On October 21, 2021, Acelerex presented at the ATA Insights’ workshop entitled “Building Resilience into a Decarbonized US Grid with Storage Technology,” alongside representatives from Microsoft, Wartsila, NREL and the California ISO.
Acelerex presented views on the topic drawn from its own proprietary, tripartite software system, which includes platforms for Grid Analytics, Grid Data Services and Grid Automation. The presentation demonstrated how regulatory lags will be overcome in the short to medium term by the proposed ITC, by stimulating private sector investment into storage and V2G technologies. Investment in these technologies will act as a de facto mechanism for grid resiliency, covering for the deficiencies of what remains a largely 1990s era, gas turbine-based wholesale markets framework.
The two primary issues with the current framework in the United States are both related to Standard Market Design, which results in a mispricing of power and, consequently, oversupply of power to the grid during certain market conditions.
Flaws in Standard Market Design Create an Arbitrage Opportunity
Figure 1 (below) shows how Standard Market Design distorts the price of power during peak penetration of renewables-generated power (e.g. wind and solar). During such periods, the quoted market price for power — in part driven by production tax credits for renewables — goes to zero. Of course, the production price is not zero and the value to the customer is not zero. This flaw in Standard Market Design leads to an effective penalization of producers and transfer of economic value to the consumers. The economic penalty to producers is concentrated (e.g. a large cost is absorbed by a relatively small number of market participants) whereas the benefit to consumers is diffuse (e.g. a small gain is distributed among a large number of participants). Therefore, until now, the economic benefit to the consumer of power has gone relatively unappreciated by the market.
Policy Shortcomings in Action: The “Duck Curve”
The result of this mispricing is a sizable excess supply of power during the periods of peak renewables penetration into the market (see Figure 2, below). Especially for regions such as California, this coincides with the portion of the day when solar power production becomes particularly cheap and plentiful. This results in the production curve looking like a duck, with the “belly” protruding as the net load becomes increasingly negative. As net loads go negative, the risk of required curtailments creates another potential economic penalty for producers.
Opportunity for Private Investors in Storage and V2G Technology to Promote Resilience
The upshot of the policy shortcomings is that there is an obvious opportunity for private sector investors in storage and V2G technology to take advantage of the artificially cheap price of power to consumers during periods of peak renewables penetration. These investments will be catalyzed by the expected ITC — alongside FERC 2222, the “saving grace” of the present wholesale markets framework. As such investments come online, they will allow for consumers to seize the arbitrage opportunity created by the flaw in Standard Market Design, absorbing the excess supply of power. In the process, the private sector — both investors and consumers — will emerge as the natural medium-term mechanism for promoting grid resiliency in the United States.
ATTACHED LINK: PDF of Acelerex presentation, “Private Sector Investments in Storage and V2G Technologies are Emerging as the 21st Century Grid’s Mechanisms for Promoting Grid Resiliency.”