Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources
2. Literature Review
2.1. Market Objectives and Market Design Implementation
2.2. Technological Developments Have Led to Concerns over the Efficacy of the Electricity Market Design
2.2.2. Potential Benefits to Be Exploited through Electricity Market Design Re-Configuration
- Reducing balancing costs through the displacement of more expensive, and carbon-intensive forms of flexibility such as an open-cycle gas turbine .
- Network operators, through schemes such as active network management, can defer costly network reinforcements by utilising consumer flexibility to minimise the breaching of network operational limits [14,15,16,17,18].
- Locating flexible services near to, or co-locating with, VRE generation can mitigate the extent of price cannibalisation by absorbing excess VRE and reinjecting at times of increased demand. This reinjection will likely coincide with higher power prices, resulting in a more profitable capture rate .
- This has an added benefit of reducing network constraints via the removal of the excess electrons on the network. By storing, and not curtailing this zero-carbon generation, when reinjected this removes the need for carbon-intensive technologies which may have been otherwise required .
- Regional geographies will become increasingly important under a decentralised electricity system. Local balancing can be facilitated through the deployment of generation and demand in proximity on the network. This removes the distance that electrons would otherwise travel and possibly breach network capacity in doing so, thus leading to a more efficient use of the network [9,20,21,45,78,81].
2.3. The Distribution Gap
2.3.2. Pursuing a Smart Energy System Approach
3.1. Stage 1: Review of Previously Proposed Market Designs
3.2. Stage 2: Modularisation of GB’s Electricity Market Design
3.3. Stage 3: Construction of a Strawman Design
- Augmentation: Introducing a new module to an existing system which embodies new concepts, addressing a specific need currently not catered for.
- Layering: The process of new rules being attached to an existing module, to provide an additional function.
- Exclusion: Removing a module which is no longer required.
- Rectified an issue in line with the objectives of this design,
- Had any knock-on impacts on fellow modules or the coordination between them, and
- Could be implemented alongside other proposed solutions.
- This created the strawman design which then underwent evaluation (Section 3.4).
3.4. Stage 4: Appraisal and the Validation of the Strawman Design
4. The Market Design
4.2. Overview of the Design
- Module 1: The DSP pool market,
- Module 2: The DSP ancillary market,
- Module 3: The DSP balancing market,
- Module 4: The wholesale market,
- Module 5: The independent integrated system operator (IISO) ancillary market, and
- Module 6: The IISO balancing market.
4.3. The Electricity Market Design
4.3.1. Regulatory Changes
Priority Dispatch for VRE
4.4. The DSP
4.4.1. Module 1: The DSP Pay-As-Clear Pool Module
4.4.2. Operating within Module 1
4.4.3. Module 2: The DSP Ancillary Market
- Associated carbon,
- The distance of the technology from load, and
- Any arising network issues from such a dispatch and the cost of procurement.
