Within-Hour Capacity Markets in the Northwest. July 22, John Wellschlager Bonneville Power, Trading Floor Account Executive

Size: px

Start display at page:

Download "Within-Hour Capacity Markets in the Northwest. July 22, John Wellschlager Bonneville Power, Trading Floor Account Executive"

Solomon McCarthy
5 years ago
Views:

1 Within-Hour Capacity Markets in the Northwest July 22, 2015 John Wellschlager Bonneville Power, Trading Floor Account Executive Slide 1

2 Why is BPA in the market for within-hour capacity? BPA s physical generation and transmission systems have provided tremendous value to the region for a very long time. However, due to a variety of factors, both have started to approach their physical limits. Wind integration while most of the wind located in the northwest is sold outside of the region, BPA is required to supply the within-hour balancing reserves for the wind in its balancing authority (BA). (currently 4,700 MW) Transmission Service needs due primarily to shifting loads, wind development, and load growth, the transmission system has become constrained during certain hours in a handful of locations. Providing balancing reserves requires taking advantage of the flexibility of the hydro system. However, due to an aging infrastructure and statutory constraints (e.g., enhanced Bi-op, Canadian Treaty, navigation, flood control, recreation, etc.), less flexibility is available for this purpose. Slide 2

3 Total BA Load, Generation & Wind Oct 10-17th Hydro Load Thermal Wind Slide 3

4 Rate Case Actions Starting with the BP-14 Generation Inputs Rate Case Settlement, BPA agreed to attempt to acquire imbalance capacity. Purchases could be made on a quarterly, monthly, weekly or preschedule timeframe. This was the first time that BPA had supplemented the Federal Columbia River Power System (FCRPS) to help meet its within hour balancing needs using non-federal resources. Acquisitions to date can be classified into three main categories: Planned Acquisitions these are projected monthly needs based on the difference between the planned FCRPS balancing reserve capacity (900 MW INC, 1100 MW DEC) and the planned balancing needs to achieve a 99.5% level of reliability. Operational Acquisitions Purchases required when BPA is either operationally unable or at risk of being able to provide the planned FCRPS INC balancing reserve capacity necessary to meet the 99.5% reliability standard. Unplanned Service Monthly purchases required to support an unplanned increase in balancing service plan. Slide 4

5 Framework for BPA s Acquisition Process Minimize the total cost of supplying imbalance capacity to support customer elections while meeting balancing authority requirements. Create a single framework for acquiring any reserves required across the rate period, regardless of what products customers elect to sign up for. Transmission Services (TS) operations decides on the amount of capacity to be purchased. Purchases of Imbalance Capacity are made by the Power Services (PS) Bulk Hub using a process that avoids any Standards of Conduct (SOC) concerns. Communication with customers in the product pool on our success (or failure) in procuring imbalance capacity is done in a timeframe that allows them to ascertain their level of DSO 216 exposure prior to the operating hour or sooner. Costs of any acquisitions will be allocated to customers according to the ACS rate schedule. Any resources wanting to participate in any of RFO processes would need to be pre-qualified prior to doing so. Slide 5

6 Process & Pricing Guidelines for Purchases Monthly, within-month, and up-to preschedule acquisitions are acquired by PS using an Request for Offer (RFO) process. Acceptable bids should balance deployment costs against capacity costs in a way that doesn t create cost shifts between within-hour Imbalance Capacity customers and other BPA customers. Standardized Capacity Term Sheets were developed providing both boilerplate language for options and operational performance standards. These two page confirms are then adapted for any shorter term purchases (one month or less). In addition to a capacity bid, the dispatched energy for an individual agreement is bid as either a % of hourly energy index or as a gas index & heat rate. For purposes of selection, valuation of each offer is done based on: Total Cost = capacity cost + energy cost x estimated deployments over a given range Slide 6

7 Results Quarterly RFO Acquisitions (39 MW up to 54 MW) The first RFO was issued on July 16, 2013 for 39 MW of Imbalance capacity for the Oct 1, 2013 through Dec 31, 2013 period to address rate case defined needs. The RFO acquisition size has increased over time to 54 MW s. Generally speaking, winning bids for each RFO have been in a fairly consistent range despite being awarded to multiple counterparties over the past two years. Counterparties new to each RFO tended to present offers that were not competitive. No thermal units elected to bid on any of the RFOs despite significant outreach efforts. Winning counterparty resource bases range from purely Hydro, to a mix of Hydro, Thermal & Wind to Demand Response. Slide 7

