Variable Renewable Generation Contracting and Bidding Behaviour – A Case Study of Wind and Utility PV - Marshall et al.
Description
Many electricity industries around the world have undergone a process of restructuring towards more market oriented arrangements over the past three decades. The past decade has also seen major growth in utility wind and PV generation. While early deployment was strongly supported by policy support mechanisms, variable renewables are now increasingly competitive market players. There are significant policy design questions that arise from observing the interaction of different longer-term contract arrangements intended to support renewables investment - policy or market driven - and wholesale electricity market outcomes. A particular issue here is how different contracting mechanisms may impact on the bidding strategies of renewable generator participants, and the implications of this for efficient electricity market dispatch. Our study investigates how different contracting arrangements, including over-the-counter and publicly traded derivatives, reverse auction-derived Power Purchase Agreements (PPAs), green certificate schemes, and direct market driven investment can influence renewable generator bidding strategies in wholesale electricity markets. We draw together game theoretic perspectives on possible bidding strategies with real-world market experience from the Australian National Electricity Market. The NEM provides a useful case study given its high transparency on participant market bidding and the range of both private and public contracting measures that have been implemented to support wind and utility PV investment over several decades of wholesale market operation. Building on existing knowledge of government incentive schemes and private contracting arrangements, a number of expected bidding strategies are developed from a game theoretic perspective with reference to wholesale risk mitigation strategies and offtake arrangements. A dataset containing ten years of half-hourly price and volume bids from renewable generators in the NEM is then used to investigate long-term patterns in the bidding behaviour of these market participants. Similar behaviours are grouped, classified and explained with reference to the previously developed bidding theory and knowledge of each generator’s underlying contractual arrangements. The analysis highlights a number of general patterns in renewable bidding behaviour and shows that bids are generally broken into three bands at or below $0/MWh, which seem to relate to various contract risk-mitigation and revenue-maximising principles. Additionally, a majority of generators are seen to infrequently attempt to exercise market power by submitting bids near the market ceiling. The research provides an overview of the behaviour of variable renewable generators in the context of Australia’s restructured electricity market, with consideration of the underlying contracting and offtake arrangements that determine investment in such projects.