Evaluating the profitability of flexibility

As wind capacity becomes a larger component of the generation portfolio, more flexibility is required to cope with its uncertain and variable nature. In a competitive market environment, the provision and development of this flexibility is driven by the remuneration of flexibility providers. This paper proposes an approach to quantify the profit that market participants derive from providing flexibility services. This is based on the simulation of forward (day-ahead) and real-time balancing markets. In addition, a more flexible market design (rolling commitment) in which a periodic re-optimization is performed to take advantage of updated wind. Test results based on the IEEE RTS-96 are used to compare the profitability of flexibility for different market designs and to assess the effect of the wind forecast error and other parameters on this profitability. The results have shown that with the proposed market design and the associated payment scheme, generators can obtain profit for providing flexibility services as wind penetration increases and the error of the wind forecast and the flexible market design has a significant influence on this profitability. © 2012 IEEE.