Energy source as a tariff attribute

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Energy source as a tariff attribute

Prashant Reddy
Hi all,

I'd like to propose that we extend the tariff ontology to capture information about the source of energy covered by the tariff.  Minimally, the characterization would capture percentage of renewable energy being sold or bought by the tariff.  However, this causes some confusion about what is considered renewable and what is not.  One solution is to categorize further, for example, into fossil, nuclear, hydro, solar, wind, other (geothermal, oceanic, etc.).  

We should be able to capture this information for any locally produced energy through a self-declaration by the customer model.  The broker can then combine all of these self-declarations from his portfolio to provide a blended characterization for the power sold by his tariffs.  This blended characterization would also need to be adjusted to reflect the energy bought by the broker in the wholesale market, which we can estimate for all the energy on that market by averaging across the energy-producing customer models and making assumptions on the liquidity provider.  

If a tariff includes multiple PowerTypes, this characterization can be applied to each PowerType separately.

This extension obviously adds complexity, but it seems to be an important real world attribute in how customer behavior may be affected; i.e., customers willing to pay more for "green" energy.  We can already see examples of this in the British retail market.  I wanted to put this up for discussion, not necessarily for immediate inclusion in the pilot competition, but possibly for a future iteration.

Any thoughts?

Thanks,
Prashant


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AW: Energy source as a tariff attribute

chris.flath
> This extension obviously adds complexity, but it seems to be an important real world attribute in how
> customer behavior may be affected; i.e., customers willing to pay more for "green" energy.  We can already
> see examples of this in the British retail market.  I wanted to put this up for discussion, not necessarily for
> immediate inclusion in the pilot competition, but possibly for a future iteration.
 
Prashant you hit a very important point. I agree that "greenness" needs to be included, potentially for the very next version after the pilot (I am hesitant to add any extra features for the pilot). However, I do not think that we should split up too much but keep it simple and just label a power source as green or non-green. The reason behind this drastic simplification is the fact that we will need a balancing mechanism for each power type - since a broker needs to deliver green energy if it sold green energy, and needs to be held accountable for this.

Having green and conventional energy balancing seems not too complex but running balancing for coal, gas, solar, water, nuclear, etc. may add little value.

Cheers,
chris
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RE: Energy source as a tariff attribute

Wolf
Administrator

 

> This extension obviously adds complexity, but it seems to be an important real world attribute in how
> customer behavior may be affected; i.e., customers willing to pay more for "green" energy.  We can already
> see examples of this in the British retail market.  I wanted to put this up for discussion, not necessarily for
> immediate inclusion in the pilot competition, but possibly for a future iteration.
 
Prashant you hit a very important point. I agree that "greenness" needs to be included, potentially for the very next version after the pilot (I am hesitant to add any extra features for the pilot). However, I do not think that we should split up too much but keep it simple and just label a power source as green or non-green. The reason behind this drastic simplification is the fact that we will need a balancing mechanism for each power type - since a broker needs to deliver green energy if it sold green energy, and needs to be held accountable for this.

Yes, I second this opinion that this is a very important point, especially in the view of preference modeling later on (one of the main goals of Power TAC!). As a matter of fact I’m having already a tariff like this in the Netherlands. It tells me exactly what my percentage of green energy is. In my case I opted for 100% (and pay more for it), but that doesn’t necessarily mean that my energy will be 100% green energy. It more or less means that the overall percentage of green energy is fixed, and that my money is invested in green energy somewhere in the grid. Further, I don’t necessarily think that a green energy would also need another green energy as balancing power. There is no doubt that this is desirable, but I don’t think that it is always realistic, that’s exactly why we currently have these spinning reserves. Things will most likely change over a few years with more possibilities to store energy, such as in electric vehicles (which could be loaded by green energy).

Cheers,

Wolf

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AW: Energy source as a tariff attribute

chris.flath
The question I wanted to address is how to prevent cheap talk in the energy source – i.e. selling 100% green and delivering coal. If a broker systematically profits from selling green-labeled energy that is not available we need to counter this in the game design. I currently see two solutions:

A) Balancing on the energy type level
B) Feeding back realized energy content into reputation mechanism

Since I have no clear picture of the B)-option it seemed more natural to think about A). Green energy clearing will become a real-world problem if customer appreciation continues to rise. At the moment signing up for a greener energy mix means effectively just worsening the non-green mix. Hence, we can eventually address another challenging field.
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Re: Energy source as a tariff attribute

Prashant Reddy
Feeding back realized energy content into the reputation mechanism seems like a fairly simple and effective way, at least in the near term, to deal with this problem (as long as customer models pay attention to that information). 