4.4.4. Module 3: The DSP Balancing Market
4.5. Module 4: The Wholesale Market
4.6. The IISO
4.6.1. Module 5: The IISO Ancillary Market
4.6.2. Module 6: The IISO Balancing Market
4.8. Exclusion of the Capacity Market
4.9. Justification Table
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
|CfD||Contract for Difference|
|DER||Distributed Energy Resources|
|DLMP||Distributed Locational Marginal Price|
|DNO||Distribution Network Operator|
|DSODSP||Distributed System Operator Distributed Service Provider|
|DUoS||Distribution Use of System|
|FES||Future Energy Scenarios|
|FPN||Final Physical Notification|
|GSP||Grid Supply Point|
|IISO||Independent Integrated System Operator|
|IoT||Internet of Things|
|LEM||Local Energy Markets|
|NETA||New Electricity Trading Arrangements|
|ODFM||Operation Downward Frequency Management|
|P2P||Peer to Peer|
|SES||Smart Energy System|
|TNUoS||Transmission Network Use of System|
|TSO||Transmission System Operator|
|VRE||Variable Renewable Energy|
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|Missing money||The dispatch of generating assets is determined by their Operational Expenditure (OPEX) cost, principally the fuel element . As more efficient thermal assets enter the market with lower OPEX costs, the older units are displaced. This phenomenon is exacerbated by variable generating assets with low OPEX cost due to the removal of the fuel element, displacing the more expensive technologies [42,57,58]. This results in a lower capture rate for those still required to meet demand, decreasing the incentive to invest in technologies reliant upon a sustained clearing price, leading to concerns over long-term capacity adequacy [21,59,60].|
|Price cannibalisation||High VRE output can displace thermal generators with higher OPEX costs, lowering the clearing price and reducing the VRE capture rate [61,62,63]. This increases the risk for those operating in the market without a form of revenue assurance scheme such as the CfD [57,61].|
|Lacking flexibility||Despite agreement on the requirement for flexibility by governmental bodies, economic regulators, system operators, academics and industry bodies, to date, only the balancing and ancillary market provide value for flexibility as a service [64,65]. Furthermore, neither the CfD nor the capacity market were designed for the procurement of flexible services. The CfD addressed long-term investment into low-carbon generation, whereas the capacity market was designed to only respond to the system adequacy challenge and not the emergent flexibility adequacy challenge [56,63,64,66]. Additionally, in securing system adequacy, the capacity market has reduced the prevalence of scarcity events in which prices would rise as the margins between supply and demand converge, raising the market clearing price . These events provide the signal for possible revenue stream for flexibility from demand-side assets as they can reduce one’s demand during these high-priced events, or generate an income based on the arbitrage opportunities .|
|An estimated 85% of GB electricity is traded bilaterally in which the volumes and prices are not within the public domain, only accessible through a subscription to a price reporting agency [68,69,70]. This opaque structure dampens investment signals as the financial compensation received for a service is not known, which may also result in the cheapest technology not being dispatched [40,71].|
|Not reflecting changing energy|
|The increased deployment of DER evidences the need to reflect regional geographies within the electricity market design. However, GB operates under a single price bidding zone, with price formation at the national level . This does not reflect local characteristics such as the scarcity or surplus of electricity within a constrained area of the network [20,73]. Reflecting ‘local’ network conditions would signal where on the network value could be realised by providing a specific service, i.e., flexibility. Solving locational issues with either generating or demand-side assets or services in close proximity via a local market would support their integration, helping to conserve the profits from these services in the local economy, which may also encourage new investment into DER [12,13].|
|Incumbent energy supplier||3||Transmission system operator (TSO)||1|
|Think tank||3||Distributed system operator (DSO)||1|
|BSC implementor||2||European energy regulator||1|
|Energy economic regulator||2||SME energy supplier||1|
|Electricity traders||2||DER installer and optimiser||1|
|The DSP pool market||Augmented||Procurement method: Auction|
Timescale of procurement: DAH/ID
Clip size: 0.05 Mw
Settlement: Pay as clear
|The DSP ancillary market||Augmented||Procurement method: Auction|
Timescale of procurement: DAH/ID
Settlement: Pay as clear
Clip size: Product specific. No higher than 0.1 MW
|The DSP balancing market||Augmented||Procurement method: Utilising bids/offers|
Timescale of procurement: 5 min window before the opening of the IISO balancing market (Module 6)
Settlement: Pay as clear
Clip size: 0.05 Mw
|The wholesale market||Layered||Procurement method: Auctions|
Timescale of procurement: DAH/ID
Settlement: Pay as clear
Clip size: 0.1 MW
|The IISO ancillary market||Layered||Procurement method: Auctions|
Timescale of procurement: DAM/ID
Settlement: Pay as clear
Clip size: Product specific. No higher than 0.1 MW
