Day-ahead and reserve prices in a renewable-based power system
Cédric Clastres (GAEL)
The evolution of the power mix to reduce greenhouse gas emissions raises the question of the supply of reserves. With less dispatchable generation, the supply of reserves may become additional constraint in meeting electricity demand. The efficiency of the reserve market design has been the subject of analysis in terms of market integration and product characteristics (Dallinger et al., 2018; Farahmand & Doorman, 2012), among others. However, the evolution of reserve prices with large shares of renewable energy has not been investigated in the literature to our knowledge. The objective of this paper is to analyse this issues with a fundamental model of the day-ahead market and the reserve markets. It is designed to represent the current market design in Continental Europe with a centralised supply and common platforms for the exchange of reserves. Frequency Containment Reserve (FCR) and aFRR capacity and aFRR energy markets are represented. Since marginal prices obtained with the model do not reflect opportunity costs, reserve capacity prices are computed ex-post as the marginal opportunity cost. The approach is based on the literature for thermal and hydro units. An alternative method is proposed for batteries because their flexibility implies a different definition. In fact, their opportunity cost is positive only when there is a trade-off with the day-ahead market. The model is applied to the 2022 version of the Ten- Year Network Development Plan (TYNDP) scenarios (ENTSO-E & ENTSOG, 2022).