Imperative for the smart grid
Electricity is unlike any other commodity or service until we develop ways to store it, said Professor Schmuel Oren, Earl J. Isaac Professor in the Science and Analysis of Decision Making at the University of California, Berkeley. He named a few ‘inconvenient realities’ that cannot be ignored when working towards a future with smart grids:
- Demand fluctuates
- Prices are not very elastic and require continuous management
- People expect electricity on demand
- Many externalities
- Laws of physics
- Volatility of renewable energy sources
To deal with those challenges, the grid must be made smart, the professor said. For that purpose, we need:
- to mobilise demand-response – demand needs to follow supply instead of the other way around;
- technological innovation for control-metering and communication;
- efficient utilisation of resources through pervasive use of optimisation technology and high-performance computing;
- an end-to-end transparent market design for wholesale and retail energy that accounts for the physics of electricity.
A centralised wholesale market
Professor Oren focused on the fourth point: “We need a centralised wholesale market design that prices all resources and constrains their true value to the system with accurate locational and temporal granularity,” he said. In this market design, the conventional generation of resources needs to be connected to the distribution network with demand-side participation. “This is what is missing in Europe.”
The professor then presented the design from PJM, the largest regional transmission organisation serving smart wholesale energy market in 14 American states. About 70 per cent of energy flow is served by such regional transmission organisations run by independent system operators, and the design of PJM’s market is regarded as best practice. Engines process bids and calculate prices in the market for different time horizons, with the goal of optimising costs.
Prof. Oren described the technical details behind the process, explaining that prices are volatile and may even become negative due to over-generation. Turning a generator off and on may cost more than keeping it on, ‘so there is competition for the right to stay on’. When the price is negative, consumers are paid to use energy and there is no point to pay for demand response.
“You want to have this kind of granularity in your price system if you really want to have an efficient system,” the professor said.
In response to price uncertainty, forward contracts are forged to smooth out the volatility. Yet it is imperative to keep sight of granularity for efficient demand-response, he stressed. Actors wanting to secure the costs of transportation can buy Financial Transmission Rights (FTR), which provide a great mechanism for sharing transmission capacity because they incentivise transmission from the most efficient energy producing unit, according to the professor.
Professor Oren concluded by describing his current research projects:
- business models for aggregators to harvest retail participation load and bundle it into a virtual supply plant
- solving the optimisation problem of uncertainty by projecting different scenarios and the probability of their occurrence
- Dynamic Topology Control – in light of Kirchhoff’s law, he is exploring the possibilities of cost reduction by disconnecting transmission lines
