Electricity Pricing for Renewable Markets-A Simulation Approach for the Colombian Case

An important technological transformation is taking place in the electricity markets. Increases in the use of non-conventional renewable sources for electricity generation is challenging the system reliability, especially from the suppliers perspective. This context stands out the need to seek market designs and electricity pricing schemes that favor the proper functioning of markets, contributing to the system sustainability and social welfare. This work develops a simulation model that allows evaluating different electricity market designs and pricing schemes under different scenarios of non-conventional renewable sources penetration, using the Colombian electricity market as an application case. Schemes are evaluated under six indicators including price volatility, maximum electricity prices, unattended system demand, average usage of thermal sources, CO2 emissions and generation surpluses. Model results reveal that the market designs and pricing schemes that use levelized costs of electricity provide a favorable performance of the electricity market when the installed capacity of renewable sources increases, considering price volatilities, system CO2 emissions and demand coverage.