Report: Leveraging Flexible Hydro in Wholesale Markets

Leveraging Flexible Hydro

A new whitepaper released by the National Hydropower Association (NHA), authored by economists at The Brattle Group, explores how hydropower assets participate in regional transmission organization (RTO) wholesale markets and how RTO market rules can encourage hydro to operate and invest in ways that maximize its value to the system as the power sector transforms to clean energy and variable resources.

Hydro is the largest renewable and flexible resource class in the U.S., with over 100 GW of capacity providing about 7% of total electric generation and 39% of renewable generation. Hydro operators and RTOs have well-established procedures for these resources to participate in wholesale markets, yet surveys and interviews conducted with NHA members indicate there is still work to be done if hydro is to competitively and efficiently provide the services needed to support the grid of the future.

“To fully utilize hydropower in the clean energy transition, RTOs must work with hydro owners and operators to continue developing market rules that allow hydro to compete fairly with other resources and maximize the value of the grid services these resources can provide,” noted Roger Lueken, a Brattle senior associate and whitepaper coauthor.

The whitepaper, Leveraging Flexible Hydro in Wholesale Markets, outlines four principles for maximizing the value that hydro and other assets provide within wholesale markets, to inform current and future RTO market rule development:

  • New energy and ancillary service (E&AS) market products may be needed as the fleet transforms and faces new flexibility challenges.
  • RTOs should allow hydro a range of energy market participation options, so hydro operators can provide the greatest value to the system while respecting the unique characteristics of their assets.
  • Hydro and other flexible resources should be properly compensated for any out-of-market dispatches (while continuing to strive to procure grid services in-market).
  • All assets, including hydro, should be accredited fairly for the resource adequacy value they provide.

“Hydropower is an essential part of a climate solution, which is why it is critical for wholesale markets to value the reliability, resiliency and flexibility it provides to the electricity grid,” said Malcolm Woolf, president and chief executive officer of NHA. “Achieving the ambitious decarbonization goals proposed by the Biden Administration and Congress, starts with recognizing that hydropower is more than just clean energy. The ancillary services it provides to the grid are being leveraged by balancing authorities to integrate growing amounts of wind and solar generation. With this report, our goal is to shine a spotlight on the need for RTO market rules to fairly compensate the services that hydropower provides.”

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