The existing market design philosophy suffers from a fundamental flaw due to the fact that it was established taking into account system characteristics prior to the large integration of new kinds of renewable and low-carbon generation. Due to this design's primary emphasis on the trade of energy as a basic commodity, the trading of flexibility and capacity services has been given less attention. Though energy production costs would drop dramatically as a result of planned decarbonization, the prices of balancing services and new capital expenditures will rise dramatically as a result of the shift. This necessitates a rethinking of market architecture to account for the value of distributed flexibility in the system, with the creation of new market niches functioning on a variety of timeframes, from long-term capacity markets to short-term balancing markets.

Methods of bidding

The bidding mechanism is a crucial feature of any energy market design, as it determines the method by which buyers and sellers communicate their techno-economic preferences and needs to the market clearing mechanism. The electricity market clearing price is the price that is determined by the market to balance the supply and demand of electricity in real-time. In other words, it is the price at which electricity is sold in the wholesale market.

The physical operational features of most market players are complicated, time-coupled, and non-convex, making it difficult to determine an appropriate bidding structure. Several criteria, such as the project's complexity, the degree of detail necessary in the proposal, and the availability of information regarding the project needs will determine the best sort of bidding process for renewable energy projects. There are roughly three distinct types of bidding structures:

One-part bidding

One-part or simple bids are often made up of a series of pairs, each consisting of the bidder's desired price and the bidder's desired quantity of energy (requested in the case of consumers or offered in the case of generators). Taking into account the submitted simple offers, a supply and demand curve can be constructed, and the market clearing outcome may be deduced from the point where the supply and demand curves connect.

By not letting market participants expose their intricate operating characteristics, this bidding structure keeps the bidding and market clearing process simple and transparent by forcing market participants to "internalize" these complex patterns into "simple" bids, dependent on their assumptions about the clearing algorithm's scheduling of their assets. But participants' expectations are often incorrect, leading to the risks of infeasible or inefficient scheduling or the danger of participants' expenses not being fully recovered in the market. In order to compensate for these uncertainties, market players frequently submit bids that are artificially higher than they would otherwise be willing to pay. These limitations are now generally understood and accepted, and they prohibit the use of one-part bidding systems in practice.

Fully complex bidding

This bidding structure's central idea is to put the burden of market participants' physical limits on the market operator by letting them reveal all their complicated operating features in advance of the market clearing procedure. Complex bids not only comprise price-quantity pairs, but also a full depiction of all the parties' individual cost components and technological restrictions. Implementing fully complicated bidding guarantees that the resultant schedules are physically possible, taking into account the abilities and constraints of all parties.

Solving a mixed-integer, least-cost, unit commitment problem is part of the market clearing procedure in the case of a fully complex bidding method. However, under this bidding system's rules, each bidder must provide the market operator with detailed information on their techno-economic characteristics. While this may be tolerable in generation-only wholesale energy markets, it raises serious issues about the privacy of electricity customers and the scalability of communications and computations when applied to a large number of distributed flexibility sources.

Semi-complex bidding

The last category of bidding mechanisms is intermediate between the two. To address the privacy concerns brought up above and to welcome new types of players (such as renewables, demand side response, and energy storage) into the market, these intermediate structures are meant to imitate the actual characteristic curves of market participants without requiring the participants to specifically reveal them. Some European markets, including the Central Western European (CWE) and Turkish markets have recently incorporated such frameworks.

These structures encompass more than just the traditional "price-quantity" bid, but also "complex orders" or "block orders" that express "all-or-nothing" constraints. The “all-or-nothing” bids mean that they are either approved or denied completely based on the average hourly clearing price of the market along the block intervals. Utility managers that oversee production assets benefit greatly from block offers since it allows them to spread out the costs associated with starting up and shutting down their generation units over a longer period of time. Binary variables must be included into the market clearing issue in order to account for the "all or nothing" nature of these complicated bids.

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Conclusion

Smaller or less complicated renewable energy projects such as solar rooftops with clearly defined and standardized technical specifications and needs may be good candidates for “one-part” or simple bidding. Larger or more complicated renewable energy projects with several technical and financial factors to consider may benefit from fully complex bidding. When a project includes special technical or site-specific concerns that would be missed by a simple bidding procedure, semi-complex bidding may be the best option. Bidders can submit more comprehensive offers in response to this sort of solicitation if they take these factors into account.