ICAP Demand Curve. Zachary T. Smith Supervisor, ICAP Market Operations, NYISO. Intermediate ICAP Course. November 7-8, 2017 Rensselaer, NY 12144

Transcription

1 ICAP Demand Curve Zachary T. Smith Supervisor, ICAP Market Operations, NYISO Intermediate ICAP Course November 7-8, 2017 Rensselaer, NY

2 Objectives Upon the completion of this module, trainees should be able to Identify the steps of the ICAP Demand Curve reset (DCR) process Describe the benefits of sloped ICAP Demand Curves Identify the points used in developing the ICAP Demand Curves Understand the stepwise process of determining an ICAP Demand Curve Determine how the UCAP Demand Curves are used in solving the ICAP Spot Market Auction Explain the process for translating the ICAP Demand Curves to UCAP values 2

3 ICAP Demand Curve Reset (DCR) Process Stakeholder process Documents posted for stakeholder comments NYISO Board of Directors review/approval Annual updates of certain parameters for the years between periodic reviews (i.e., years 2 through 4) Order issued by FERC accepting new curves for Year 1, assumptions/methodologies for annual updates for Year 2-4 NYISO filing with FERC of Board approved ICAP Demand Curves for Year 1, assumptions/methodologies for annual updates for Year 2-4 3

4 Annual Update Process Set in place to update the ICAP Demand Curves formulaically each year beyond the first year of the reset period, for the remaining three years of each period Net Energy and Ancillary Services revenue estimates revised based on most recent three years of historic data Estimated levelized cost of new peaking plant updated using a composition escalation factor The winter-to-summer ratio (WSR) updated using data from same historic period as updated net Energy and Ancillary Services revenue estimates Updated ICAP Demand Curves posted on the NYISO website on/before November 30 th of year prior to start of Capability Year to which updated curves will apply 4

5 Sloped Demand Curve. 5

6 Sloped Demand Curve Implemented to determine the ICAP Spot Market Auction Market- Clearing Price An enhancement to the previously used inelastic vertical demand curve Incorporates a more gradual slope that will value additional capacity beyond the minimum requirement First ICAP Spot Market Auction using sloped demand curve was conducted at the end of April 2003 for the first month of the Capability Year (i.e., May 2003) 5

7 Sloped Demand Curve Advantages of a sloped demand curve Increases system and resource reliability Values additional UCAP above NYCA and Locational Minimum Installed Capacity Requirements Reduces price volatility and provides more accurate price signals Provides signals for capacity investment 7

8 Inelastic Demand Curve Market clearing price of capacity was previously set by a deficiency auction construct using a vertical (inelastic) demand curve through the Capability Year Designed such that supply and demand converge at an administratively determined point Price of any excess capacity beyond the minimum requirement is valued at zero $/kw-month Demand 0 100% Requirement MW 7

9 Inelastic Demand Curve Disadvantages of inelastic demand curve Price Volatility potential for large price variations resulting from small changes in supply curve Resulted in very high ICAP prices during deficiency and extremely low prices at times of surplus capacity Discouraged generators from participating in the New York markets Poor signals for planning and financing new capacity Unpredictable revenue streams Undermining the incentive for Market Participants (MPs) to enter into long term contracts for ICAP supply 9

10 $/kw Month Market Prices with Inelastic Demand $10.00 $9.00 NYCA Spot Market Prices $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 May, 2000 Jul, 2000 Sep, 2000 Nov, 2000 Jan, 2001 Mar, 2001 May, 2001 Jul, 2001 Sept, 2001 Nov, 2001 Jan, 2002 Mar, 2002 May, 2002 Jul, 2002 Sept, 2002 Nov, 2002 Jan, 2003 Mar,

11 Transition from Inelastic to Sloped Demand Curve $/kw-month Demand Surplus capacity 0 MW 10

12 Benefits of Sloped Demand Curve $/KW- month Slope of Curve Reduce potential impact of exercise of market power Reduce revenues from withholding vs. receiving capacity payment Lessen price fluctuations Effect of supply changes on clearing prices Correlation with costs Guide market towards adequacy of capacity investment Identifies value of excess capacity $0 0 MW 12

13 Inelastic vs. Sloped Demand Curve $/kw-month $12.00 $10.00 $8.00 $6.00 Price Difference with Inelastic curve $ 3.00 UCAP Required Price Difference with Sloping curve $ 1.50 $4.00 $2.00 $0 0 MW 11

