Role of Virtual Power Plants in Capacity Markets

The steady increase of renewable penetration has brought down the price of the wholesale electricity market. However, due to the intermittent nature of the renewables, the conventional generations are required to maintain flexibility in times of scarcity. In order to resolve this reliability problem, the independent system operator (ISO) plans in advance to facilitate building new capacity in long-term through capacity markets. The flexible conventional generations lack incentives to maintain operation and build new generations due to low revenue from the energy and ancillary services markets. This paper proposes an idea to incorporate renewable generations in the capacity markets within the virtual power plant model as capacity market units. The proposed idea increases the flexibility of renewable generation output with and/or without energy storage systems. Therefore, it will be particularly beneficial for ISO to increase the renewable capacity in the generation mix.