|The IISO balancing market||Layered||Procurement method: Utilising bids/offers|
Timescale of procurement: Real time
Settlement: Pay as clear
Clip size: 0.1 Mw
|The capacity market||Excluded||Rationale for exclusion discussed in Section 4.8.|
|Suitability for VRE||Reduced risk of facing imbalance charges as a result of a central market which pools liquidity. This promotes the ability for VRE generators to procure, or sell, depending upon the environmental conditions which may result in deviations from contracted positions.|
|Due to standardised products, trades can operate on a faster timescale allowing them to occur closer to real time compared to continuous trading. This also allows VRE to react to fluctuations in output due to environmental conditions and mitigate imbalance charges.|
|Transparency||Uniform price auction provides transparency and ensures that the least expensive and most efficient generating unit or service is dispatched.|
|Market prices are visible to buyers/traders/sellers.|
|Reducing trading costs||Typically lower transaction costs than continuous trading.|
|Safe counterparty risk, often provided by the central exchange.|
|Issue||Change to Module(s)||Explanation for How This Will Aid in Mitigating the Issues Identified Within Table 1|
|Missing money||Coordinated markets||The introduction of new routes to market(s) can provide additional revenue streams for technologies and services which may otherwise find themselves out of merit.|
|Nodal (regional investment signals)||The clearing price at each GSP nodes shall indicate to investors the potential value streams from the deployment of a technology, or the provision of a service, in one GSP opposed to another [12,13,126]. Furthermore, in reviewing trends over time within the various marketplaces, it may provide investors with insights as to when particular DSP pay-as-clear pool markets may be at risk of being oversupplied, which could result in specific technologies being out of merit. With this information, they can avoid the deployment of a technology or the provision of a service in this marketplace, in favour of another.|
|Nodal (constrained markets)||The nodal structure represents multiple constrained markets as opposed to the current signal bidding zone in GB. Therefore, a generating or demand-side asset within one GSP will not be competing directly against a GSP in another part of the country. As such, a market participant would be directly competing against those located within their GSP, which may lessen the depression of the market clearing price depending upon the proportion of VRE generation and required load to satisfy.|
|Scarcity events (transparency and the exclusion of the capacity market)||The formation of power prices at the local level will reflect regional scarcity and thus the market clearing price will allow for transparent scarcity events to emerge [20,73], a solution suggested by  to overcome the missing money phenomenon. Furthermore, the capacity market has been excluded to reduce the dampening effects of this out-of-market mechanism on the emergence of scarcity prices .|
|Price cannibalisation||Nodal (regional investment signals)||Similar to missing money. Transparent clearing prices of the bids being accepted/rejected will provide investors with the data to identify whether a GSP region is close to cannibalising prices at times of high VRE output.|
|Flexibility||The flexibility markets of both Modules 1 and 4 will provide an established route for the procurement of flexible technologies. These technologies, when coupled with VRE, can prevent cannibalisation events through storing excess generation during peaks [141,142].|
|Lacking flexibility||Specific markets for flexibility||The flexibility markets of both Modules 1 and 4 will provide a clear reference price for flexible actions within each market module.|
|Smart energy system approach||Allowing flexible load from across the energy system to provide flexibility will unlock large flexible capacity which could be cheaper than sourcing flexibility from the electricity silo [43,44,101].|
|Lacking transparency||Freely available bid data||Transparent trade data for bilateral trades alongside the pool market structures shall aid in revealing the value of specific services.|
|Not reflecting regional differences||Nodal (transparency of prices)||Trade data are made transparent to aid in revealing the value of specific services. This may reveal the value for specific services at different nodes on the network.|
|Nodal (geographically constrained)||By excluding transmission-connected technologies from directly competing in the DSP local balancing and coordinating market (Modules 1–3), only technologies within that geographical area will be represented in the clearing and bid/offer prices of these markets.|
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Pownall, T.; Soutar, I.; Mitchell, C. Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources. Energies 2021, 14, 1124. https://doi.org/10.3390/en14041124
Pownall T, Soutar I, Mitchell C. Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources. Energies. 2021; 14(4):1124. https://doi.org/10.3390/en14041124Chicago/Turabian Style
Pownall, Thomas, Iain Soutar, and Catherine Mitchell. 2021. "Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources" Energies 14, no. 4: 1124. https://doi.org/10.3390/en14041124