Day-ahead and reserve prices in a renewable-based power system

Laureen Deman (), Afzal S. Siddiqui, Cédric Clastres () and Quentin Boucher
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Laureen Deman: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, SuperGrid Institute SAS
Afzal S. Siddiqui: Department of Computer and Systems Sciences - Stockholm University, Department of Mathematics and Systems Analysis [Aalto] - Aalto University
Cédric Clastres: GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Quentin Boucher: SuperGrid Institute SAS

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Abstract: Decarbonising the power mix also requires the decarbonisation of flexible supply. With fewer fossil-fuelled power plants, investments in storage and flexibility options are necessary to replace the current carbon-intensive supply of reserves. This paper questions whether reserve-capacity markets can serve as a capacity mechanism for flexible technologies by rewarding the availability of reserves. This question brings a new perspective to the analysis of reserve markets, with a focus on their long-term efficiency. In order to investigate the evolution of reserve prices with large shares of renewable energy and storage, we use a fundamental model of the day-ahead and reserve markets. The model represents the current market design in Continental Europe with a centralised supply and common platforms for the exchange of reserves. Since marginal prices obtained with the model do not reflect opportunity costs of reserve-capacity supply, they are computed ex post as the marginal opportunity cost. The model is applied to the 2022 version of the Ten-Year Network Development Plan (TYNDP) scenarios. By becoming the main suppliers of reserve capacity, batteries have a noticeable impact on market prices by lowering them. Their flexibility implies zero opportunity cost most of the time, meaning that the flexibility is not rewarded by the market. These results suggest that reserve-capacity markets cannot provide additional remuneration for flexible technologies and, thus, do not solve the missing-money problem in the context of the energy transition.

Date: 2024-10-20
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Published in 2024 INFORMS Annual Meeting, INFORMS, Oct 2024, Seattle (USA), Washington, United States

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