Wind generation is unpredictable. Many like to use the term intermittent. Some say that the term intermittent is inaccurate. I prefer to talk about unscheduled flows. The wind operator makes a commitment to produce power at a specified rate. Sometimes the production exceeds that specified rate. Sometimes the production is less than the specified rate. Seldom is the production exactly equal to the specified rate. It reminds me of Goldilocks and the three bears, “Too hot, too cold, but seldom just right.”
Most utility approach unscheduled flows of electricity by punishing the provider for any imbalance. If production exceeds the specified amount, then the price for the surplus is less than the standard price. If production is less than the specified amount, then there is a high price changed for the shortage. “Heads the utility wins. Tails the generator looses.”
Utilities are used to the concept of “Too hot, too cold, but seldom just right” in the way they control their operations using the metric of Area Control Error (ACE). Until about a decade ago, the operating paradigm was that ACE should pass through zero at least within 10 minutes of the last time it passed through zero. ACE never was quite equal to zero, sometimes it was “too hot”, sometimes it was “too cold”, but never was it “just right.” ACE just passed through being just right.
These “seldom just right” concepts can be combined into a financial model.
- When ACE is positive and there is “too much electricity,” we can set a very low price for unscheduled amounts of wind.
- If the wind is producing too much, then the wind operator will be disappointed with the price.
- But if the wind is operating below the specified rate, the charge for the shortfall will be the same very low price.
- Conversely, when ACE is negative is there “isn’t enough electricity,” we can set a very high price for unscheduled amounts of wind.
- If the wind is producing too much, then the wind operator will enjoy the high price for its surplus generation.
- If the wind is producing less than specified, then the wind generator will face a penalty rate for the short fall.
Since ACE is nominally a continuous variable, the price can vary continuously around some set point, such as the utility’s announced hourly price for electricity.
I call this pricing concept WOLF, for Wide Open Load Following. You may want to read an old paper of mine or recent comments
- “Tie Riding Freeloaders–The True Impediment to Transmission Access,” Public Utilities Fortnightly, 1989 December 21,
- “A Pricing Mechanism To Facilitate Entry Into The FCAS Market” Investigation Of Hydro Tasmania’s Pricing Policies In The Provision Of Raise Contingency Frequency Control Ancillary Services To Meet The Tasmanian Local Requirement, Office of the Tasmanian Economic Regulator, 2010 July 9
- “Ratemaking To Facilitate Contra-Cyclical Operations” FERC Docket RM10-17-0000 Demand Response Compensation In Organized Wholesale Energy Markets, 2010 December 27.