8 General Observations Quarterly RFO Acquisitions Quarterly RFO responses have ranged from a low of 2 to a high of 7 offers. While subject to seasonal variation, participation in the quarterly RFO process appears to be on the rise. Other than the very first deployment request, deployment of the resources has gone well. Outside of the spring months, the need to deploy these contract resources has been very limited due to their place in the BPA resource stack and the low output factor of wind. Most counterparties appear to need a significant level of internal review and approval prior to submitting capacity offers on BPA RFOs for Imbalance capacity. About half the parties prefer using the gas index/heat rate option for the energy portion of their bid. Demand Response has proven to be very competitive against conventional generation resources. Generally speaking, BPA has been satisfied with the pricing offered for the winning bids. Slide 8

9 Results Preschedule RFO Acquisitions (50 MW minimum bid) In April & May 2014, BPA issued 15 RFOs for Imbalance Capacity, counting the three Beta test RFOs. Four of those RFOs were for multiple-day offers. During this period, the targeted amount of Imbalance Capacity ranged from 50 MW to 500 MW. Each RFO issued received bids. However, when seeking larger amounts of imbalance Capacity, BPA was frequently unable to acquire sufficient capacity to completely mitigate reducing INC reserve levels. Fewer counterparties participated than anticipated, despite significant outreach efforts A total of 4 different counterparties submitted offers during the preschedule purchasing period. There was a very wide range in the pricing of offers received. Slide 9

10 General Observations Preschedule RFO Acquisitions Competition is a good thing. We experienced insufficient market liquidity given the amount of Imbalance Capacity we attempted to purchase during this period. Thermal units expressed little interest in bidding on short-term capacity RFOs, despite significant outreach efforts. Many suppliers appear to have already made longer term capacity sales, which effectively takes them out of the market for shorter term offers on most days. At least two investor-owned utilities stated that as a general rule, they never bid on capacity RFOs because company policy doesn t allow them to sell Calls without special Executive approval. System conditions, both natural and physical, can have a big impact on a number of counterparties ability to participate in RFOs Moving forward, minimum offer requirements will be lowered to 25 MWs and split between HLH & LLH to increase participation. Slide 10

11 Quarterly Capacity Acquisitions: Future Acquisitions The amount of the quarterly RFOs for the 2016 Rate period (Oct. 1, 2015 Sept 30, 2017) is projected to be only 10 MW each quarter. However, this amount could increase over this period. Long Term Spring Acquisitions: BPA will attempt to acquire up to 200 MW of Imbalance Capacity for the months of May and June ahead of time as a block purchase. Minimum bid amounts will be 50 MW flat. The RFOs for these acquisitions will go out in two time frames. The first will go out around November and the second will go out around February for the coming spring. Preschedule Acquisitions: We will continue our Preschedule acquisition program for the April June timeframe based on projected need. Minimum bid amounts will be 25 MW on a diurnal basis (HLH, LLH or flat) Volume purchased for any period will based on the amount of curtailment occurring on the FCRPS, projected need for the buying period & remaining budget. This could be up to 300 MW assuming we are successful with our preseason acquisition of the 200 MW. Slide 11

12 Product Specific s Capacity type Capacity bid format Energy bid format Minimum bid amount Max deployment Number deployments/ hour Ramp rate Monthly & Quarterly $/kw-mo % of Powerdex Mid-C hrly OR HR & Gas Index 50 MW flat Up to 90 min 1 (deployment must be for the full amount) 10 min Preschedule $/kw-day % of Powerdex Mid-C hrly index 25 MW HLH, LLH or flat Up to 90 min 1 (deployment must be for the full amount) 10 min Slide 12

13 Observations on Demand Response (the forgotten resource) DR can be a great alternative, BUT it has to be very carefully vetted and tested beforehand to be used as within-hour capacity for a Balancing Authority. While DR is easy to understand as a concept, it is an immensely complicated product to implement when being used as reliability tool. DR is not always the cheapest resource, despite what some people are saying. However, BPA is taking the long view, because it could be one of the cheapest moving forward. Aggregation is the future of using DR. Not single source loads. DR will never solve all of BPA s balancing & transmission needs. However, it can provide very meaningful help as a tool in conjunction with other resources. To be useful, DR must be 1) Reliable 2) Cost effective & 3) Easy to deploy/use. Slide 13 13

14 Questions? Slide 14

15 Contact Information John Wellschlager Account Executive Bulk Marketing Bonneville Power Administration Slide 15

CAISO 15-Min Liquidity

CAISO 15-Min Liquidity CAISO Stakeholder Meeting October 6, 2015 Alex Spain Trading Floor Manager Power Services BPA Dave Dernovsek Day Ahead Trader Power Services BPA Presentation Objectives Federal Columbia