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NOBEL PRIZE WINNERS, TO HELP RENEWABLE ENERGY

image credit: Nobel Academy

2020 Nobel Prize winners for Economics, Paul R. Milgrom and Robert B. Wilson of Stanford University, would like their prize-winning improvements in auction theory and inventions of new auction formats to now focus on being able to help the developing renewables industry. 

Dr. Migrom stated in his press conference that what they do with “market design is try to think about all the aspects of the systems – competition, distribution, solving hard complex problems,” which applies to how commodities and scarce resources are traded and ensure that the system can actually handle the task.  

Moving beyond academia to practical applications benefitting society, (mostly in the arena of governments awarding Radio Frequency contracts), the Professors already have on the ground experience of taking their research to society.  This was reiterated in the press release from the Swedish Academy stating how their “discoveries have benefitted sellers, buyers, and taxpayers around the world.”  

Dr. Wilson brought up the challenge of applying his theories to the renewable industry at his press conference, discussing, according to the New York Times about why he is interested in “designing new auction formats for complex situations.”

Better design can apply to a couple of areas where auctions happen for renewables.  The first being auctions for Solar PV and Wind plant set up.  Here, bids translating price power is sold at for the long haul are auctioned – something solar companies are quite comfortable with.   

There is so much involved with land procurement, set up, calculations on selling price of output by competing vendors that it’s hard to simplify.  Additionally, objectives beyond price – including timely completion and solar / wind integration, as well as industrial, labor and socio-economic policies factor in to make it a hard arena to apply an auction format.  

The true action is, and will keep growing to be in Energy Trading, as millions of bids, and timelines compete with a very real commodity (electricity) to be traded.   Here, energy production is sold to utilities by energy providers, and is measured against the needs of the grid.  This is where the grid would need to maximize price through multiple concurrent auctions.

This area received a lot of attention with the rolling blackouts in California at the end of August.  Initial news reports implied that the grid was impacted by the demands of renewable energy integration colliding with the need for consistent power.  Even if that was not the reason, transitioning to a grid with the utilities handling a larger percentage of renewables with fluctuations of demand, not neatly lining up with availability of supply will be a challenge for utilities in the upcoming years. 

New auction models in this space are necessary as after all, a solar company can be selling electricity for day ahead today, but next month, the utility may need to be buying at a week ahead.  For this to be effective, and successful, two areas are imperative and luckily both are moving forward at a rapid clip. 

The first is improved forecasting through AI based methods as AI sees patterns in humongous amounts of data, not visible to humans so that both utilities and solar companies are best prepared with what they need.   

The second is where Nobel Prize winners may really be able to help the industry with.  This was best told directly by Professor Wilson, to Bloomberg Television.  “We have all these needs now for energy from solar power, from wind, that’s quite variable, so we need to create new kinds of markets … variable resources to keep the supply provided to meet demand.”

Absolutely we do need to create new kinds of markets, Professors Wilson and Milgrom.  We, the  industry would super excitedly be waiting for you to improve their working to make renewables even more competitive and the grid even more effective.  Thank You.  We’re lucky that you are hard at work and pushing boundaries at an age, 83 and 72, where your contemporaries have long since retired and we look forward to benefitting from your combined wisdom. 

Oh, and congratulations on the Nobel prize!

 

Discussions

Matt Chester's picture
Matt Chester on Oct 19, 2020

A great example of how much of the energy transition isn't just about creating and pumping out new tech, but putting together the complex market puzzle pieces to make those available technologies work for us like we need them to do so. And great for the Nobel committee to recognize that value!

Kitty Chachra's picture
Kitty Chachra on Oct 26, 2020

You're so very right Matt.  All attention drawn to renewables is good for everyone.  

Richard Brooks's picture
Richard Brooks on Oct 19, 2020

Congratulations to Professors Wilson and Milgrom for receiving the Nobel Prize in Economics.

I will be on the lookout for any work by Professor Wilson regarding "applying his theories to the renewable industry"

I agree with this statement "This is where the grid would need to maximize price through multiple concurrent auctions." I also believe these "always on" auctions will be needed for resource adequacy and essential grid services as complexity of grid control increases with DER expansion and supply competition becomes more prevalent across the US Electricity markets.

I share similar interests supporting DER in energy markets with an "Always on Capacity Exchange" for wholesale markets.

Kitty Chachra's picture
Kitty Chachra on Oct 26, 2020

Am still learning to understand this better from the Utility side Richard...and reading the Always on Capacity Exchange... to understand the underlying issues better.  Thank You.

Richard Brooks's picture
Richard Brooks on Oct 26, 2020

Kitty, feel free to contact me with any questins or comments. I'm most interested in any insights on why AOCE will not work - what are the flaws. I've passed this by several well known industry folks and nobody has indicated that this cannot work, so I'm interested in your thoughts.

Kitty Chachra's picture

Thank Kitty for the Post!

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