In October 2014 the government first announced the revised target of scaling up installed solar capacity to 100 GW by 2022. Indeed, there was much scepticism around this target but targets have a way of directing people towards achieving them. Even if the goal is not met, the presence of a goal pushes achievement at a faster rate.
As of 2022, India has an installed capacity of 61.97 GW, which is a marked rise from the 2.6 GW in 2014. Moreover, India’s estimated solar potential is 748.98 GW which means that there is still room for the market to grow at least by seven to eightfold assuming that we have around 110 GW capacity either implemented, under implementation or tendered.
Renewable Power Sector at a Glance
Source: https://powermin.gov.in/en/content/power-sector-glance-all-india
Solar Energy Potential Vs Current Capacity (as of 2021) in GW
The Need for Ancillary Markets to Achieve India’s Solar Potential
The leap from 110 GW to 748 GW is not going to be easy. It is not a linear industry growth curve where more players come in and set up solar plants or other capacities, and the industry grows automatically. We have to get the finances in place, the right incentives, policies, and a whole bunch of technological changes in the existing grid structures to great the right mix for the market to grow eightfold. Enter ancillary markets. For any industry to develop, it is essential that a thriving ancillary market exists. Imagine, for example, that no ancillary markets existed for the automobile industry. Your car needs repair, but there are no parts available. Or you damaged your car but the alloy your bumper is made of cannot be easily procured. The automobile industry relies on anciliary industries such as manufacturers of engine parts, transmission parts, and electrical components to produce complete cars. Without a reliable supply of these materials from ancillary industries, the automobile industry would be unable to function effectively. In fact, many automobile brands have failed in India because they did not have a great ancillary supply chain to support them. Many have succeeded because they did.
Ancillary industries such as manufacturers of solar panels and components, as well as suppliers of raw materials, are important for the development of the solar market. Similarly, the availability of solar installation and maintenance companies are important for the growth of the solar industry. For an ancillary industry to exist, there must be a functional ancillary market.
The growth of India's solar power industry is contingent upon the development and implementation of solar ancillary markets. These markets serve as a mechanism for solar power producers to sell excess energy to the grid, thereby stabilizing the power supply and reducing dependence on fossil fuels. Furthermore, the establishment of ancillary markets can foster the advancement of new technologies and attract investment to the industry, ultimately leading to a reduction in the cost of solar power and increased accessibility for a broader range of consumers. The provision of ancillary services, such as frequency regulation, spinning reserve, and voltage control, is crucial for ensuring the stability and reliability of the grid as renewable energy sources are integrated.
Ancillary services are provided by specialized power generators, such as hydroelectric and thermal power plants, that can quickly adjust their output to match changes in demand. These services include things like frequency control, voltage control, and reserve capacity, which are all necessary to ensure that the grid can handle the variable and unpredictable nature of solar power generation. Ancillary services also include system balancing, black start capability, reactive power support, and other services that are necessary to maintain the stability and reliability of the power grid.
Ancilary Market Volume and Value in India
https://bridgetoindia.com/an-essential-step-towards-deepening-ancillary-services-market/
Ancillary Services are necessary to help the power system handle large amounts of renewable energy (RE) being added to the grid. These services help manage and balance the variability in the system, but can be costly for governments to provide. In order to make sure that adding these services does not make renewable energy less economically viable or deter investors, a market mechanism is needed to fairly distribute the cost of these services. Ancillary Services are also necessary for maintaining the quality, reliability, and security of the electricity grid, as well as handling sudden failures, load forecasting uncertainties, and congestion in the transmission network. They also help restore the grid after a blackout.
The electricity system is traditionally set up so that large generators produce power and send it to the transmission systems, while the distribution grid is responsible for getting electricity to homes and businesses. However, with the increasing use of Distributed Generators (DGs) and Distributed Renewable Energy Resources (DRESs) that are connected to the transmission and distribution system, it's becoming harder for grid operators to ensure stability and reliability. This is because these types of generators don't have the same capabilities as traditional generators to provide ancillary services which are necessary to keep the electricity supply stable and reliable. This is causing a shift in the way these services are provided, and the role of ancillary services is changing as the electricity market becomes more liberalized.
