Overview
This research investigates the mechanics of bid cost recovery (BCR) payments within real-time power system operations, specifically focusing on the integration of energy storage resources (ESRs) and the impact of uniform pricing schemes. The study centers on in-market uniform pricing alongside out-of-market BCR payments in a rolling-window dispatch framework. A key focus is to understand why BCR payments occur and to develop pricing mechanisms that minimize these costs.
Research Context
Energy storage resources (ESRs) introduce intertemporal state-of-charge (SOC) constraints into power system operations. These constraints mean that ESR operations are temporally coupled, implying that their actions at one point in time affect their capabilities and costs at other times. The existing locational marginal pricing (LMP) mechanism, commonly used in power markets, may not adequately compensate ESRs for these intertemporal opportunity costs. This potential inadequacy in compensation by LMP is identified as a trigger for out-of-market BCR payments.
Approach
The research first establishes conditions under which positive BCR becomes unavoidable. It then identifies a specific intertemporal coupling indicator. The study demonstrates empirically that positive BCR arises exclusively when this indicator is active. This observation suggests that BCR is fundamentally driven by the intertemporal coupling inherent in ESR operations. Subsequently, the researchers developed a specific uniform pricing scheme, termed UP-BCR (BCR-minimizing uniform pricing scheme), designed to address the identified issues. This UP-BCR method was then evaluated and compared against existing real-time pricing methods through simulation, specifically considering the presence of forecast uncertainty and operating within a copper-plate model.
Findings
- Positive bid cost recovery (BCR) is unavoidable when dispatched generators or ESRs submit supply-side bids that are higher than the demand-side bid.
- An intertemporal coupling indicator was identified, which is associated with binding state-of-charge (SOC) constraints for ESRs.
- Empirical evidence demonstrated that positive BCR only arises when this intertemporal coupling indicator is active. This finding suggests a fundamental link between BCR and intertemporal coupling.
- In simulations, the proposed UP-BCR scheme substantially reduced BCR compared to existing real-time pricing methods.
- The UP-BCR scheme also substantially reduced demand payments relative to Locational Marginal Pricing (LMP) in simulations.
- The UP-BCR scheme maintained zero merchandising surplus within a copper-plate model during simulations.
Why This Matters
The occurrence of out-of-market bid cost recovery payments represents an additional cost in power system operations, potentially increasing overall electricity costs for consumers. By identifying the root causes of BCR, particularly its link to intertemporal coupling in energy storage operations, this research provides insights into market design challenges. A uniform pricing scheme capable of substantially reducing both BCR and demand payments could lead to more efficient and cost-effective integration of energy storage into power grids.