CVaR constrained planning of renewable generation with consideration of system inertial response, reserve services and demand participation

• Published in: Energy economics 2016-09, Vol.59, p.104-117
• Main Authors: Inzunza, Andrés, Moreno, Rodrigo, Bernales, Alejandro, Rudnick, Hugh
• Format: Article
• Language: English
• Subjects: Bending machines; Chile; Cost benefit analysis; Demand side management; Diversification; Electricity; Energy; Energy economics; Energy sources; Fossil fuels; Frequency control; Frequency response and reserves; Generation technologies portfolios; Hedging; Hydrology; Investment; Investments; Linear programming; Mean-risk electricity generation investment; Participation; Planning; Power system economics; Power system security; Preservation; Prices; Risk; Security; Services; Social services delivery; Studies
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2016.07.020

Integration of renewable generation can lead to both diversification of energy sources (which can improve the overall economic performance of the power sector) and cost increase due to the need for further resources to provide flexibility and thus secure operation from unpredictable, variable and asynchronous generation. In this context, we propose a cost-risk model that can properly plan generation and determine efficient technology portfolios through balancing the benefits of energy source diversification and cost of security of supply through the provision of various generation frequency control and demand side services, including preservation of system inertia levels. We do so through a scenario-based cost minimization framework where the conditional value at risk (CVaR), associated with costs under extreme scenarios of fossil fuel prices combined with hydrological inflows, is constrained. The model can tackle problems with large data sets (e.g. 8760 hours and 1000 scenarios) since we use linear programming and propose a Benders-based method adapted to deal with CVaR constraints in the master problem. Through several analyses, including the Chilean main electricity system, we demonstrate the effects of renewables on hedging both fossil fuel and hydrological risks; effects of security of supply on costs, risks and renewable investment; and the importance of demand side services in limiting risk exposure of generation portfolios through encouraging risk mitigating renewable generation investment. •We propose a cost-risk generation planning model with renewables.•Model values renewables to hedge against uncertain fuel prices and hydro inflows.•Model considers effect of renewables on system reliability and need for flexibility.•Frequency control (including inertia) and demand side services are considered.•A novel CVaR constrained Benders-based decomposition is proposed for scalability.