As the use of renewable energy sources like wind and solar increases, there are more fluctuations in the amount of energy being produced. This can cause problems for traditional power plants, which need to quickly increase or decrease the amount of energy they produce to keep the power grid balanced. This can lead to higher energy prices. Grid operators and transmission system operators (TSOs) need to find ways to manage these fluctuations and ensure that there is enough flexible power generation to balance the grid. Examples of this problem include the "duck curve" in California, where solar power production drops quickly at sunset, and operating reserve demand curves in U.S. markets, which can create price spikes when there is not enough reserve power available. These issues can affect the economics of renewable energy sources, making it important for TSOs to find solutions to manage these fluctuations.
The Solar Power Duck Curve
Source: The Visual Capitalist (https://elements.visualcapitalist.com/the-solar-power-duck-curve-explained/)
Having efficient ancillary markets can help to solve the issue of net load variations caused by increased penetration levels of variable renewable energy resources (RES) by providing a mechanism for procuring the necessary flexibility to maintain power balance in the transmission system. This can be achieved through various market design mechanisms such as implementing dynamic pricing schemes, creating a separate market for balancing services, or offering financial incentives for flexible generation or demand resources. These mechanisms encourage the participation of various flexible resources such as energy storage, demand response, and flexible thermal generation, which can provide the necessary flexibility to balance the system and mitigate the steep rise in ramp rates and extreme price spikes caused by renewable generation ramp downs. Additionally, these markets also provide a transparent and efficient way of procuring the flexibility services, which helps to ensure that the costs associated with these services are allocated in an efficient and equitable manner.
What are Ancillary Services Anyway? An Overview
Typical Ancillary Services:
1. System balancing: This refers to the process of adjusting the output of various sources of power generation to match the demand for electricity on the grid. This is necessary to ensure that the grid remains stable and reliable. Power plants and other generators are continuously adjusting their output in real-time to match the demand for electricity.
2. Black start capability: This refers to the ability of a power generation facility to start up and begin producing power without any external power source. This is important because it enables the facility to restore power to the grid in the event of a blackout. A black start facility is a power plant that can start generating power using only its own energy source, without any external power source.
3. Reactive power support: This refers to the provision of power that is used to maintain the proper voltage levels on the grid. Reactive power is used to control the flow of electricity on the grid, which is necessary for maintaining stability and reliability. Power generators and consumers are typically required to provide and consume reactive power as needed to maintain voltage levels within acceptable limits.
4. Frequency regulation: This refers to a service that ensures that the grid's frequency stays within a certain range, typically around 50 or 60 Hz. Power generators and other facilities are required to provide or absorb small amounts of power as needed to maintain grid frequency within this range.
5. Spinning reserve: This refers to a service that provides extra power to the grid in the event of an unexpected increase in demand. It's the ability of generators to respond to a change in demand in a very short time and provide additional power to the grid.
6. Voltage control: This refers to a service that is used to keep the voltage level on the grid within a certain range. Voltage control is necessary to ensure that the voltage level on the grid remains within a safe and acceptable range, which is essential for maintaining the stability and reliability of the grid.
Typical components used in providing these ancillary services are the following:
1. Battery storage systems: These systems can store excess energy generated by solar power plants during times of high production, and then release it back into the grid during times of low production. This helps to smooth out the variability of solar power and ensure a steady supply of electricity.
2. Electric generators: These generators, such as hydro or gas power plants, can quickly adjust their output to match changes in demand, which helps to maintain the stability of the power grid.
3. Power inverters: These devices convert the direct current (DC) electricity generated by solar panels into alternating current (AC) electricity, which is compatible with the power grid.
4. Grid-tie systems: These systems allow for the seamless integration of solar power into the existing power grid, and include monitoring, control, and protection equipment.
5. Transmission and distribution lines: These lines are necessary to transport electricity from solar power plants to the grid, and to distribute it to customers.
6. Control centers: These centers are responsible for monitoring and controlling the power grid, and for ensuring that the right amount of electricity is being produced and distributed at all times.
Examples of global ancillary services markets:
• United States of America: The Independent System Operator (ISO) and Regional Transmission Organizations (RTOs) in the United States provide ancillary services through organized markets.
• Australia: The Australian Energy Market Operator (AEMO) operates the National Electricity Market (NEM) that provides ancillary services such as black start and frequency control ancillary services.
• Germany: The country has established a feed-in tariff system and a market for anciliary services, which has helped to promote the development of solar power and anciliary markets.