14 May, 2000 Mar, 2001 Jan, 2002 Nov, 2002 Sept,2003 Jul,2004 May, 2005 Mar, 2006 Jan, 2007 Nov, 2007 Sept, 2008 Jul, 2009 May, 2010 Mar, 2011 Jan, 2012 Nov, 2012 Sept, 2013 Jul, 2014 May, 2015 Mar, 2016 Jan, 2017 $/KW Month NYCA Spot Market Auction Prices $10.00 NYCA Spot Market Prices $8.00 $6.00 $4.00 $2.00 Sloped Demand Curve Implemented $

15 Let s Review Which ICAP market auction uses a demand curve? a. Capability Period ( Strip ) Auction b. Monthly Auction c. ICAP Spot Market Auction d. None of the above. 14

16 Let s Review $/KW- month $/KW- month $/KW- month Demand Curve A Demand Curve B Demand Curve C $0 MW $0 MW $0 MW If you apply the same given change in a supply curve for Demand Curves A, B, and C, select the demand curve that would result in the largest change in price. A. Demand Curve A B. Demand Curve B C. Demand Curve C D. The price change would be the same for Demand Curves A, B, and C. 15

17 Let s Review $/KW- month $/KW- month $/KW- month Demand Curve A Demand Curve B Demand Curve C $0 MW $0 MW $0 MW If you apply the same given change in a supply curve for Demand Curves A, B, and C, select the demand curve that would result in the least change in price. A. Demand Curve A B. Demand Curve B C. Demand Curve C D. The price change would be the same for Demand Curves A, B, and C. 16

18 Let s Review The effects of an inelastic demand curve on ICAP Spot Market Auction clearing prices were: a. Insignificant changes in capacity market prices when surplus and tight capacity existed b. Stable capacity market prices c. Volatile capacity prices and revenues from the ICAP Spot Market Auction d. None of the above. 17

19 Development of ICAP Demand Curves. 19

20 Development of the ICAP Demand Curves ICAP Demand Curve considers: 1. Projected annual net Energy and Ancillary Services revenues of peaking plant 2. Locational Minimum Installed Capacity Requirement for Locality, and NYCA Minimum Installed Capacity Requirement for NYCA-wide 3. The point at which the value of additional surplus capacity above the applicable minimum requirement declines to $0 ( zerocrossing point ) 4. Levelized embedded cost of a new peaking plant in each Locality, as well as the rest of state capacity region 19

21 Projected Annual Net EAS Revenues of Peaking Plant $/kw-month 1 Stimulate investment ICAP market price required for adequate revenues to cover costs for new peaking plant Or $0 0 MW net cost of new entry [Cost (Energy + Ancillary Services revenues)] = annual ICAP Spot Market Auction revenue required 20

22 Development of the Demand Curve The ICAP Demand Curves are established based on supply conditions that slightly exceed the applicable minimum requirement ( level of excess conditions) Level of excess Locational Minimum Installed Capacity Requirement for Locality, and NYCA Minimum Installed Capacity Requirement for NYCA-wide, plus MW value of the relevant peaking plant s capacity 21

23 Minimum Installed Capacity Requirement Reference Point 2 ICAP market price required for adequate revenues to cover costs for new peaking plant $/kw-month clearing price level when capacity meets 100% of minimum requirement reference point first point of the ICAP Demand Curve $ % of minimum requirement (forecast peak load * minimum requirement %) MW 22

24 Zero-Crossing Point $/kw-month 3 zero-crossing point - second point of the ICAP Demand Curve is the point at which additional surplus capacity has $0 Value $ % of minimum requirement MW (forecast peak load * minimum requirement %) 23

25 Development of the ICAP Demand Curves Levelized embedded cost of a new peaking plant Technology that results in lowest fixed cost and highest variable cost among technologies that are economically viable May be a plant comprised of more than one unit 25

26 Maximum Clearing Price $/kw-month maximum clearing price x estimated levelized cost to develop new peaking plant $0 0 MW [cost (Energy + Ancillary Services revenues)] = annual ICAP Spot Market Auction revenue required 25

27 ICAP Demand Curve Slope $/kw-month maximum clearing price reference point $ % of minimum requirement zero-crossing point MW 26

28 ICAP Demand Curve Slope $/kw-month $0 0 MW If surplus: Price is below reference price If shortage: Adequate revenues to recover cost and induce investment 27

