The doctoral dissertation consists of two parts. The first part provides the background and rationale of the research, the research objectives and questions, and a summary of the results and publications. Chapter 2 discusses the background of the Russian electricity and capacity market design and its changes, and outlines the main challenges faced by the market players, both on the generation and consumer sides. Chapter 3 describes the research design and delineates the main research questions and objectives. Chapter 4 summarizes the papers included in this dissertation and presents the key findings. Finally, Chapter 5 draws conclusions and reflects on the work done in the dissertation.
The second part of the dissertation consists of five original refereed articles. Three of the articles were presented in international conferences on the European energy markets. Two articles have been published in scientific journals. The articles and the author’s contribution to them are summarized below.
Publication I Capacity market as an incentive for demand response in Russia
Publication I examines the profitability of the installation of on-site distributed generation (DG) for industrial consumers in order to reduce their total electricity cost. According to the wholesale electricity and capacity market rules, the consumer pays for the capacity according to its highest peak consumption during the peak hours. At the same time, the implementation of CRMs has a tendency to lead to a further increase in capacity prices.
These two arguments resulted in a hypothesis that large consumers with a high peak consumption could cut their peak demand by employing on-side DG. The hypothesis has been tested by applying a linear optimization approach with an objective to minimize the total electricity cost. The results indicate that at the current fuel and electricity prices there are strong incentives for the industry to invest in on-site DG, which result in unintended incentives for demand response (DR). The present author carried out the model formulation and analysis of the results. The author of the dissertation was the principal author in the publication.
Publication II Electricity production as an effective solution for associated petroleum gas utilization in the reformed Russian electricity and capacity market
Publication II continues the discussion on the impact of the capacity remuneration on the final consumer capacity cost and provides a cost-benefit analysis of implementing own distributed generation for oil and gas production sites. The government of Russia introduced a policy on reducing associated petroleum gas (APG) flaring in 2009 and increased fines for flaring in 2012. Therefore, gas and oil producers were forced to exploit APG, which was previously considered a waste product of the oil industry. Our findings
suggest that by investing in a small-scale power plant, oil producers can benefit not only from avoiding high fines for flaring but also from avoiding paying for electricity and capacity. The calculation takes into account the oil field depletion rate and considers an option for excess electricity sales into the market, thereby decreasing the payback period of the power plant. The author of the dissertation was the principal author in the publication and was responsible for the analysis of the option for APG utilization and the cost-benefit analysis presented in the publication.
Publication III RES support in Russia: Impact on capacity and electricity market prices RES in Russia
Publication III assesses the impact of the renewable energy policy of Russia on the electricity and capacity prices. Being one of the largest fossil fuel producers and suppliers, Russia had a weak renewable energy policy compared with other countries. The Government introduced a new capacity-based renewable energy support in 2013 (CRM for renewable power plants), which targeted mainly at the promotion of renewable energy sources (RES) technologies in the country. Therefore, the scheme had a limited amount of capacity and technology that could be supported, and introduced a local content requirement. The paper reviews Russia’s renewable energy policy and provides an electricity and capacity price forecast in the case of implementation of a capacity-based renewable support. The findings suggest that the impact of the new support scheme is less significant than that of the capacity support for conventional energy. The author of the dissertation was the principal author in the publication, carried out data collection, and conducted discussion on the numerical results from the capacity market price calculation and the results of the simplified equivalent circuit model.
Publication IV Linking the energy-only market and the energy-plus-capacity market Publication IV analyses the implications of capacity markets and allocation mechanisms for cross-border trade and market welfare by applying an analytical model for two markets with distinct market designs: energy-only and energy-plus-capacity market. The publication considers a case where two markets are interconnected and operated under explicit or implicit transmission capacity allocation schemes. The findings suggest that having an energy-only market on one side of the border and an energy-plus-capacity market on the other side may interfere cross-border trade and result in under-usage or misusage of transmission in the case of explicit allocation of the transmission capacity.
Nevertheless, an implicit allocation scheme (market coupling) would increase the efficiency of the cross-border trade, but could result in distributional effects, involving a free-riding effect. The author was responsible for the data gathered for the Finnish case and contributed to the discussion and formulation of the scenarios. The author of the dissertation acted as a co-author of Publication IV.
Publication V Capacity Market in Russia: possibilities for new generation entry and cost of CRMs
Publication V analyses the impacts of a capacity remuneration mechanism on the final consumer electricity price from the long-term perspective. The Russian electricity industry faces the consequences of the capacity market with CRMs, namely capacity oversupply. Before 2013 there were no proper signals for power plants to exit from the market and for new to enter. Therefore, introduction of a new sloping demand curve in the long-term competitive capacity auction was supposed to provide right market-based signals. The paper examines the effectiveness of the sloping demand curve as a solution for providing market-based exit end entry signals and considers the development of the consumer capacity price based on a two-step linear model. The first part of the model determines the profitability gap in the electricity market, while the second part estimates capacity auction prices. The model results are used to estimate the consumer capacity price peak caused by CRMs and to elaborate on the low effectiveness of implementing a sloping capacity demand curve in the capacity auctions with the current price floor. The present author carried out the model formulation and analysis of the results. The author of the dissertation was the principal author in the publication.