Distributed Resources in a Re-Regulated Market Environment

Abstract: This thesis analyses the value that distributed resources(DR) can contribute to an economically effcient operation of are-regulated electricity market and discusses the relevantchanges in the regulatory framework to allow the appropriatedevelopment of DR whenever DR may increase the economiceffciency of the electricity market.Distributed resources thereby combine two aspects:Distributed generation and demand-side resources. Distributedgeneration is defined as generation within the distributionsystem or on the customer side of the meter. Demand-sideresources are those load resources on the customer-side thatcan be used to shift electricity demand from peak to off-peakperiods, or to reduce the overall electricity demand.To gain a better understanding of the value that DR mayprovide in a re-regulated market, an analysis of there-regulation approaches in England andWales, Scandinavia,Australia, New Zealand as well as in two regions in the USA isperformed. The key findings of this analysis are that non ofthe re-regulation approaches put special emphasis on DR. Thecomparison also shows that despite very different approachesused in the various markets, the remaining re-regulationproblems are very similar. These key problems are mainlyrelated to market power in the various markets and littlecompetition in network services.The thesis shows that DR has the potential to improveoverall economic market effciency by reducing market powerissues and increasing competition in network services. Forinstance, many DR business schemes have no incentive toexercise market power, because withholding generation may havea negative impact on the complex revenue stream from differentincome sources. While this may not allow the general conclusionthat DR will always provide benefits to market operation, it isimportant to consider that not all DR need to provide suchbenefits, as it was also shown that already comparatively smallamounts of demand resources or distributed generation cansignificantlyreduce market power issues. In addition, it wasalso shown that DR can introduce competition into networkservices and therefore can provide incentives for distributionand transmission network companies to operate more costeffectively.It was also demonstrated that the potential of DR to improveoverall economic market effciency will only be realized if:1. DR is developed in the correct size, i.e. DR should fitinto an existing distribution network and may increase networkutilization rate,2. DR is developed at the correct location in thenetwork, e.g. in areas with congestion problems,3. DR is in operation during the correct times, whenbeneficial to the market, e.g. during times when market powerissues may arise, and4. independent ownership of DR projects isencouraged.Market regulations therefore must provide the correctincentives for the correct siting and operation of DR as wellas for independent ownership. The thesis uses examples andempirical data to explain the relevant regulatory aspects indetail and provides suggestions for a regulatory framework thatconsiders the potential of DR to improve overall economiceffciency in an electricity market.