• California: The state has established regulations for anciliary services, and has implemented a market-based mechanism for providing these services. This has helped to promote the development of solar power and anciliary markets in the state.
• Brazil: The country has implemented regulations for anciliary services and has established a market for these services. The regulations ensure the availability of anciliary services to maintain the stability and reliability of the power grid.
The Hurdles to Having Well Functioning Ancillary Markets
If ancillary services are so important, then why doesn’t the market for these services evolve on its own? Ideally, if there is a need, there can be a market. However, this line of reasoning has a few major assumptions. It skips over taking into account three aspects with various components for the presence of thriving ancilary services (AS) markets: (1) Challenges of market development and take-off; and (2) Challenges of market design; and (3) Preventing market failure. Each has its own components.
Infographic: Challenges for the Solar Ancillary Markets (Insights International)
The market for ancillary services may not emerge naturally or automatically because it is closely tied to the development of renewable energy sources, power grid infrastructure, regulations and policies, and the complexity of the market and lack of understanding and awareness. Therefore, it requires a proactive approach from the government, regulators, and the industry to create the necessary conditions for the market to develop.
In India, the development of ancillary services markets has been hindered by a number of challenges. One major challenge is the lack of clear regulations and policies for procuring ancillary services. This has made it difficult for market participants to understand the rules and requirements for participating in these markets. Additionally, a lack of transparency and standardization in the procurement process has made it difficult for market participants to understand the costs and benefits of different procurement methods.
Another challenge in India is the lack of competition in the ancillary services market. This is due in part to the dominance of state-owned utilities, which have traditionally had a monopoly on the generation and supply of power. This has led to a lack of innovation and efficiency in the market, as well as higher costs for consumers.
Furthermore, the spot markets in India are underdeveloped, with the majority of the transactions are done through bilateral contracts and tendering. This limits the opportunities for market participants to take advantage of short-term price fluctuations and can result in higher costs for consumers. Finally, the lack of infrastructure and technical capabilities to support ancillary services markets is also a major challenge. This includes a lack of metering and monitoring systems, as well as a lack of transmission and distribution infrastructure. This makes it difficult for market participants to accurately measure and report on the availability and use of ancillary services.
Challenges of Market Development (Setting up the Market)
Typically, the challenges or barriers to market for any market development are the following:
1. Information asymmetry: When buyers and sellers have different levels of information about a product or service, it can lead to market inefficiencies and prevent the development of a competitive market.
2. Market power: Large firms or monopolies can use their market power to control prices and limit competition, which can inhibit market development.
3. Transaction costs: High costs associated with buying and selling goods and services, such as search and negotiation costs, can make it difficult for markets to develop and function efficiently.
4. Government intervention: Government regulations and policies can sometimes limit market development by creating barriers to entry for new firms or by protecting existing firms from competition.
5. Infrastructure: Lack of physical or digital infrastructure can also limit market development by making it difficult for buyers and sellers to connect and conduct transactions.
6. Cultural and social norms: Societal attitudes and beliefs can also limit market development. For example, a culture that values self-sufficiency over market exchange can inhibit the development of markets.
7. Political instability: Unpredictable political and legal environment can make the market unpredictable, and may discourage the investment in the market, which can limit market development.
Typically, these are conditions enough for a market to not develop in the first place despite having a need for it. The assumption that “if there is a need, there will be a market” falls flat on its face here.
Even if some of these barriers are surmounted, in many countries, the ancillary markets develop but barely function efficiently because of issues around market design. To understand these issues, it is instructive to study how ancillary markets are typically structured.
Challenges in Designing the Solar Ancillary Market
Ancillary Services (AS) market is a platform where different stakeholders, such as power generators, storage facilities, and large consumers, can trade services to improve competition. Generally, “the Transmission System Operator (TSO) is the operator and sole purchaser of products in the AS market, while sellers include the prequalified generators and in some cases demand response (involving large consumers and aggregators) and storage facilities” (Oureilidis et al. 2020).
In the AS market, services are typically offered for a long period of time, usually a year, while the available capacity is offered on a daily basis.
In designing effecient markets, there are three primary challenges or choices that the policy makers face: (1) The choice of dispatch and balancing mechanism; (2) Designing the procurement mechanism; and (3) The choice of remuneration methods.
The first set of challenges in designing the AS markets is the choice of dispatch and balancing mechanism.
