Harrison, Gareth

Bialek, Janusz

Eager, Daniel

Natural Environment Research Council (NERC)

2012-08-08T14:31:34Z

2012-08-08T14:31:34Z

2012-06-25

The ability of liberalised electricity markets to trigger investment in the generation capacity required to maintain an acceptable level of security of supply risk has been - and will continue to be - a topic of much debate. Like many capital intensive industries, generation investment suffers from long lead and construction times, lumpiness of capacity change and high uncertainty. As a result, the ‘boom-and-bust’ investment cycle phenomenon, characterised by overcapacity and low prices, followed by power shortages and high prices, is a prominent feature in the debate. Modelling the dynamics of generation investment in market environments can provide insights into the complexities involved and address the challenges of market design. Further, many governments who preside over liberalised energy markets are developing policies aimed at promoting investment in renewable generation. Of particular interest is the mix and amount of generation investment over time in response to policies promoting high penetrations of variable output renewable power such as wind. Consequently, improved methods to calculate expected output, costs and revenue of thermal generation subject to varying load and random independent thermal outages in a power system with a high wind penetration are needed. In this interdisciplinary project engineering tools are applied to an economic problem together with knowledge from numerous other disciplines. A dynamic simulation model of the aggregated Great Britain (GB) generation investment market has been developed. Investment is viewed as a negative feedback control mechanism with current and future energy prices acting as the feedback signal. Other disciplines called upon include the use of stochastic processes to address uncertainties such as future fuel prices, and economic theory to gain insights into investor behaviour. An ‘energy-only’ market setting is used where generation companies use a classical NPV approach together with the Value at Risk criterion for investment decisions. Market price mark-ups due to market power are also accounted for. The model’s ability to simulate the market trends witnessed in GB since early 2001 is scrutinised with encouraging findings reported. A reasonably good agreement of the model with reality, gives a degree of confidence in the realism of future projections. An advancement to the dynamic model to account for expected high wind penetrations is also included. Building on the initial model iteration, the short-term energy market is simulated using probabilistic production costing based on theMix of Normals distribution technique with a residual load calculation (load net of wind output). Wind speed measurement data is combined with the outputs of atmospheric models to assess the availability of the GB wind resource and its relationship with aggregate load. Simulation results for 2010-40 suggest that the GB system may experience increased generation adequacy risk during the mid to late the 2020s. In addition, many new investments are unable to recover their fixed costs. This triggered an investigation into the design of a capacity mechanism within the context of the modelling environment. In light of the ongoing GB market electricity market reform debate, two mechanisms are tested; a strategic reserve tender and a marketwide capacity market. The goal of these mechanisms is to mitigate generation adequacy risk concerns by achieving a target winter peak de-rated capacity margin.

http://hdl.handle.net/1842/6264

en

The University of Edinburgh

D. Eager, J. Bialek, and T. Johnson, ‘Validation of a Dynamic Control Model to Simulate Investment Cycles in Electricity Generating Capacity’, Proceedings of the IEEE Power and Energy Society General Meeting, Minneapolis, Minnesota, US, July 2010, pp. 391- 394.

S. Hawkins, D. Eager and G. P. Harrison, ‘Characterising the Reliability of Production from Future British Offshore Wind Fleets’, Proceedings of the Renewable Power Generation Conference, IET, Edinburgh, UK, September 2011.

D. Eager, B. F. Hobbs, and J. W. Bialek, ‘Dynamic Long-Term Modelling of Generation Capacity Investment and Capacity Margins: a GB Market Case Study’, University of Cambridge, Electricity Policy Research Group Working Paper Series, no. 1201, January 2012.

power generation economics

Mix of Normals distribution

thermal power generation

wind power generation

Dynamic modelling of generation capacity investment in electricity markets with high wind penetration

Thesis or Dissertation

Doctoral

PhD Doctor of Philosophy