11.F.4 CALCULO DEL TAMAÑO MAXIMO DE LOS ELEMENTOS DE MOLIENDA.

At this point, it should be clear that designing a market for the reliability of supply—resource adequacy—is a very difficult proposition. The large-scale expansion of VG adds further

complexities to resource adequacy assessments and market design to ensure revenue sufficiency. Whether current market designs provide the incentives that are needed to ensure adequacy in the long run or if new approaches are needed is still an open debate.

If electricity market designs rely on the energy-only approach, the key challenge is to ensure that the short-term prices for energy and reserve provide sufficient incentives for investments in a resource mix with sufficient capacity and flexibility. Appropriate scarcity pricing has been and still is the main solution that is required to ensure that resources recover both capital and operating costs in an energy-only market. This will require clever regulatory market

interventions that allow prices to rise during scarcity conditions without creating opportunities for market manipulation. Renewable resources may lead to higher frequency of low and negative energy prices and increase the variability in market prices, increasing the reliance on scarcity pricing under the energy-only designs. At the same time, prices for operating reserve may increase because of higher reserve requirements associated with the increased variability and uncertainty of renewables. However, it is an open question whether future prices for energy and reserve will adequately compensate ramping capabilities to meet system flexibility needs as well as the required need for available capacity. Analyzing revenue sufficiency is difficult because it depends on having an accurate model of price formation in a future system, which is in itself a challenging problem that deserves more research. Finally, stochastic programming approaches have been proposed to more efficiently handle the challenges of renewables in electricity market operations, but setting prices for energy and reserve under stochastic scheduling is not

straightforward.

If the solution is to use an additional incentive mechanism for resource adequacy, such as a capacity market, several other questions need to be addressed:

• What reliability metric should be used at the system level: LOLE, LOLH, EUE, or other?

• What target reliability level should be used? Is the traditional target of 1 d/10 y the right target?

• Is a separate metric required to ensure sufficient flexibility, in addition to capacity?

• How many years should be used in rolling reliability and capacity assessments?

• Do time-period capacity factor approximation methods sufficiently capture the link between performance attributes and resource adequacy?

• Does the combination of metric and reliability target exhibit consistency across generator types and their contribution to resource adequacy?

• What type of performance assessment should be required to ensure and incentivize resources to be available when needed?

• How should capacity market auctions be designed to minimize the potential exercise of market power?

In this section, we have argued that it may be useful to consider ELCC itself as a candidate metric for a capacity/resource adequacy market, because it would better capture a resource’s contribution to reliability than current metrics such as unforced capacity. However, there are several challenges to implementing such a probabilistic ELCC metric. As illustrated, ELCC is highly nonlinear and potentially sensitive to several other influences. Clearly, more work would be needed to develop an ELCC-based auction for resource adequacy. As an alternative, more rigorous mapping between ELCC and UCAP or a similar metric may result in achieving the goal of retaining some reliability information in the market, yet perhaps overcome some of the

concerns regarding the nonlinearity and other issues, such as sensitivity to ordering, that may exist.

A variety of market designs are considered and being introduced in different ISO/RTO markets to address the issues of long-term flexibility needs, resource adequacy, and revenue sufficiency. We believe that the industry will go through several iterations before consensus emerges on the specific best practices on these complex topics of resource adequacy and revenue sufficiency in electricity markets with large-scale penetrations of renewable resources.

Several other open research questions remain, many of which exist independently of the future structure of long-term resource adequacy and flexibility markets.

• What is the behavior of VG ELCC over multiple years, and what is the appropriate number of years of data to use in a resource adequacy study to achieve statistically- expected results and/or behavior and quantification of statistical tails?

• What metric, or family of metrics, can best describe future flexibility needs? What is an appropriate choice for a target level of flexibility, especially given that there is some uncertainty surrounding the levels of VG that will be experienced during the next several decades?

• What are the desired properties of these flexibility metrics, and how do they perform when considering multiple technologies? Are the metrics robust enough to provide consistent evaluations of new, possibly unknown, technologies that may emerge?

• How can multiple flexibility metrics be established within an incentive mechanism? Will it incentivize both new and existing resources to have flexibility capabilities?

• Is there a right combination of scarcity pricing and forward capacity markets that can take the best attributes of both concepts?

• Is it important to have standard resource adequacy and flexibility definitions and markets across all regions? If there are differences in product definitions and/or assessment algorithms, will that create gaming from entities that could potentially sell into multiple markets?

As these markets undergo changes and potentially new markets evolve to address long-term issues described here, it will also be critical to identify and correct any unintended consequences that undermine one or more markets and the way they interact. And, as always, the potential for market power must be assessed and managed.

4 Incentivizing Flexibility in System Operations

The existing wholesale electricity market designs are unique in their complex relationships between economics and the physics of electricity. These markets aim to incentivize resources to provide a variety of services, including energy and various ancillary services. However, it is unclear as to how much the existing markets may be incentivizing flexibility from the market participants in an efficient manner. Questions that should be asked are (1) whether the market designs are incentivizing new resources entering the market to have the needed flexibility capabilities, (2) whether the market designs are incentivizing existing resources to upgrade their technology to offer additional flexibility capabilities if more flexibility capabilities are needed, and (3) whether the market designs are incentivizing resources that have flexible capabilities to offer those capabilities to the short-term energy and/or ancillary services market when flexibility is needed most. The first two considerations focus more on long-term capacity adequacy,

revenues, and incentive needs and are discussed in Section 3. This section focuses on the third question and how power system flexibility is incentivized during short-term system operations. First, we describe some definitions and examples of flexibility. Then we discuss how the introduction of VG might be making the topic of flexibility incentives more of a pressing issue. Next, we cover a number of historical, recent, and then proposed market design principles and elements that may affect how flexibility is incentivized in wholesale electricity markets. Many of the existing market design elements provided incentives whether or not a unit could be flexible and offer its flexibility to the market operator. However, some of the more recent changes are being designed to more explicitly incentivize an increasing quantity of flexibility, in many ways because to the increasing variability and uncertainty that is brought to the system by VG. Finally, we discuss ongoing issues and remaining questions and provide a summary of this complex topic.