How Household PV and Renewable Energy Impact Electricity Market Bidding
As households and communities increasingly adopt photovoltaic (PV) systems and other renewable sources, there is a significant transformation occurring in the electricity market bidding process. This transformation impacts the overall electricity demand, generation, and pricing. Understanding these changes is crucial for stakeholders ranging from energy producers to policymakers.
The Current Landscape in North America
Currently, in North America, the production from household PV systems is still relatively low. Therefore, its impact on the electricity market has mostly been negligible. However, the incremental costs due to mandates are present, but these are minimal and easily calculable, thus having no meaningful effect on the market.
Reduction of Capacity-Straining Peaks
As household PV and renewable energy systems become more prevalent, they can help reduce the capacity-straining all-time peaks that typically occur during hot summer afternoons. This is a significant benefit, allowing utilities to meet peak demands more efficiently and effectively. As these peak periods become less intense, the overall electricity market becomes more manageable.
Transforming Market Dynamics
When the impact of PV becomes substantial enough to change the dynamics of afternoon peak periods to troughs, the electricity market bidding will face new challenges. Lower prices occur when demand during the day is less intense, but these are balanced out by other sources and storage mechanisms. This transformation can lead to more stable and predictable energy pricing over time.
Merit Order Effect: The Impact on Bidding
The merit order effect is a critical mechanism that influences the electricity market bidding process. As household PV increases, the total amount of generation bidding in may decrease, thereby affecting final bid outcomes and potentially lowering spot prices. For example, if a day’s demand is 2655 MW and household PV contributes 300 MW, the total generation bidding in would be 2655 - 300 2355 MW. This reduction in total generation bidding can alter the merit order, meaning that generators with lower incremental variable costs will bid first, followed by those with higher costs.
Assumptions and Simplifications
For simplicity, the generation bidding is assumed to occur within the minimum and maximum operating capacity. Generators bid their minimum required capacity, which is the most cost-effective option for them. Then, the generator with the lowest incremental variable cost will be bid in next. This process continues until the total generation bid matches the current demand.
Conclusion
The growing adoption of household PV and renewable energy sources will continue to reshape the electricity market bidding processes. Understanding and adapting to these changes is essential for maintaining a stable and efficient electricity market. As technology advances and adoption increases, it is crucial to monitor and evaluate the broader impacts on pricing, generation, and overall energy security.