Market Design for Integrated Energy Systems of the Future

Global energy decarbonization relies on electricity systems with large shares of uncertain and variable renewable energy sources. Electrification of energy end uses such as transportation and space heating are further increasing the stochasticity of demand. As a result, system operators must procure additional operational flexibility to maintain a supply-demand balance in the presence of production and consumption forecast errors. Beyond flexible resources within the electricity system, short-term coordination among the various energy systems (e.g., electricity, natural gas, and district heating), provides additional flexibility which remains largely untapped. Harnessing this cross-carrier flexibility is appealing since it does not require large infrastructure investments, rather relying on effective coordination among the various actors in the energy systems. Furthermore, establishing this coordination in a market-based framework is essential to harness cross-carrier flexibility in a long-term and sustainable manner.

In this context, the objective of this thesis is to improve the market-based coordination among energy systems at operational time scales to incentivize, steer, and harness cross-carrier flexibility in competitive settings. The thesis contributes by developing new market-clearing frameworks for energy systems, relying on stochastic optimization techniques. Moreover, new commodities representing flexibility services, such as policy-based reserves, adjustment policies, and variance minimization services, are proposed which contribute towards a cost-efficient and reliable harnessing of cross-carrier flexibility. Using tools from mechanism design and game theory, the proposed market frameworks are evaluated for their ability to satisfy the desired economic properties of competitive markets, such as efficiency, cost recovery, and revenue adequacy.

To account for the heterogeneous flexibility providers in the integrated energy system, this thesis introduces a novel flexibility-centric electricity market-clearing framework. The proposed forward market admits participants with second order cone strategy sets and revisits the classical spatial price equilibrium problem in a second-order cone programming context. Generalizing over the existing linear programming-based electricity markets, conic markets enable participants to accurately express the nonlinearities in their costs and constraints through conic bids, and the network operators to model a physically-accurate flow of energy in the networks. The inclusion of second-order cone constraints makes electricity markets uncertainty-, asset-, and network-aware, thereby incentivizing heterogeneous flexibility providers across the integrated energy system to participate in a market-based flexibility procurement. Under the assumption of perfect competition, it is analytically proven that moving towards conic electricity markets does not incur the loss of any desired economic properties inherent to the linear markets.

Harnessing cross-carrier flexibility is expected to propagate short-term uncertainty across the energy system boundaries. This adversely impacts the reliability and price competitiveness of the coupled energy systems due to network congestion and the resulting price spikes. To address that, a new uncertainty-aware coordination framework is proposed to model and mitigate the uncertainty propagation in coupled electricity and natural gas systems. Flexible assets in both systems as well as the network flexibility provided by short-term storage of gas in pipelines are employed in mitigating the adverse effects of uncertainty propagating from the electricity to the gas side. Convexification strategies are adopted to manage the non-convexities underlying the gas system model in stochastic settings. An efficient pricing scheme is developed which endogenously considers uncertainty and the variance of state variables in the energy systems. In contrast to deterministic coordination among energy systems, market participants are remunerated (penalized) for their contribution to mitigating (aggravating) the adverse impacts of uncertainty.