Thanks,
Prashant

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RE: Energy source as a tariff attribute

Wolf
Administrator

I agree using a good broker reputation mechanism should take care, at least initially, of this problem.

 

Cheers,

 

Wolf

 

From: Prashant Reddy [via Power TAC Developers] [mailto:[hidden email]]
Sent: Friday, March 11, 2011 04:39 PM
To: Wolf Ketter
Subject: Re: Energy source as a tariff attribute

 

Feeding back realized energy content into the reputation mechanism seems like a fairly simple and effective way, at least in the near term, to deal with this problem (as long as customer models pay attention to that information). 

 

Thanks,

Prashant

 

 


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Re: Energy source as a tariff attribute

grampajohn
Administrator
In reply to this post by Prashant Reddy
I've been thinking about this problem, and how we might get this kind of information through the wholesale market. My understanding is that retailers who sell "green" energy generally buy it through bilateral contracts, since the wholesale markets do not include energy-source information in the bidding process (AFAIK). Is this something that needs to change? How would it work? I'm not an expert on multi-attribute bidding, but I could imagine that a broker might offer to pay different prices for power from different sources or with different levels of carbon emission. I've also been thinking about whether the original idea of a data-driven liquidity provider will be adequate to drive the wholesale side of the market. More on that in a separate post...

John
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RE: Energy source as a tariff attribute

Wolf
Administrator

We could potentially have different PDA’s dependent on the energy source, but this might get too messy (but still simpler as the multi-attribute auction).

 

Thoughts?

 

Thanks,

 

Wolf

 

From: grampajohn [via Power TAC Developers] [mailto:[hidden email]]
Sent: Saturday, March 19, 2011 04:36 PM
To: Wolf Ketter
Subject: Re: Energy source as a tariff attribute

 

I've been thinking about this problem, and how we might get this kind of information through the wholesale market. My understanding is that retailers who sell "green" energy generally buy it through bilateral contracts, since the wholesale markets do not include energy-source information in the bidding process (AFAIK). Is this something that needs to change? How would it work? I'm not an expert on multi-attribute bidding, but I could imagine that a broker might offer to pay different prices for power from different sources or with different levels of carbon emission. I've also been thinking about whether the original idea of a data-driven liquidity provider will be adequate to drive the wholesale side of the market. More on that in a separate post...

John


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AW: Energy source as a tariff attribute

chris.flath
Very good thinking John that the green attribute is even more relevant for the wholesale market than for the balancing. Your point actually expressed what I wanted to describe initially that we need to carefully model the green attribute throughout the market elements.

It seems Wolf's idea of having parallel wholesale markets (again resonating with my initial idea of parallel balancing) is a workable first solution. This even the opportunity for comparative analysis of the conventional and the green wholesale market.

Von: Wolf [via Power TAC Developers] [mailto:[hidden email]]
Gesendet: Montag, 21. März 2011 09:27
An: Christoph Flath
Betreff: RE: Energy source as a tariff attribute

We could potentially have different PDA's dependent on the energy source, but this might get too messy (but still simpler as the multi-attribute auction).
 
Thoughts?
 
Thanks,
 
Wolf

From: grampajohn [via Power TAC Developers] [mailto:[hidden email]]
Sent: Saturday, March 19, 2011 04:36 PM
To: Wolf Ketter
Subject: Re: Energy source as a tariff attribute
 
I've been thinking about this problem, and how we might get this kind of information through the wholesale market. My understanding is that retailers who sell "green" energy generally buy it through bilateral contracts, since the wholesale markets do not include energy-source information in the bidding process (AFAIK). Is this something that needs to change? How would it work? I'm not an expert on multi-attribute bidding, but I could imagine that a broker might offer to pay different prices for power from different sources or with different levels of carbon emission. I've also been thinking about whether the original idea of a data-driven liquidity provider will be adequate to drive the wholesale side of the market. More on that in a separate post...

John
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Re: AW: Energy source as a tariff attribute

grampajohn
Administrator
chris.flath wrote
Very good thinking John that the green attribute is even more relevant for the wholesale market than for the balancing. Your point actually expressed what I wanted to describe initially that we need to carefully model the green attribute throughout the market elements.

