The Impact Of Wind Generation, Deferrable Demand, And Utility-Scale Storage On System Costs And Customers’ Payments For Electricity

Abstract

The recent rapid increase in the penetration of renewable sources of generation in electricity markets has introduced a new challenge for system operators due to the inherent variability of these sources. An effective solution to this challenge is to use storage capacity to offset the variabilty. An additional advantage of storage is that it can also shift load from peak to off-peak periods and lower system costs. Since electric batteries are relatively expensive, a promising form of storage is to use deferrable demand devices to decouple the purchase of electricity from the delivery of an energy service, such as thermal storage for space conditioning and hot water. The smart-charging of electric vehicles represents another type of deferrable demand. Two additional advantages of deferrable demand are that it is relatively inexpensive and the potential amount of capacity is enormous. The objective of this dissertation is to evaluate how high penetrations of wind generation affect the costs of operating an electricity grid and to determine the economic value of different types of storage from the perspective of a system operator and of individual customers. The empirical analysis is based on a stochastic form of multi-period Security-Constrained Optimal Power Flow (SCOPF) using a reduction of the network in New York State and New England. In this model, the potential wind generation and electric load are both stochastic inputs, and the optimal dispatch of conventional generating units for both energy and reserves over 24 hours is determined endogenously to meet load and maintain system reliability. The results for a hot summer day show that adding wind capacity displaces fossil fuels and increases ramping requirements, but the net effect is lower operating costs. Energy storage reduces operating costs further by 1) buying more energy when electricity prices are low by shifting demand from peak to off-peak hours, 2) providing ancillary services such as ramping services to mitigate the variability of wind generation, and 3) lowering the amount of conventional generating capacity needed to maintain system adequacy at the system peak. This is true for both utility-scale storage and deferrable demand. Although utility-scale storage reduces the operating costs more than the same capacity of deferrable demand, the capital costs of storage are higher and the total of all costs are lower for deferrable demand. Customers with thermal storage for space and/or water heating get most of their savings from lower demand payments (i.e. reducing their demand at the system peak), and for customers with electric vehicles, the main savings are from buying less gasoline. However, encouraging customers to adopt deferrable demand devices will require charging them an efficient rate structure that reflects the true cost of supplying electricity. Comparing the bills paid by customers with different types of deferrable demand shows that an efficient rate structure provides positive economic incentives for investing in deferrable demand but a flat rate structure for energy only provides perverse incentives.