Abstract
With the growth of hyperscale computing and commensurate new large data center loads as well as increasing electrification, active participation of the demand-side in electricity markets is more important than perhaps ever before. The price of energy is now an important factor in load-side investment decisions, and regulators are concerned about how these new loads may impact existing consumers. Both the spot price as well as risk-trades (via contracting) can mitigate and manage price risk. However, incomplete markets in risk mean that modeling market outcomes requires solving computationally intensive equilibrium problems that may have multiple equilibria. We extend a method to reduce bilinear terms in a risk-averse general equilibrium problem to include flexible and endogenous demand as well as various forms of contracts including swaps and options. We use an exact rather than algorithmic approach and are thus able to make robust claims about the range of market equilibria in terms of reliability, emissions, and social welfare. Through case studies based on the New England and ERCOT systems, we find that including the risk appetite and flexibility of consumers can radically alter investment decisions. This work has implications for incorporating new large loads in a manner that maximizes risk-adjusted welfare rather than treating them as an exogenous, inelastic shock. We demonstrate that when exposed to market signals, new demand is not inherently harmful to reliability or average prices in the long-run so long as sufficient new supply can be connected. Price caps can lead to lower supply and demand investment, while hedging arrangements can better protect existing consumers.
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