With the large-scale development of renewable energy and the integration of renewable energy into the power system, as well as the transformation of fossil fuel units under the goal of carbon neutrality, the need for flexibility and reliability in the power system is increasing day by day. Especially in recent years, the frequent power crises and energy crises at home and abroad have reminded the practical urgency of ensuring power security. Different types of capacity recovery mechanisms have been established in the electricity markets of various countries and regions, such as capacity market mechanisms, scarcity pricing mechanisms, and capacity compensation mechanisms. In 2022, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) issued the "Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market System" (Fa Gai Ti Gai [2022] No. 118) for more than a year.
Last year, the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) jointly issued the Notice on the Establishment of a Price Mechanism for Coal-fired Power Capacity. On April 25, the National Development and Reform Commission (NDRC) issued the Basic Rules for the Operation of the Electricity Market (Order No. 20 of 2024), calling for "gradually promoting the establishment of a market-oriented capacity cost recovery mechanism", with resources such as "generator sets and energy storage" contributing to the force. The capacity market should be open to all kinds of resources to participate. Previously, the Measures for the Administration of the Electricity Demand Side (2023 Edition) (Fagai Operation Gui [2023] No. 1283) also called for "supporting demand response entities that meet the requirements to participate in capacity market transactions or be included in the scope of capacity compensation". There are various ways to marketize the capacity compensation mechanism, and adding the seasonal dimension to the capacity cost recovery mechanism is an optimization method.
Some resources can provide a very valuable service during a particular season. Taking air-conditioning equipment as an example, according to statistics, during the peak summer load in China, the proportion of air-conditioning load has reached 30%~40% of the peak load. Air conditioning services integrated by Load Aggregators can provide considerable demand response resources in the summer, but the seasonality of such resources is obvious, and the dispatchable capacity fluctuates with the season. How to reduce the risk of seasonal power system and fully mobilize the value of seasonal resources, seasonal capacity compensation mechanism may be the solution.
Seasonal capacity compensation mechanism, which allows resources with seasonal fluctuations in capacity to provide capacity and be compensated only during the quarter when the capacity is full. Such resources typically include load-side adjustable resources (especially demand response such as heating and cooling), energy storage (e.g., pumped hydro), energy efficiency resources, and virtual power plants that span multiple resource types. The seasonal capacity compensation mechanism can incentivize the willingness of such resources to participate in the electricity market and maximize the true value of seasonal resources.
In the United States, some regional transmission organizations or independent system operators conduct a Resource Adequacy Assessment every season, and then run the capacity market based on the results to screen the resources that provide capacity, and conduct performance evaluations after the fact. Seasons are divided into two seasons or four seasons a year, and the selected resources need to participate in the spot market or respond to scheduling in the corresponding month. The Midwest Independent Transmission System Operator (MISO) in the United States began using seasonal capacity compensation in late 2022, and its resource adequacy assessment and planning resource auction are conducted on a quarterly basis to align resource supply with seasonal demand. The results show that MISO's seasonal capacity market has achieved the expected design results, and the price fluctuations between seasons make the market results more relevant to the capacity supply of each quarter, so that every penny is well spent.
Increasing the share of demand-side resources in the electricity market through seasonal capacity compensation can also provide additional advantages. First, seasonal capacity offsetting can mobilize a variety of resources at a lower cost, reducing the final power system cost. For example, the cost per unit capacity of thermal power flexibility transformation is about 600-700 yuan/kW, while the comprehensive cost of demand-side resources is about 200-400 yuan/kW, and can usually provide 3%-5% of the maximum load adjustment capacity. Deepening the investment of demand-side resources can reduce the cost of power system construction and maintenance, and the savings will also be reflected in the way of lower electricity prices. Furthermore, seasonal capacity offsets can incentivize policymakers to support projects that are more in line with the new power system. Demand-side resources can provide the necessary flexibility and capacity sufficiency for the new power system, and will make a great contribution to the transformation of the power system and the "dual carbon" goal. Seasonal capacity compensation can fully reflect the value of demand-side resources and guide their healthy development.
Optimizing the capacity cost recovery mechanism and increasing the seasonal segmented procurement audit can stimulate more value of seasonal resources, while reducing the cost of the power system, improving the flexible adjustment ability and safety factor of the system. Some seasonal capacity markets in the United States are linked to periodic power system adequacy assessments, which determine seasonal capacity demand and derive capacity market prices based on capacity supply and demand. Experience has shown that adding seasonality to the capacity mechanism can have a positive effect on the power system in all aspects, and it is worth considering as an option for developing the capacity market. Of course, the seasonal capacity tariff mechanism in United States is by no means perfect, and needs to be further improved and optimized.
Editor: Zhao Ziyuan, Wang Xinyao
Review: Li Liping
This article is an exclusive manuscript of "China Power Enterprise Management", written by Chen Jingying, who works for Ruibo Energy Think Tank. All rights reserved, if you need to reprint, use or translate into other languages, you need to get the consent of this journal and indicate the source.