Date of Original Version



Working Paper

Abstract or Description

he expected increase in the penetration of renewables in the approaching decade urges the electricity market to introduce new products - in particular, flexible ramping products - to accommodate the renewables' variability and intermittency. CAISO and MISO are leading the design of the new products. However, it is not clear how such products may affect the electricity market. In this paper, we are specifically interested in assessing how the new products distort the optimal energy dispatch by comparing with the case without such products. The distortion may impose additional cost, which we term as the "distortion cost". Using a functional approach, we establish the relationship between the distortion cost and the key parameters of the new products, i.e., the up and down flexible ramping requirements. Such relationship yields a novel routine to efficiently construct the functions, which makes it possible to efficiently perform the minimal distortion cost energy dispatch while guaranteeing a given supply reliability level. Both theoretical analysis and simulation results suggest that smartly selecting the parameters may substantially reduce the distortion cost. We believe our approach can assist the ISOs with utilizing the ramping capacities in the system at the minimal distortion cost.