Three main balancing processes (methods to prevent outages to balance demand and supply) exist in the AS markets:
1. Central dispatch: In the central dispatch process, the Transmission System Operator (TSO) is responsible for ensuring that the balance between power generation and consumption is maintained. For example, if the TSO sees that demand is higher than supply, they may dispatch a power plant to generate more electricity. This is done by scheduling and dispatching the generation and consumption of power in real time. An example of this process would be the TSO in India, the Grid Control of India Limited’s National Load Dispatch Centre (NLDC), which schedules and dispatches power from various power-generating stations to the different regions of the country.
2. Self-dispatch portfolio-based: In the self-dispatch portfolio-based model, the schedules for generation and consumption are determined by the scheduling agents of the facilities. This means that the power generating and demand facilities are responsible for scheduling their own generation and consumption. The scheduling agents use their own forecasts of supply and demand to make these decisions. For example, a large industrial facility may choose to schedule their production during times when electricity is cheaper, in order to save on energy costs. Another example of this would be a group of wind farm operators who decide to coordinate their schedules to optimize their power output and reduce costs.
3. Self-dispatch unit-based: In the self-dispatch unit-based model, each power generating and demand facility follows their own schedules. This means that each facility operates independently and is responsible for ensuring that their own generation and consumption is balanced. Each individual power generator or consumer is responsible for determining their own schedule for generating or consuming electricity. This model is often used for small-scale power generators or consumers, such as residential rooftop solar panels. For example, a homeowner with a rooftop solar panel may choose to use the electricity generated by the panel during the day, when the sun is shining and the panel is producing the most electricity, and then use grid electricity at night.
It is important to note that as we are moving from centralized models of energy generation to distributed models, the market needs would shift from central to a self-dispatch unit-based approach, or more realistically, a mix of the three approaches with a large component of the self-dispatch portfolio based and unit-based practices.
The main challenge of moving from central dispatch to integrating self-dispatch portfolio-based and self-dispatch unit-based models is the coordination and communication required between the various scheduling agents and power generating and demand facilities. In a central dispatch model, the TSO is responsible for coordinating and scheduling all of the generation and consumption of power. However, in a self-dispatch model, the scheduling and dispatch is decentralized, with each facility determining their own schedules. This can lead to problems with coordination and communication, as the various facilities need to be able to communicate and coordinate their schedules effectively in order to ensure a stable and reliable power supply.
Another challenge is the lack of visibility and predictability of the power supply and demand. In a central dispatch model, the TSO has a clear overview of the power supply and demand, and can make adjustments as needed to ensure a stable power supply. In a self-dispatch model, the visibility and predictability of the power supply and demand is reduced, as each facility is responsible for its own scheduling and dispatch. This can lead to issues with balancing supply and demand, and can make it more difficult to ensure a stable power supply.
Additionally, self-dispatch models can also lead to increased costs for the operators and consumers, as they need to invest in new technologies and systems to enable self-dispatching and real-time monitoring.
Therefore, the first challenge in setting up a solar ancillary market is to facilitate the shift to integrate self-dispatch models.
The second challenge is regarding procurement. Procurement methods in the AS market can be divided into four main categories: (1) compulsory provision; (2) bilateral contracts, (3) tendering, and (4) spot markets. Tendering and spot markets are exchange processes with increased competition, with the former usually including long-duration services and the latter involving shorter and less standardized products.
1. Compulsory provision: In this method, the TSO is responsible for procuring the necessary balancing energy from power generators. The TSO must purchase the energy at a predetermined price, regardless of whether it is needed or not. This method is typically used in countries with a high degree of government intervention in the energy market. In compulsory provision, a class of generators is required to provide specific reserves of AS. The TSO in a country with a state-controlled energy market may use compulsory provision to ensure a stable power supply. This can help to promote the development of certain types of power generation, but it can also restrict the development of the market by limiting competition and the ability of new players to enter the market.
2. Tendering: In this method, the TSO invites power generators to submit bids for the supply of balancing energy. The TSO will then select the best bid based on price, reliability, and other factors. This method is typically used in countries with a high degree of government intervention in the energy market.