It seems Wolf's idea of having parallel wholesale markets (again resonating with my initial idea of parallel balancing) is a workable first solution. This even the opportunity for comparative analysis of the conventional and the green wholesale market.
The problem with parallel markets is that we lose substitutability. That would be a show-stopper, I think. We still need to work on this problem, and I cannot see implementing it for version 1. I agree that it's critically important. Perhaps this is an issue we should ask Mathijs about.

Cheers -

John
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Re: AW: Energy source as a tariff attribute

Prashant Reddy
I was thinking about this somewhat differently.  I thought we'd keep the wholesale market part (very) simple by just computing one grand number for the blended green energy percentage in the wholesale market across all players in that market.  

Say a particular broker, B1, has a portfolio that's 200 units production and 300 units load.  Let's say B1 knows that the green% of those 200 units is 40%.  B1 then goes to the wholesale market for the remaining 100 units.  Assume that we somehow say that the wholesale market is 10% green.  Then that broker's blended green% is (2/3 * 0.4) + (1/3 * 0.1).

Let's say a different broker, B2, is 500 units production at green%=0.4 and 400 units load.  Then B2 is contributing 100 units to the wholesale market at green%=0.4.  

Similarly, each broker, B_i, that is net production will contribute some # of units, c_i, at some green%, g_i.  And the GenCo will contribute a significant portion of the production capacity, c_G, at its own green%, g_G.  Then the wholesale market's blended green% is simply a weighted average:
  g_W = \Sum_i c_i * g_i + c_G * g_G / \Sum_i c_i + c+G 


If we run the customer models and GenCo with the default tariff beforehand, we should approximately know what the blended green%, g_0, for the whole regional market should be and we can start with that number at game initialization.  Then during the game, the wholesale market can periodically compute a historical actual green%, g_t, and publish that to all the brokers (who can update their tariffs at that point if they wish).  In the reputation mechanism, we can account for any drastic differences between g_0 and the g_t numbers, by not penalizing brokers too much for deviations from their tariff terms if most of the deviation came from changes in the wholesale market and not in their portfolio.

Does this make any sense?

Thanks,
Prashant

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Re: AW: Energy source as a tariff attribute

chris.flath
grampajohn wrote
The problem with parallel markets is that we lose substitutability.
Do we really? Substitutability is related to the balancing aspect of Power TAC, i.e. energy sold needs to be procured. If the green aspect is covered by reputation in the balancing then substitutability is preserved: If  I have too little green energy I can prevent black-outs by sourcing power from either the green or the conventional power wholesale market - in the latter case, however, I will take a hit on the reputation side. In equilibrium the spread between green and conventional wholesale market prices will reflect the cost of this reputation loss.

Prashant, will your approach not lead to conventional energy free-riding on green energy in the wholesale market? Assume the wholesale market is 100% green and my contracted generation is 100% conventional. If I sell all my generation into the wholesale market the green ratio drops to a lower level. If I buy it back the very same instant I can effectively convert my conventional power into a more green energy type?
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Re: AW: Energy source as a tariff attribute

grampajohn
Administrator
In reply to this post by Prashant Reddy
Prashant Reddy wrote
I was thinking about this somewhat differently.  I thought we'd keep the wholesale market part (very) simple by just computing one grand number for the blended green energy percentage in the wholesale market across all players in that market.
I would prefer a mechanism that allows for price differentiation by attribute. There are two obvious attributes that might merit differentiation: renewability, and carbon content. So a natural gas turbine is not renewable, but has less than half the carbon content of a coal plant, and a combined-cycle coal plant has lower carbon content than a traditional coal-fired thermal plant. And a nuclear plant has no (marginal) carbon content, but is not renewable. Most people would say that hydro power is renewable.

On the other hand, if a broker does not care about carbon content or renewability, it should be able to buy whatever is available in a single transaction, and not have to bid in multiple parallel markets.

Does this make sense?

John
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Re: AW: Energy source as a tariff attribute

chris.flath
grampajohn wrote
On the other hand, if a broker does not care about carbon content or renewability, it should be able to buy whatever is available in a single transaction, and not have to bid in multiple parallel markets.
My line of argument was motivated by the EEX-style continuous market where the broker would place its bid for conventional energy early on. If over the course of the time evolution the bid is not cleared the broker can modify the bid or delete it and try his luck in the green market.

Clearly, in the setup with one shot clearing with no live clearing the broker wants to make sure to get the energy but does not want to get it twice.

