The Effect of Photovoltaic Solar Plant Participation on Different Market Structures in a Deregulated Environment without Financial Incentives in the Saudi Electricity Grid

Abstract

In recent years, many nations have invested in renewable energy in an effort to improve sustainability and to reduce CO2 emissions. At present, most renewable resources are subsidized or paid a feed-in tariff. As renewable resource construction increases, subsidies will become unsustainable. Some European countries have already cut these subsidies. Hence renewables will eventually participate in energy markets the same way as conventional generators. Saudi Arabia is in the process of introducing an electricity market, as the single Saudi Electricity Company will be divided into several competitive companies. The Saudi government is also investing heavily in renewable energy, especially after the establishment of King Abdullah City for Atomic and Renewable Energy (KACARE), as KACARE is strongly dedicated to studying and deploying new renewable energy projects in Saudi Arabia. The Saudi national oil company (Aramco) is leading this effort and has already built two solar power sites: a 2 MW-peak PV plant site at King Abdullah University, and a 10 MW-peak PV plant site in Dhahran, Saudi Arabia. Unlike conventional generators, renewable energy interacts differently with electricity markets because of its stochastic nature. This will be challenging, as renewables are likely to face some penalties for energy mismatch. Having a high level of renewable penetration will be a challenge for the System Operator (SO) to balance the electricity market compared with having only conventional generation. This interaction is not well understood. Therefore one of the major challenges is to understand how existing market structures will accommodate renewables when they can compete in the market, and how future market structures can be designed to incorporate renewables better. Based on KACARE’s vision, the estimated solar energy capacity in Saudi Arabia will reach 41 GW by 2032 while the estimated wind energy capacity will reach 9 GW by 2032 compared to a power capacity for the conventional power of 69 GW in 2013. The reason for the heavy investment in solar energy is that Saudi Arabia experiences a high value of solar irradiance throughout the year. Therefore, this research will focus principally on solar energy participation. Energy market structures differ in details but can generally fit in two major electricity market pricing schemes: the Marginal Pricing (MP) scheme and the Pay-as-Bid (PAB) scheme. The focus of the work in this dissertation is to compare the current practice of dealing with solar power in both market schemes. Then, the more attractive scheme for solar power will be investigated thoroughly to determine existing and suggested features that could be incorporated in the Saudi market to better motivate solar power plant construction in Saudi Arabia.