3. Bilateral contracts: This method involves power generators and consumers entering into contracts with each other to buy and sell balancing energy. In bilateral contracts, power generators and consumers enter into contracts directly with each other, bypassing the traditional utility company. This allows for greater flexibility in terms of price and quantity, and can potentially lead to more efficient and cost-effective AS procurement. However, it also shifts the responsibility for balancing supply and demand to the individual generators and consumers, which can lead to increased costs and coordination challenges. Sometimes, the TSO negotiates with each provider for the quantity and price of the offered AS, and the TSO acts as a intermediary between the providers and the consumers, negotiating the terms of the contracts on behalf of the consumers. This can help to ensure that the supply and demand are balanced and that the prices are fair, but it can also lead to increased bureaucracy and costs. These contracts can be long-term or short-term and can be based on a fixed price or a variable price. This method is typically used in deregulated energy markets where there is a high degree of competition. Also, a large industrial facility in a deregulated energy market may enter into bilateral contracts with power generators to ensure a steady supply of energy. This can increase competition and flexibility in the market, but it can also lead to market power imbalances and difficulties in balancing supply and demand. These may also turn out to be much less transparent and non-uniform than tendering processes.
4. Spot markets: A spot market is a market where electricity is bought and sold for immediate delivery. The spot market price is determined by the supply and demand. This method is typically used in deregulated energy markets where there is a high degree of competition. A power generator in a deregulated energy market may sell its excess energy on the spot market to meet unexpected changes in demand.
For example, in the United States, the Federal Energy Regulatory Commission (FERC) has mandated that ancillary services be procured through competitive markets. This has led to the development of organized markets for ancillary services, such as the Independent System Operator (ISO) and Regional Transmission Organization (RTO) markets. In the European Union, tendering and bilateral contracts are the most common procurement methods for ancillary services, with some countries also using spot markets or centralized procurement through transmission system operators. However, market-based mechanisms are gaining greater currency across the world.
The third challenge is with regard to remuneration.
Remuneration for AS can be based on different approaches. AS can be non-remunerated at all, meaning that they are considered as mandatory support functions provided by the sources.
If remuneration is used, it can be based on the following methods:
1. Regulated price: In this approach, the price for ancillary services (AS) is set by a regulator or transmission system operator (TSO) rather than being determined through a market-based mechanism. For example, in a regulated price approach, the regulator may set the price for frequency regulation at $50/MWh. This means that all providers of frequency regulation will be paid $50/MWh for their services, regardless of how much they actually sell their services for. This approach can ensure a stable and consistent revenue stream for providers, but it may not be as efficient as market-based mechanisms in terms of cost for consumers and revenue for providers.
Note for policy considerations: This model can provide a stable and predictable revenue stream for providers, which can encourage them to invest in the necessary infrastructure to provide AS. However, if the regulated price is set too low, it may not provide enough incentive for providers to invest in new capacity, which could limit the growth of the market.
2. Pay-as-bid price: In this approach, providers of ancillary services submit offers for how much they are willing to sell their services for, and the TSO or other market operator will decide which offers to accept. The providers whose offers are accepted will then be paid the price of their accepted offer. For example, Provider A submits an offer to sell services for $60/MWh, Provider B submits an offer for $50/MWh, and Provider C submits an offer for $40/MWh. The TSO accepts Provider A's and Provider B's offers, and Provider A will be paid $60/MWh and Provider B will be paid $50/MWh for their services. This approach can lead to a more efficient market, as providers have an incentive to submit competitive offers in order to increase their chances of being accepted.
Note for policy considerations: This can create a more competitive market as providers will have an incentive to submit low bids to increase their chances of being accepted. However, if the TSO does not set clear criteria for accepting offers, it could lead to providers submitting unrealistic bids which can be harmful to the market.
3. Common clearing price: In this approach, prices for ancillary services are determined through an auction process, where different sellers submit offers for how much they are willing to sell their services for. The TSO or other market operator will then review all of the offers and decide which ones to accept. When determining the prices for the accepted offers, the TSO will use the "common clearing price" method. This means that they will take the price of the most expensive accepted offer, and use that as the price for all of the accepted offers. For example, Provider A submits an offer to sell regulation up services for $60/MWh, Provider B submits an offer for $50/MWh, and Provider C submits an offer for $40/MWh. The TSO accepts Provider A's and Provider B's offers. The common clearing price would be $60/MWh and Provider A and B will be paid $60/MWh for their services. Additionally, The TSO also considers the price of least expensive rejected offer. For example, if Provider C's offer $40/MWh is rejected, it would also be considered while determining the common clearing price. This approach can ensure that all sellers are paid a fair price for their services, and it also incentivizes them to submit competitive offers in order to increase their chances of being accepted.
