Designing and assessing market designs to improve electrical grid reliability

DOE grant will fund project to integrate and improve resiliency of renewables in aid of the clean energy transition

April 30, 2024

UNIVERSITY PARK, Pa. — A project co-led by two Penn State professors has been selected to receive up to $815,959 from the Grid Deployment Office of the U.S. Department of Energy (DOE). The team will evaluate prospective market design changes to efficiently integrate batteries and other unconventional resources into wholesale electricity markets, with the aim of improving electrical grid reliability.

Mort Webster, professor of energy engineering at Penn State and principal investigator, and Uday V. Shanbhag, the Gary and Sheila Bello Chair Professor of Industrial and Manufacturing Engineering and co-principal investigator, will partner with PJM Interconnection (PJM) and ISO New England Inc. (ISO-NE). PJM and ISO-NE together manage the electricity grid covering 19 states, including Pennsylvania, and account for over one-fifth of the electricity consumed in the U.S. Webster will model their electricity markets and develop market design changes to achieve the best performance across reliability, efficiency and investment incentives, which could entice companies to build the flexible generators needed to balance supply and demand.

Wholesale electricity markets define every step of the process power must go through every time we flip the light switch or plug something in, so the researchers said this work could potentially help reduce costs to consumers and aid the transition to more sustainable energy. 

This project is one of six to receive up to $10.6 million through the DOE’s Wholesale Electricity Markets Studies and Engagements Program. The DOE said that these projects “will help facilitate the improvement of creation of more efficient and flexible wholesale electricity markets, which is essential to ensure grid resilience and reliability for American homes and businesses.”

According to Webster, most consumers receive power through a wholesale electricity market.

“The unique thing about electricity is that at every moment, whatever devices we turn on, collectively, the providers have to adjust almost instantly to provide exactly that amount of power,” Webster said. “For the past 25 years, how that power has been delivered from generators to distribution utilities that pick and choose where, or whom, to buy the power from, before finally transmitting it to us has worked well. But it will have to change as we move away from fossil fuel-based power generation.”

According to the researchers, the ability of the system to adjust will be more difficult with increased reliance on renewable — and more variable — energy sources such as solar and wind generation, as well as battery energy storage. Currently, every five minutes, market operators must predict the regional electricity needs for the next five minutes. In that short time, they must set up the system to meet forecasted energy usage, and there is always a gap between the predicted and actual usage. More variable power sources will exacerbate this gap, Webster said.  

“It may seem very nitpicky to look at these five-minute increments,” Webster said, noting there are long-term questions regarding producing power with a net zero target in the future. “But really, the reason we're doing this is if we don't get this right, it is going to be hard to transition. The reliability of the power grid is of critical importance to our society. If people can’t get reliable power when they need it while we are bringing more renewables into the system, the clean energy transition will lose support from the most important constituency – consumers.”

Modeling the five-minute increment uncertainty and determining the best deployment of energy resources to meet uncertain demand is especially difficult. Shanbhag will bring his expertise on stochastic optimization to the design of how these future systems might operate.

Increased battery energy storage will add more complexity to the systems, as operators must consider how charged the batter is, as well as whether the battery will be available or charging. No current commercial tool or application captures the complex environment of system operators who must continually adapt to changing and imperfect forecasts, according to the researchers.

“The current operational structure, which is designed to respond instantly in five-minute increments, now must also think 12 hours ahead,” Webster said. “This is high priority concern among regional transmission organizations like PJM and ISO-NE.”

The solution may include better market designs to reward resources that provide flexibility. The proposed project will build on the framework developed collaboratively by PJM and a team at Penn State as part of a recently concluded Advanced Research Projects Agency - Energy (ARPA-E) award. The real-life electricity market simulation successfully reproduces key features of PJM’s wholesale market operations, such as the time constraints and the uncertainty that operators regularly face. The new project will apply this new simulation model to compare a broad range of potential market design changes and quantify the tradeoffs.

“Every design has tradeoffs,” Webster said. “Are the incentives aligned correctly so the right action is rewarded, the investment is made and all the stakeholders agree? This engagement will ensure stakeholders have a realistic simulation with a credible, detailed analysis that can provide critical insight to ensure the market is designed correctly.”

A working group with experts at PJM and ISO-NE will propose market designs and assess the simulated results.

“Penn State’s modeling will allow PJM and ISO New England to explore market rule changes that optimize the performance of power systems whose generation and consumption of electricity is becoming increasingly more dynamic and less predictable,” said Stu Bresler, executive vice president of market services and strategy at PJM. “This work is aimed at enhancing competitive markets to continue delivering reliable electricity service to consumers at affordable costs.”

Modifications to market design and operations may cost millions of dollars and take years to implement, according to the researchers. Extensive simulation of any proposed change to find the most optimal design is a crucial, cost-saving step.

“Innovative ideas and collaboration are vital to a successful clean energy transition," said Matthew White, vice president of market development and settlements, and chief economist at ISO-NE. "ISO New England is proud to partner with Penn State and our colleagues at PJM on this exciting project."


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