Retail electricity markets

With increasing pressures to decarbonize the electricity grid, the grid edge is witnessing rapid adoption of customer-owned devices (rooftop solar, EVs). When coordinated appropriately, these devices can help increase grid efficiency and operational flexibility. Programs like net energy metering (NEM) pay resource owners for generated electricity; however these payment structures are inefficient and too expensive. Companies which aggregate the capabilities of small-scale resources are also becoming increasingly prevalent. These aggregators participate directly in wholesale electricity markets (WEM) and make decisions on behalf of resource owners. These participation models pose challenges of 'tier bypassing', where device setpoints determined by aggregators may violate local grid constraints. 

In our work, we are pushing the boundaries on what retail electricity pricing looks like in future clean energy grids. We develop a retail electricity market for resources to participate in directly at the local level (i.e. within the distribution grid) and determine a time-varying retail price for end-use customers. Our proposal is that of a hierarchical retail electricity market structure, which addresses grid constraints, commitment reliability of resources, and consumer preferences, at various aggregation and market levels. The distribution-level retail market will be operated by a Distribution System Operator (DSO), through which DERs are scheduled and the real-time distribution-level Locational Marginal Price (d-LPM) are determined through bi-lateral market settlements. Our initial simulations show that the DSO-centric market increases DER utilization, enables continual market participation for DR resources, and most importantly, lowers electricity costs for customers. The resulting lower revenue stream for the DSO highlights the evolving business model of the modern utility, moving from commoditized markets towards performance-based ratemaking.

Reinventing the utility for clean energy: Retail markets at the distribution level

[More to come soon..]

The problem:  

Our proposal:  

The math in words: 

Some results:  

Exploring reactive power markets for distribution systems

The problem: Right now when you receive your electricity bill, you're typically paying a fixed price per unit of energy used. What's missing in this model is a price on reactive power. While this component of power can be difficult to understand (often described as the component of power which doesn't do "useful work" like power a lightbulb), reactive power is necessary for delivering power to loads and maintaining voltages so your lights don't flicker. Currently, reactive power is maintained at required levels in two ways. In the transmission system, large-scale generators are required to provide reactive power support and are paid capacity or fixed payments based on cost of equipment or lost opportunity cost to providing reactive power support. In the distribution system, compensation devices like on-load tap changers, capacitor banks, and voltage regulators are used to locally inject reactive power. This mechanism becomes quickly inadequate in a distribution grid with an increased penetration of distributed devices, which induce new consumption patterns and reverse power flows at faster timescales than previously experienced. 

In the future grid, what if we use solar PV devices to support network operations through reactive power compensation? The proliferation of solar PV, local storage, electric vehicles, and emerging paradigms of flexible loads such as smart thermostats, provides a unique opportunity to modernize voltage regulation and reactive power control practices. These devices, collectively termed as distributed energy resources (DERs), are typically equipped with sensing, actuation, and control technologies, giving rise to a highly distributed and intelligent grid edge. Moreso, DERs such as PV and storage are often equipped with smart inverters which allows them to behave as dynamic Volt-Ampere Reactive (VAR) equipped resources, providing low-cost and fast timescale reactive power compensation throughout the distribution grid. This paradigm shift in reactive power support from centralized large-scale traditional generators to distributed small-scale consumer owned DERs is shown in the diagram below. 

Our proposal: If a utility wants to then leverage your devices (solar PV, EVs, or storage) to support the grid, then perhaps they should be compensating you for these services. In our work we proposed and investigated a pricing strategy for reactive power, where devices owners earn revenue on both real and reactive power. Specifically, our proposal is for dynamic service-based pricing where devices are compensated by the real-time need for the power they inject along the entire continuous range of operations permitted by inverter-based DERs. By leveraging our prior work in distributed market mechanisms, we can maintain tractability of large-scale optimal power flow solutions. 

Some results: Our simulations show that solar PV can provide upwards of 40% of reactive power loads, and average voltages can be increased by 2% without any overvoltage issues. Even more, our strategy meets essential priorities of a solar-inclusive market: supporting grid operations and minimizing losses, providing fair payments to solar owners for generating power, and incentivizing long-term growth of solar adoption through reliable revenue streams.

Moving from publications to impact: Future market needs and recommendations

Part of our work in this space includes making recommendations for emerging markets, business models, and connecting the technical engineering work with regulators and policymakers. Our recommendations were a contribution to the Technical Report on the Behind-The-Meter Distributed Energy Resources, available on the IEEE PES Resource Center (Chapters 6 + 7). These are summarized below:

• Creation of a DSO entity is necessary to support emerging market structures and DER integration

• Timelines for market reform must align with grid modernization efforts and investment timelines

• Establishing standardized communication protocols and data collection requirements is critical

• Concerted efforts to promote the design of appropriate performance-based ratemaking schemes and widespread adoption must be a priority

• Future design of electricity markets must reflect all the priorities of equitable decarbonization and sustainability