REGULATORY APPROACHES TO THE INTEGRATION OF RENEWABLE AND STORAGE RESOURCES INTO ELECTRICITY MARKETS

Abstract

This dissertation describes regulatory approaches that encourage the efficient integration and participation of storage and distributed energy resources (DERs) in electricity markets. In particular, it aims to mitigate barriers to the entry and realization of the full value of these technologies with two approaches. A first approach comprises a mechanism for the participation of storage resources in the wholesale market. The mechanism delineates a regulatory framework aimed (i) to diversify the alternatives to monetize the value of storage resources through wholesale markets and (ii) to enlarge storage owners opportunities to monetize the value of their assets regardless of their merchant or regulated nature. Essential to this participation mechanism —an open access approach to the integration of storage— is the centralized operation of the participating assets and the use of tradable electricity derivatives, referred to as financial storage rights (FSRs), to remunerate the energy arbitrage service provided by the assets. This remuneration scheme ensures the revenue adequacy of the independent system operator —by means of a generalized simultaneous feasibility test— and brings additional value to market participants. In particular, FSRs allow market participants to hedge intertemporal price risk (i.e., profile risk) and to monetize intertemporal flexibility capabilities for improving the intraday load profile. The second approach addresses the design of retail electricity tariffs for distribution systems with distributed energy resources (DERs) such as renewable distributed generation and energy storage. This analysis aims to shed lights on the impact of tariff structure —particularly dynamic pricing and connection charges— upon social welfare and the integration of DERs. In particular, this analysis presents a framework to optimize ex-ante two-part tariffs for a regulated monopolistic retailer who faces stochastic wholesale prices and fixed costs on the one hand and a stochastic demand on the other. Within this framework, the exogenous integration of DERs is addressed by characterizing their endogenous effect on optimal tariffs and on the induced welfare effects. Two DER integration models are considered: a decentralized model involving behind-the-meter DERs integrated by customers in a net metering setting, and a centralized model with retailer-integrated DERs. This analysis shows, one the one hand, that net metering tariffs relying on price markups to maintain revenue adequacy —which provide strong incentives for DER integration— entail cross-subsidies and significant consumption inefficiencies that can outweigh the social value of DERs. On the other hand, it demonstrates that net metering tariffs can achieve revenue adequacy without compromising social welfare through marginal cost pricing and higher connection charges, but these undermine the incentives to integrate distributed generation. Numerical simulations based on empirical data are presented to illustrate and validate the analysis.