In either case they are just failing to meet a need. In a well-designed system you would simply reward those generators that do meet the need, and be indifferent to those that don’t.
In our present market (the NEM), there are already a range of incentives to provide flexibility. These are provided through a sophisticated Frequency Control Ancillary Services (FCAS) market, a fast spot market (featuring 5 minute intervals), a high Market Price Cap ($12,900/MWh), and a low Market Price Floor (-$1000/MWh). These reward each of the flexibility services in the following ways:
1. Fast ramp rates – Generators with fast ramp rates are able to provide regulation and contingency services in the ancillary services markets (providing an additional revenue stream). They are also rewarded for their rapid response to spot market volatility. In a competitive market it is in a generator’s interest to ramp up as quickly as possible when prices suddenly go high, and to ramp down as quickly as possible when prices suddenly go low.
2. Short start-up and shut-down times – Generators with short start-up and shut-down times are rewarded by more accurate pre-dispatch forecasts being available at the time when they need to make those decisions. In a system with significant variable generation the forecasts will improve substantially when made closer to real time. This allows better responses to the actual prices that eventuate, maximising profitability.
3. Low minimum loads – Generators with low minimum loads are rewarded by being able to minimise their operation when prices are below their short run marginal cost, whilst avoiding cycling costs (costs associated with a shut-down/start-up cycle). This is particularly valuable when system prices become negative.
It is unclear whether these incentives for flexibility will be sufficient in the future. Several markets in the US (notably the California ISO and the MidWest ISO) are in the process of developing specific mechanisms to reward flexibility, beyond the usual ancillary services and spot market incentives.
Other markets, such as the Texas ERCOT system, have decided that the existing incentives are sufficient. It’s unclear whether these differences are related to different market design, different technical system capability, different assessment approach or simply a difference of opinion.
It seems likely that rapid changes in price and the occurrence of negative prices will both increase in future, increasing the rewards for flexible generators. It’s also likely that prices in the regulation ancillary services market will increase as more variable generation enters the system, increasing the demand for regulation. Prices in this market are very low at the moment (due to oversupply of flexibility), but as they increase it will at some point become cost effective for the variable generators to provide these services themselves. With their rapid responses, variable renewables are likely to be technically superior providers.
Wind turbine manufacturers have already released models that can provide regulation, and these are currently being independently tested and verified by research institutions. Thus, in the future, variable generators may provide the flexibility to manage their own variability.
Dr Jenny Riesz is Principal Energy Market Analyst with Riesz Consulting, and a researcher with the Centre for Energy and Environmental Markets at the University of NSW.