Bringing renewables to electricity markets [electronic resource] : environmental and economic impacts

This dissertation analyzes the system impact of using intermittent wind power on a power market's environmental and economic performance. The penetration of wind power has grown quickly since the 1990s because wind power is considered a key tool to reduce greenhouse gases (GHGs) caused by electricity generation. However, there is limited discussion about how wind power's intermittency interacts with power market designs. I develop a stochastic framework to analyze the dynamics of how wind power's intermittency interacts with an electricity market's design, which includes pricing policies, market-power regulations, transmission management, and dispatch protocols. I also use this stochastic framework to explore how to improve the market design of a power system so that the redesigned electricity market is more compatible with the intermittent wind power. I first analyze how selecting different dispatch protocols impact the environmental and economic performance of utilizing wind power. The dispatch protocol in an electricity market determines how the market equilibrium is solved from demand and supply sides' information with restriction of physical constraints. I develop a criteria system for an electricity market to select the appropriate dispatch protocol for climate change mitigation. My analysis based on a real electricity market demonstrates that wind power's capability to reduce carbon dioxide or other pollutants is highly dependent on the selection of dispatch protocols. Second, I examine the impacts of using wind power on electricity transmission congestion management. My analysis demonstrates that wind power's intermittency leads to congestion uncertainty. Congestion uncertainty can lead to consumers' overconsumption or stimulate conventional generators to over produce under current transmission congestion policies. In both scenarios, the market equilibrium is different than the socially optimal equilibrium even if all market players are price takers. Actually, if the supply side has market power, the economic inefficiency can be smaller than when all market players are price takers. Third, I analyze wind power producer's cost structure and market power, which are determined by electricity-system market design and wind power's intermittency. Although wind power producers have a zero fuel cost, wind power's intermittency causes an uncertainty cost. Whether wind power producers pay this cost, which is decided by market design, determines when wind power producers can exercise their market power. When wind power producers pay the uncertainty cost, their marginal costs are not zero when they bid in a market. Consequently, wind power producers do not compete with other zero-cost generators. Furthermore, wind power producers' marginal costs depend on wind power's uncertainty. Therefore, wind power producers do not necessarily compete with each other because wind power from different producers has varied uncertainty. Thus, a wind power producer theoretically can have the ability to exercise its market power even if its market share is small. I also clarify when a wind power producer has the ability to exercise its market power. Fourth, I examine the effectiveness of pro-renewable policies for climate change mitigation by examining wind power's spatial and temporal heterogeneity in reducing GHGs. My analysis demonstrates that wind power's capability to reduce carbon dioxide is highly dependent on where and when wind power is generated. From a long-term perspective, wind power generated from two regions can have significantly different distributions. Therefore, if a pro-renewable policy provides homogenous incentives to 1 MWh of wind power no matter where and when this 1 MWh of wind power is produced, it is not effective for climate change mitigation. Furthermore, hourly wind power from a region that is good at reducing GHGs is not necessarily good at reducing generation costs. Consequently, pricing wind power by the market price is not necessarily effective for climate-change mitigation if a carbon tax has not been implemented. The conclusions in this dissertation suggest that we must redesign our market and pro-renewable policies when wind power's penetration is significant. As a new technology, wind power fundamentally changes electricity systems by bringing a significant intermittency to electricity market's supply side. Thus, electricity market design must be compatible with a significant intermittent supply side in the future. In this dissertation, I demonstrate the existence of the incompatibility between significant intermittency on the supply side and current market designs in some U.S. electricity systems. Therefore, we need to comprehensively reexamine current market designs, explore the incompatibilities, and redesign the electricity market for a sustainable future.

Keywords: Civil and Environmental Engineering.
Advisor: Ortolano Leonard primary advisor. Thesis advisor
Rajagopal Ram primary advisor. Thesis advisor
Sweeney James L. advisor. Thesis advisor