Increasing renewable integration in the electricity grid has become a major social and policy goal. However, accommodating large shares of intermittent energy sources in the electricity mix imposes challenges to the maintenance of a reliable grid structure. This dissertation aims to identify how to achieve a grid that can deliver reliable on-demand electricity, while still increasing renewable participation. To that end, we develop strategies which provide economic incentives to increase grid flexibility at the generation, transmission, and distribution levels, aiming at enabling higher penetration of renewable resources.
We first focus our analysis on the optimal strategies of generators in the wholesale electricity market. In this context, we propose the design of a new market structure which seeks to properly compensate flexible energy sources that can modify their production quickly to counterbalance renewable variability. Through the proposed market, renewable generators can hedge against their own production uncertainty by having contracts with flexible energy sources that can set aside some reserve to be used in case of renewable shortages. Focusing on natural gas power plants (NGPPs) as providers of flexibility, we show that these contracts lead to higher renewable participation in the market, while being economically viable for the NGPPs. We then extend this work to designing contracts between renewables and energy storage systems. Our analysis reveals that these contracts can serve as an entry point for storage technologies in the electricity market, providing an additional source of income to these sources when they are still too expensive to extensively participate in the wholesale market. At the transmission level, we analyze the power flow constraints in an electricity grid to characterize the set of feasible trades in this network. By comparing power trades with pairwise trades typically studied in economics, we study the network externalities imposed by power trades, aiming to provide insights for an economically sustainable expansion of the grid to integrate renewables. Lastly, we propose a network-constrained framework to set energy prices for flexible consumers in power distribution systems. For each node in the network, we show that voltage and current shadow costs have a cumulative effect that depends both on the upstream path to the substation and on the downstream demand level.