Note for policy considerations: This ensures that all sellers are paid a fair price for their services, and it also incentivizes them to submit competitive offers. However, if there is only a small number of providers in the market, this approach could lead to high prices for AS. This could also lead to several market manipulations and collusions.
Remuneration for AS also includes different components that reflect the different costs of the provider. The fixed allowance and the availability price refer to the cost of making a specific amount of AS available. The utilization payment and the utilization frequency cost reflect the actual use of the product and the extra cost that may arise each time the provider is called upon. The opportunity cost reflects the possible profit/loss if the provider could have sold other products instead of the respective AS. Then there is marginal pricing which refers to the practice of determining the price for the services based on the marginal cost of providing the service. In other words, the price paid for the ancillary service is equal to the additional cost incurred by the provider to produce the service. This is in contrast to other pricing methods, such as cost-plus pricing, where the price is based on the total cost of producing the service, rather than the marginal cost. Marginal pricing is often used in competitive markets to ensure that prices reflect the true cost of producing the service and to prevent providers from earning excess profits. Additionally, marginal pricing is also used to ensure that the prices for ancillary services are competitive and that consumers are not paying more than they need to for these services.
Choosing a suitable remuneration model is important to develop a market for AS because it determines how providers of AS will be compensated for their services. Different remuneration models can have different effects on the market, and the right model will depend on the specific characteristics of the market and the goals of the regulator or transmission system operator (TSO).
Finding the right balance between dispatch models, procurement models, and remuneration models is a consideration at the heart of policy design for developing a market for AS. To balance between these models and develop a market for AS, it is important to consider the needs and characteristics of the specific market and the stakeholders involved.
For example, if a market is characterized by a high penetration of renewable energy resources, a decentralized dispatch model with high flexibility would be more suitable. This is because decentralized dispatch allows for the integration of distributed resources such as wind and solar power, which can be unpredictable and have varying output levels. By having a high level of flexibility, the system can quickly respond to changes in the availability of these resources and maintain the stability of the grid.
On the other hand, if a market is characterized by a high concentration of market players, procurement through tendering would be more suitable. Tendering allows for a fair and transparent selection of providers, which is particularly important in markets with a high concentration of players as it prevents any one player from having too much market power.
Additionally, if a market is characterized by a high volatility, remuneration based on pay-as-bid pricing scheme would be more suitable. This remuneration model aligns the interests of the AS providers with the needs of the system, as they will have an incentive to offer services at a lower price in order to increase their chances of being dispatched.
Market Failure
Market failure can occur when the free market is not able to allocate resources efficiently. The economists’ explanation to why a market may fail, includes the following:
1. Externalities: This occurs when the actions of one market participant have an impact on a third party that is not reflected in the market price. For example, pollution from a factory may harm people living nearby, but the cost of that pollution is not included in the price of the factory's products. In solar ancillary markets, externalities can occur when the generation of electricity from solar power causes negative impacts on the environment or local communities that are not reflected in the market price. For example, the construction of a large solar power plant may cause habitat destruction or displacement of local residents, but the cost of those impacts is not included in the market price of the electricity generated.
2. Public goods: These are goods or services that are non-excludable and non-rivalrous. Because it is difficult to exclude non-payers, it is difficult to charge for the use of public goods, which can lead to underproduction. An example of a public good in solar ancillary markets could be the transmission and distribution infrastructure needed to transport electricity generated by solar power plants to consumers. Because this infrastructure is non-excludable and non-rivalrous, it may be underproduced due to the difficulty of charging for its use. This is a great challenge for developing countries such as India.
3. Market power: A market failure can occur when one or a few firms have a significant degree of market power, which allows them to set prices above the competitive level. In solar ancillary markets, market power can occur when one or a few large solar power generators have significant control over the supply of electricity, which allows them to set prices above the competitive level. This can lead to higher prices for consumers and reduced competition in the market.
4. Information asymmetry: This occurs when one party in a transaction has more information than the other, which can lead to market inefficiency. In solar ancillary markets, information asymmetry can occur when one party, such as a solar power generator, has more information about the availability and cost of their electricity than another party, such as a transmission system operator or a retail electricity provider. This can lead to inefficiency in the market, as the parties with less information may not be able to make informed decisions about buying or selling electricity.
