Glimpses of the future electricity system? Demand flexibility and a proposal for a special auction

During the early stages of the Covid-19 pandemic, we have witnessed glimpses of what the future electricity system may bring, notably the rise of intermittent solar PV and wind energy as a share of total electricity generation. The recent outages in California have illustrated the absence of preparation to cope with the reduction of solar PV when the sun sets. Likewise, periods of abundance of renewables both there and in other countries lead to questions about a system’s ability to absorb renewables and the costs imposed to cope with the excess.This Comment poses a question: if these glimpses are reasonably accurate, what implications do they have for policy makers?

The aim here is to reflect on these glimpses and propose a two-market approach that would help to address the challenge of integrating intermittent renewables, especially by encouraging flexible demand to match output from renewables. Since this approach would require fundamental change to existing markets, that might be too much to expect in the near term. However, we believe that experimenting with the introduction of individual elements of the two-market approach could still deliver considerable gains and would be much easier to introduce. One proposal is for governments that organize centralized auctions for renewables to use them to incentivize demand-side flexibility through supply contracts that mirror the generation contracts with renewable generators.

By: David Robinson , Malcolm Keay