Insurance mechanisms for the reliability of electricity supply
<p>In the context of rapid shifts in the energy supply mix and the onset of climate change, tail risk in power systems presents an emergent threat to system reliability. Flexible resources like load control, storage and distributed energy resources are potent tools to alleviate system strains...
| 1. Verfasser: | |
|---|---|
| Weitere Verfasser: | |
| Format: | Abschlussarbeit |
| Sprache: | English |
| Veröffentlicht: |
2023
|
| Schlagworte: |
| _version_ | 1826312880819011584 |
|---|---|
| author | Billimoria, F |
| author2 | Morstyn, T |
| author_facet | Morstyn, T Billimoria, F |
| author_sort | Billimoria, F |
| collection | OXFORD |
| description | <p>In the context of rapid shifts in the energy supply mix and the onset of climate change, tail risk in power systems presents an emergent threat to system reliability. Flexible resources like load control, storage and distributed energy resources are potent tools to alleviate system strains during extreme events. However, market participants need appropriate economic incentives to exploit the value of such resources. While spot prices serve as robust indicators of real-time scarcity, a complex challenge lies in translating short-term signals to long-term investment decisions. This is especially pertinent in the context of markets marked by incompleteness, and agents with pronounced aversion to risk.</p>
<p>The financial technology of insurance is targeted at the assessment, pricing, and management of extreme and catastrophic risks. This thesis proposes the novel application of insurance contracts and risk architectures to modern electricity markets, extending existing approaches to reliability risk management. This leads to the central research question of this thesis: <em>Can the delivery of electricity service to consumers be made more reliable through the application of insurance mechanisms?</em></p>
<p>The thesis investigates this question through three main streams of research:</p>
<p>This first stream proposes the novel application of insurance contracts and capital reserving frameworks on the procurement of strategic reserves in electricity markets. A strategic reserve is a reliability mechanism in electricity markets that seeks to contract generation capacity incremental to that incentivised by short-term spot markets, for use in times of critical supply shortage. The insurance contracts allow consumers to elect differentiated reliability preferences, and align the financial interests of the insurer with such preferences. Application to a case study suggests the potential for improved consumer and social welfare while maintaining insurer viability and solvency. The design is also robust to non-transparent market parameters such as generator risk aversion.</p>
<p>The second stream develops a locational insurance model to value resilience in power systems exposed to high-impact low-probability common-mode events. It is demonstrated that the implementation of this scheme in a large-scale power system could reduce load losses via investment in resilient distributed energy resources. However the cost of such insurance may be expensive, and appropriate calibration of consumer expectations and preferences is important.</p>
<p>The final stream examines the interaction between the design of contracts between central agencies and storage resources, and the operation of the resources in the market. Five principles for central agency contracting are proposed, focusing on incentive compatibility with existing spot dispatch and limiting distortions to long-term hedging markets. The principles are applied specifically to contracts with storage resources. It is demonstrated that many early designs for storage auctions may be inconsistent with the identified principles. A novel storage contract ‘yardstick’ is proposed, which is shown to align participant dispatch incentives, while maintaining revenue support.</p> |
| first_indexed | 2024-09-25T04:02:05Z |
| format | Thesis |
| id | oxford-uuid:9fbefa4b-e295-468c-9512-e7c7551c1a7e |
| institution | University of Oxford |
| language | English |
| last_indexed | 2024-09-25T04:02:05Z |
| publishDate | 2023 |
| record_format | dspace |
| spelling | oxford-uuid:9fbefa4b-e295-468c-9512-e7c7551c1a7e2024-04-26T13:35:36ZInsurance mechanisms for the reliability of electricity supplyThesishttp://purl.org/coar/resource_type/c_db06uuid:9fbefa4b-e295-468c-9512-e7c7551c1a7eRegulationMarkets--Design and constructionElectricity marketsElectric power systems--PeriodicalsEnergyMathematical optimizationPower marketsAuction theoryEnglishHyrax Deposit2023Billimoria, FMorstyn, TMcCulloch, MHobbs, BRogers, D<p>In the context of rapid shifts in the energy supply mix and the onset of climate change, tail risk in power systems presents an emergent threat to system reliability. Flexible resources like load control, storage and distributed energy resources are potent tools to alleviate system strains during extreme events. However, market participants need appropriate economic incentives to exploit the value of such resources. While spot prices serve as robust indicators of real-time scarcity, a complex challenge lies in translating short-term signals to long-term investment decisions. This is especially pertinent in the context of markets marked by incompleteness, and agents with pronounced aversion to risk.</p> <p>The financial technology of insurance is targeted at the assessment, pricing, and management of extreme and catastrophic risks. This thesis proposes the novel application of insurance contracts and risk architectures to modern electricity markets, extending existing approaches to reliability risk management. This leads to the central research question of this thesis: <em>Can the delivery of electricity service to consumers be made more reliable through the application of insurance mechanisms?</em></p> <p>The thesis investigates this question through three main streams of research:</p> <p>This first stream proposes the novel application of insurance contracts and capital reserving frameworks on the procurement of strategic reserves in electricity markets. A strategic reserve is a reliability mechanism in electricity markets that seeks to contract generation capacity incremental to that incentivised by short-term spot markets, for use in times of critical supply shortage. The insurance contracts allow consumers to elect differentiated reliability preferences, and align the financial interests of the insurer with such preferences. Application to a case study suggests the potential for improved consumer and social welfare while maintaining insurer viability and solvency. The design is also robust to non-transparent market parameters such as generator risk aversion.</p> <p>The second stream develops a locational insurance model to value resilience in power systems exposed to high-impact low-probability common-mode events. It is demonstrated that the implementation of this scheme in a large-scale power system could reduce load losses via investment in resilient distributed energy resources. However the cost of such insurance may be expensive, and appropriate calibration of consumer expectations and preferences is important.</p> <p>The final stream examines the interaction between the design of contracts between central agencies and storage resources, and the operation of the resources in the market. Five principles for central agency contracting are proposed, focusing on incentive compatibility with existing spot dispatch and limiting distortions to long-term hedging markets. The principles are applied specifically to contracts with storage resources. It is demonstrated that many early designs for storage auctions may be inconsistent with the identified principles. A novel storage contract ‘yardstick’ is proposed, which is shown to align participant dispatch incentives, while maintaining revenue support.</p> |
| spellingShingle | Regulation Markets--Design and construction Electricity markets Electric power systems--Periodicals Energy Mathematical optimization Power markets Auction theory Billimoria, F Insurance mechanisms for the reliability of electricity supply |
| title | Insurance mechanisms for the reliability of electricity supply |
| title_full | Insurance mechanisms for the reliability of electricity supply |
| title_fullStr | Insurance mechanisms for the reliability of electricity supply |
| title_full_unstemmed | Insurance mechanisms for the reliability of electricity supply |
| title_short | Insurance mechanisms for the reliability of electricity supply |
| title_sort | insurance mechanisms for the reliability of electricity supply |
| topic | Regulation Markets--Design and construction Electricity markets Electric power systems--Periodicals Energy Mathematical optimization Power markets Auction theory |
| work_keys_str_mv | AT billimoriaf insurancemechanismsforthereliabilityofelectricitysupply |