Exploring the concept of hosting capacity from an electricity market perspective

Previous work has introduced and analyzed the concept of hosting capacity of electricity grids from a technical perspective, determining the upper bounds for integrating various types of renewable energy resources without jeopardizing reliability and quality of supply. In order to achieve that, various hosting capacity metrics have been proposed to calculate such upper bounds, mainly focusing on the technical balancing and network challenges associated with a large-scale integration of renewable generation in electricity networks. In view of the deregulation of the electricity industry and the expectation to apply more cost-reflective and dynamic energy prices with increased spatiotemporal granularity at all voltage levels, this chapter investigates, for the first time, the concept of hosting capacity from a market perspective, introducing the concept of market hosting capacity (MHC). This new concept tackles the market-related challenge associated with the corresponding decrease in energy prices while renewables’ penetration levels increase, which naturally threatens renewables’ investment cost recovery and hence limits the capacity of renewable generation that can be profitably integrated to the grid. In this context, a bi-level optimization model is developed, where the upper level maximizes the renewable generation capacity subject to its long-term profitability constraint and the lower level represents the market clearing process. This bi-level problem is solved after converting it to a single-level mixed-integer linear problem (MILP). Two theoretical case studies on a 2-node and a 24-node test system along with a practical case study in the Chilean transmission system demonstrate that the MHC is enhanced with increasing renewable generation subsidies and increasing flexibility of the conventional generation mix, while its dependence on the network capacity does not follow a uniform trend. Finally, we provide relevant discussions on how this new concept can serve to compare different measures to facilitate renewable generation investments.