29 Factors Impacting ICAP Demand Curves $/kw-month Increase/decrease in net cost of new entry $ % of minimum requirement MW increase/decrease in required MW 28

30 Let s Review The slope of the ICAP Demand Curve increases when: a. The zero-crossing point increases b. The reference point increases c. Maximum clearing price increases d. All of the above e. None of the above. 29

31 Let s Review $12.00 $10.00 $8.00 $6.00 $4.00 $/kw-month $2.00 $0 0 What is the maximum clearing price that could occur for this ICAP Spot Market Auction? MW a. $3.00 b. $ 6.00 c. $ 9.00 d. $ e. None of the above. 30

32 Steps to Determining an ICAP Demand Curve. 31

33 Example: Determining the NYC ICAP Demand Curve ICAP reference point Annual levelized embedded cost of new peaking plant Construction/installation Fixed operation and maintenance (O&M) Miscellaneous adjustments NYC peaking plant: dual-fuel F-Class Frame Turbine with selective catalytic reduction (SCR) emissions control technology Annual levelized embedded cost $209.14/kW-year 32

34 Example: Determining the NYC ICAP Demand Curve ICAP reference point Net of projected annual revenues from Energy and Ancillary Services Estimated net Energy and Ancillary Services revenues for NYC peaking plant: $33.49/kW-year Annual ICAP revenue required (i.e., net cost of new entry) $209.14/kW-year - $33.49/kW-year = $175.65/kW-year [cost (Energy + Ancillary Services revenues] = annual ICAP market revenue required 33

35 Example: Determining the NYC ICAP Demand Curve ICAP reference point Annual ICAP revenue required: $175.65/kW-year Account for seasonal changes in capacity availability (WSR) Convert to $/kw-month $18.55/kW-month is NYC ICAP Demand Curve reference point at 100% of the applicable minimum ICAP requirement 34

36 $/KW - Month (ICAP) Example: Determining the NYC ICAP Demand Curve $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 ICAP reference point 2014/2015 $ % of minimum ICAP requirement 35

37 Example: Determining the NYC ICAP Demand Curve zero-crossing point Determine % capacity above requirement when clearing price is $0 Zero-crossing point: 115% for G-J Locality G-J Locality: locational forecast peak load x Locational Minimum Installed Capacity Requirement (LCR) x 115% Zero-crossing point: 118% for NYC & LI NYC & LI: locational forecast peak load x Locational Minimum Installed Capacity Requirement (LCR) x 118% Zero-crossing point: 112% for NYCA NYCA: forecast NYCA peak load x NYCA Minimum Installed Capacity Requirement (IRM) x 112% 36

38 Example: Determining the NYC ICAP Demand Curve 2014/2015 $/KW - Month (ICAP) $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $ /2015 $18.55 zero-crossing point zero-crossing point $ % of minimum ICAP requirement 37

39 Example: Determining the NYC ICAP Demand Curve 2014/2015 Maximum Clearing Price Max price = 1.5 x levelized embedded cost of new peaking plant Annual levelized embedded cost for NYC peaking plant = $209.14/kW-year 1.5 x $209.14/kW-year = $313.71/kW-year Convert $313.71/kW-year to $/kw-month $313.71/kW-year / 12 months = $26.14/kW-month Maximum ICAP clearing price values are not seasonally adjusted 38

40 $/KW - Month (ICAP) Example: Determining the NYC ICAP Demand Curve 2014/2015 $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 maximum clearing price $26.14 maximum clearing price 2014/2015 $18.55 $ % of minimum ICAP requirement 39

41 $/KW - Month (ICAP) Example: Determining the NYC ICAP Demand Curve 2014/2015 $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 $26.14 maximum clearing price reference point $ % ICAP Required % of minimum ICAP requirement Representative For Training Use Only zero-crossing point $

42 Example of Service Tariff ICAP Demand Curve Values maximum clearing price reference point zero-crossing point 41

43 ICAP Demand Curve Timeline Demand Curve Reset Every 4 years Year 4 ICAP Demand Curve, Year 2-4 Established by an annual update process Every Capability Period ICAP Demand Curves translated from ICAP to UCAP ICAP Demand Curves developed for - G-J Locality - LI - NYC - NYCA Year 3 Year 2 Net Energy and Ancillary Services revenue estimates updated based on most recent 3 years of historic data Estimated levelized embedded cost of new peaking plant updated using a composite escalation factor Winter-to-Summer ratio updated Updated ICAP Demand Curves posted on NYISO website on/before November 30 th of year prior to start of Capability Year to which updated curves will apply Year 1 ICAP Demand Curve parameters are in the Services Tariff in ICAP values UCAP values listed in the NYISO ICAP Automated Market System (AMS) Year 1 Year 1 ICAP Demand Curves Established by quadrennial review process (Slide 3) 43

