Mitigating the Energy Market Death Spiral through Long-Term Volume Firming Contracts

Increasing penetration of behind-the-meter (BTM) resources in distribution systems is a prominent factor for inducing the death spiral in retail markets. Owing to real-time deviations in BTM generation, the energy procured by retailers in the day-ahead markets may no longer be sufficient. Thus, the retailer must procure excess energy at spot prices to compensate these deviations, which in turn increases energy costs for the customers, driving more BTM resource adoption and reinforcing the death spiral. In this context, this paper develops a framework for the electric retailer to procure energy-storage-as-a-service (ESaaS) to mitigate the operational uncertainty. Volume firming contracts are established between the retailer and utility-scale energy storage operators to minimize the retailer’s energy procurement costs in spot markets, thereby limiting energy costs for the customers in spite of high uncertainty introduced by BTM resources. This paper develops the mathematical framework for the volume firming contracts, obtains conditions for optimality and profitability of the contracts, and discusses implications on social welfare. Simulation results verify the effectiveness of the developed framework in improving the financial situation of the retailers and ESaaS providers under uncertain generation conditions of residential BTM resources.