This misunderstandings clears one thing - multiple markets / product types are easily accomplished during continuous market interaction but difficult in the FERC style one-shot clearing.

grampajohn wrote
So a natural gas turbine is not renewable, but has less than half the carbon content of a coal plant, and a combined-cycle coal plant has lower carbon content than a traditional coal-fired thermal plant. And a nuclear plant has no (marginal) carbon content, but is not renewable. Most people would say that hydro power is renewable.
Quick question on the scope of Power TAC - I always imagined the market population to be rather small and regional. Consequently, there would not be multiple large scale powerplants, more likely only one. The easiest assumption would then be to make this a convetional thermal powerplant with some carbon rate competing with decentralized, small-scale renewables such as PVs or wind as well as decentralized non-green sources like CHPs.
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Re: AW: Energy source as a tariff attribute

Prashant Reddy
In reply to this post by chris.flath


On Tue, Mar 22, 2011 at 8:36 AM, chris.flath [via Power TAC Developers] <[hidden email]> wrote

Prashant, will your approach not lead to conventional energy free-riding on green energy in the wholesale market? Assume the wholesale market is 100% green and my contracted generation is 100% conventional. If I sell all my generation into the wholesale market the green ratio drops to a lower level. If I buy it back the very same instant I can effectively convert my conventional power into a more green energy type?

 
The simple mechanism I propose is certainly not gaming proof, but given that we control many of the entities, like the GenCo and DU, I think it's workable.  I agree that the problem you pose is worth thinking about, but it's also quite unlikely in our scenario.  Most local production in a broker's portfolio is likely to be greener than the GenCo's production (for the near future).  So, the only party that can "green wash" their conventional energy in the wholesale market is the GenCo, but if we assume that the GenCo is only a seller and not a buyer, we shouldn't need to worry about this problem, no?  

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Re: AW: Energy source as a tariff attribute

grampajohn
Administrator
In reply to this post by chris.flath
chris.flath wrote
My line of argument was motivated by the EEX-style continuous market where the broker would place its bid for conventional energy early on. If over the course of the time evolution the bid is not cleared the broker can modify the bid or delete it and try his luck in the green market.

Clearly, in the setup with one shot clearing with no live clearing the broker wants to make sure to get the energy but does not want to get it twice.

This misunderstandings clears one thing - multiple markets / product types are easily accomplished during continuous market interaction but difficult in the FERC style one-shot clearing.
I don't think the market clearing mechanism has much if anything to do with it. First of all, if we run the day-ahead market out to 24 hours and close it one hour ahead, then a broker gets 24 chances to get what it needs. That's not significantly fewer chances than a broker would get using a continuous market in our simulation, given the large time-compression factor. Also, I believe the EEX market does indeed use one-shot clearing for the day-ahead market, because it must apply transmission constraints. The continuous clearing market is for futures contracts. At this point, and for the foreseeable future, we are not simulating a futures market.

chris.flath wrote
Quick question on the scope of Power TAC - I always imagined the market population to be rather small and regional. Consequently, there would not be multiple large scale powerplants, more likely only one. The easiest assumption would then be to make this a convetional thermal powerplant with some carbon rate competing with decentralized, small-scale renewables such as PVs or wind as well as decentralized non-green sources like CHPs.
That's not the model I envision, and it would not map effectively to any market that policy-makers would be interested in. We are modeling a market that is connected to national and international transmission grids, and so can buy energy from anyone who sells into the transmission grid, subject to transmission capacity constraints.

Does this help?

John
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Re: AW: Energy source as a tariff attribute

Prashant Reddy
In reply to this post by grampajohn


On Tue, Mar 22, 2011 at 10:16 AM, grampajohn [via Power TAC Developers] <[hidden email]> wrote:
Prashant Reddy wrote:
I was thinking about this somewhat differently.  I thought we'd keep the wholesale market part (very) simple by just computing one grand number for the blended green energy percentage in the wholesale market across all players in that market.
I would prefer a mechanism that allows for price differentiation by attribute. There are two obvious attributes that might merit differentiation: renewability, and carbon content. 

I am on board with having two separate attributes to describe "greenness".  But I would suggest that we only consider these attributes in the tariff market (by modeling these attributes as standard/optional terms in offered tariffs) and not as separately tradable entities in the wholesale market.  As Chris says, if a broker has to possibly put in bids in three different categories for the same timeslot, I think that's too complicated.  If they put in a bid saying get me the cheapest, they'll almost always get conventional energy.  