To prevent negative externalities in solar ancillary markets, governments can implement policies such as carbon pricing or emissions regulations, which internalize the cost of pollution and make it part of the market price. Additionally, governments can provide incentives for solar projects that have lower environmental impact, such as those that use fewer materials or have a smaller land footprint.
To prevent market power in solar ancillary markets, governments can implement regulations that limit the concentration of market players, such as net metering, feed-in tariffs, and other policies that promote distributed generation. Additionally, governments can also implement price caps to prevent prices from being set above the competitive level.
Indeed, when it comes to dealing with public goods, the government has to lead the way in providing them or creating the correct incentives or covering the risks for private players with models such as public-private partnerships and/or blended finance to spur the development of infrastructure.
Finally, to prevent market failure due to information asymmetry, governments can provide education and awareness programs for consumers to help them better understand the benefits and drawbacks of solar energy and also provide them with the necessary information to make informed decisions. Additionally, governments can also implement regulations that require transparency in pricing and contracts in order to ensure that consumers have access to all the necessary information to make informed decisions.
Conclusion
The growth of India's solar power industry is contingent upon the development and implementation of solar ancillary markets. However, the creation and development of these markets is not without challenges. These challenges include barriers to market creation and development, the design of the market, and dealing with market failure. Effective policy design must take into account these three sets of challenges and balance them in order to successfully develop and implement solar ancillary markets in India.
References
· Corporate Finance Institute. “Barriers to Entry.” Accessed January 28, 2023. https://corporatefinanceinstitute.com/resources/economics/barriers-to-entry/.
· “California ISO - Ancillary Services.” Accessed January 28, 2023. http://www.caiso.com/participate/Pages/MarketProducts/AncillaryServices/Default.aspx.
· Colthorpe, Andy. “India Prepares to Open up Ancillary Services Market to Energy Storage.” Energy Storage News (blog), June 1, 2021. https://www.energy-storage.news/india-prepares-to-open-up-ancillary-services-market-to-energy-storage/.
· Commission, California Energy. “Integrated Energy Policy Report - IEPR.” California Energy Commission. California Energy Commission, current-date. https://www.energy.ca.gov/data-reports/reports/integrated-energy-policy-report.
· “GRID-INDIA – National Load Despatch Center.” Accessed January 28, 2023. https://posoco.in/.
· INDIA, BRIDGE TO. “An Essential Step towards Deepening Ancillary Services Market.” BRIDGE TO INDIA (blog), March 7, 2022. https://bridgetoindia.com/an-essential-step-towards-deepening-ancillary-services-market/.
· “Market Barrier - an Overview | ScienceDirect Topics.” Accessed January 28, 2023. https://www.sciencedirect.com/topics/social-sciences/market-barrier.
· Oureilidis, Konstantinos, Kyriaki-Nefeli Malamaki, Konstantinos Gallos, Achilleas Tsitsimelis, Christos Dikaiakos, Spyros Gkavanoudis, Milos Cvetkovic, et al. “Ancillary Services Market Design in Distribution Networks: Review and Identification of Barriers.” Energies 13, no. 4 (January 2020): 917. https://doi.org/10.3390/en13040917.
· “Power Sector at a Glance ALL INDIA | Government of India | Ministry of Power.” Accessed January 28, 2023. https://powermin.gov.in/en/content/power-sector-glance-all-india.
· Rancilio, G., A. Rossi, D. Falabretti, A. Galliani, and M. Merlo. “Ancillary Services Markets in Europe: Evolution and Regulatory Trade-Offs.” Renewable and Sustainable Energy Reviews 154 (February 1, 2022): 111850. https://doi.org/10.1016/j.rser.2021.111850.
· Shetty, Satish. “Energy Storage Sector Upbeat for 2023 Despite Cost, Supply Chain Challenges.” Mercom India (blog), January 24, 2023. https://mercomindia.com/energy-storage-upbeat-2023-despite-supply-chain-challenges/.
· “Utility Comment.” Accessed January 28, 2023. https://india-re-navigator.com/utility/comment/2143.
· “Utility Policy Detail.” Accessed January 28, 2023. https://india-re-navigator.com/utility/policy/892.
Commentaires