44 $/KW - Month (ICAP) Let s Review $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $ Develop an ICAP Demand Curve using the following data: Seasonally adjusted net cost of new entry: $ 15.00/kW-month Additional surplus capacity value of $0: 118% of minimum ICAP requirement Estimated levelized embedded cost of new peaking plant: $ 16.00/kW-month % of minimum ICAP requirement. 44

45 Translating ICAP Demand Curves to UCAP Values. 45

46 Translating ICAP Demand Curves to UCAP Values Example: NYC 2014 Summer Capability Period Determine UCAP reference point UCAP reference point = ICAP reference point/(1-avgeford) $19.62/kW-month = $18.55/kW-month/(1 5.44%) Determine UCAP at zero-crossing point UCAP at $0 = UCAP required x 118% UCAP required = NYC forecast peak load x LCR x (1-AvgEFORd) UCAP required = 11, MW x 85% x (1-5.44%) = 9,470.5 MW UCAP at $0 = 9,470.5 MW x 118% = 11,175.0 MW 50

47 NYC Demand Curve ICAP/UCAP Translation Summer 2014 Determine UCAP maximum clearing price UCAP maximum clearing price = ICAP maximum price/(1-avgeford) UCAP maximum price = $26.14/kW-month/(1 5.44%) = $27.65/kW-month 51

48 $/KW - Month (ICAP) NYC UCAP Demand Curve Summer 2014 $30.00 $27.00 $24.00 $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 maximum clearing price $27.65 reference point $ % ICAP Required Representative For Training Use Only zero-crossing point (118%) $0.00 MW (UCAP) 52

49 Let s Review Which of the following identifies an item that could impact the slope of the NYCA UCAP Demand Curve? a. NYCA Installed Reserve Margin b. Equivalent Demand Forced Outage Rate (EFORd) c. Net cost of a new entry d. All of the above e. None of the above. 53

50 Let s Review A decrease in the annual cost of a new entry will effect the UCAP Demand Curve by: (assume other curve values remain constant) a. Increasing the maximum clearing price b. Decreasing the maximum clearing price c. Has no effect on the UCAP Demand Curve d. All of the above e. None of the above. 54

51 Demand Curves and the ICAP Spot Market Auction. 51

52 Use of Demand Curves in the ICAP Spot Market Auction As discussed earlier, the ICAP Spot Market Auction uses the demand curves The demand curve serves to replace bids to purchase capacity Offers to sell capacity are still accepted All offers that are at or below the demand curve are awarded, and these MW are allocated out to Market Participants based upon deficiencies and LSE capacity requirements 46

53 Solving the Spot Market Auction Market positions are calculated for all Market Participants Deficiencies Excess Total capacity certified is calculated Starting at the total capacity certified, offers are then ranked based upon economics, and evaluated against the demand curve Market Participants that are deficient are awarded MW to cover deficiencies Excess MW purchased above requirements are allocated to LSEs based upon a load-ratio share These MW can be used in other locations to either meet deficiencies or be sold to other Market Participants 47

54 $/kw- Month Solving the ICAP Spot Market Auction awarded excess awarded deficiency Market Clearing Price (MCP) capacity certified 100% of minimum requirement 48

55 $/kw- Month Let s Review awarded excess How much UCAP was cleared/purchased in the above ICAP Spot Market Auction, assuming no $0 offers? awarded deficiency 36,000 MW 100% UCAP 40,000 MW Req. MCP a. 4,000 MW b. 36,000 MW c. 37,230 MW d. 40,000 MW e. 100% UCAP Req.. 55

56 Summary Identify the steps for ICAP Demand Curve reset (DCR) process Describe the benefits of sloped ICAP Demand Curves Identify the points used in developing the ICAP Demand Curves Understand the stepwise process of determining an ICAP Demand Curve Determine how the UCAP Demand Curves are used in solving the ICAP Spot Market Auction Explain the process for translating the ICAP Demand Curves to UCAP values 56

57 References NYISO Services Tariff Section 5.14 NYISO Installed Capacity Manual ICAP sections of NYISO website ICAP Market System ICAP Working Group FERC Orders and Filings NYISO website 57