So, I think the wholesale market should be aware of green content from an accounting and reporting perspective, but I don't think it needs to allow separate trading by green attributes. 

To be clear, I don't disagree at all that separately tradable energy types is desirable, but I just think it's too complex, at least for an initial version (even if that's after the pilot).  

To offer one counterpoint to my own argument, I think tradable green energy types are indeed necessary if we think that the majority of all brokers' supply portfolio comes from the wholesale market and therefore a blended wholesale market greenness will dominate any differences in the local production greenness across the brokers' portfolios.  But, I don't know that this will be true in our simulated scenarios?

Thanks,
Prashant

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Re: AW: Energy source as a tariff attribute

chris.flath
In reply to this post by grampajohn
grampajohn wrote
That's not the model I envision, and it would not map effectively to any market that policy-makers would be interested in. We are modeling a market that is connected to national and international transmission grids, and so can buy energy from anyone who sells into the transmission grid, subject to transmission capacity constraints.

Does this help?
Thanks for this quick reply, however, I do feel a little bit puzzled - in the original TAC energy whitepaper it reads:
One approach to addressing this problem is to use the resource-allocation power of a market to find a near-optimal balance between producers and consumers of electrical power at lower levels of the grid hierarchy, and to make the participants in this market responsible for near-real-time balancing at the local level. So far, there is limited experience from pilot projects and field studies that could guide design and operation of such regional markets.
The wholesale market we are modelling should not be the regular national power exchange but the new (not yet existant) type of regional market where small scale generation can be marketed. Despite these markets not yet being in existence policy makers are very much interested whether they can achieve efficient balancing or not.

As stated before I can see that GenCo is operating a local large power plant which is a major element in the wholesale but the idea that there are multiple large-scale power plants in a given local market does not map to any market policy-makers would be interested in. Especially, if there were multiple larges scale generators as well as large scale traders they would totally dominate small local actors like our brokers and our micro level modelling is a moot point - brokers would just be price-takers.
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Re: AW: Energy source as a tariff attribute

grampajohn
Administrator
In reply to this post by Prashant Reddy
Prashant Reddy wrote
To offer one counterpoint to my own argument, I think tradable green energy
types are indeed necessary if we think that the majority of all brokers'
supply portfolio comes from the wholesale market and therefore a blended
wholesale market greenness will dominate any differences in the local
production greenness across the brokers' portfolios.  But, I don't know that
this will be true in our simulated scenarios?
For most realistic scenarios, that is exactly the case. In many areas, 100% of a broker's supply comes from the wholesale market. There are probably few if any areas of the world where the majority of available generating capacity is small-scale sources connected on the distribution side of the grid.

One of the reasons Power TAC is important is that all the current mechanisms for balancing the overall grid make the assumption that the contribution from the distribution grids is negligible. So we need to be able to simulate a range of situations ranging from currently-realistic scenarios to potential future scenarios where some significant fraction (probably < 50%) comes from sources connected to distribution grids.

John
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Re: AW: Energy source as a tariff attribute

grampajohn
Administrator
In reply to this post by chris.flath
chris.flath wrote
The wholesale market we are modelling should not be the regular national power exchange but the new (not yet existant) type of regional market where small scale generation can be marketed. Despite these markets not yet being in existence policy makers are very much interested whether they can achieve efficient balancing or not.
The new market is the tariff market, and that's not really new. Brokers must buy the energy they need to serve their customers, and it's unlikely to be available in a region at the retail level in exactly the right amounts to match consumption. What's new is the integration of local sources with wholesale sources, with balancing driven by economics.
chris.flath wrote
As stated before I can see that GenCo is operating a local large power plant which is a major element in the wholesale but the idea that there are multiple large-scale power plants in a given local market does not map to any market policy-makers would be interested in. Especially, if there were multiple larges scale generators as well as large scale traders they would totally dominate small local actors like our brokers and our micro level modelling is a moot point - brokers would just be price-takers.
That might be true if we were talking about individual villages. But once you take into account transmission constraints, and consider the scope of a distribution network in a medium to large city, the prices faced by brokers in the wholesale market will indeed be strongly influenced by local consumption and production. The day-ahead wholesale market is is not a commodity futures market, and the brokers ARE large-scale traders in this market, comparable in size to a large power plant or two.

John
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