Addressing LMPM / DEB Challenges for Energy-Limited EIM Participating Resources

Transcription

1 Addressing LMPM / DEB Challenges fr Energy-Limited EIM Participating Resurces CAISO April 30 Wrkshp Mark Hlman April 30, 2018

2 Overview LMPM / DEB Challenges Fr Energy-Limited Resurces have emerged in the EIM Fur specific areas fr imprvement have been identified Challenges f estimating marginal csts f energy-limited strage hydr resurces Harmful cnsequences f applying inaccurate DEB values Recent Examples frm Pwerex s EIM Experience Ptential Slutins 2

3 CAISO s Existing LMPM Framewrk Fur Areas Fr Imprvement Flw Reversal Extensin Imprt cnstrained regin is purchasing surplus energy fr ecnmic displacement in LMPM run Becmes unecnmic frced seller in binding market run, as inaccurate DEB replaces bids and ffers Interim slutin: Blck exprts during intervals that applicable BAA is mitigated due t purchases in LMPM run When LMPM is triggered in ne interval, it autmatically applies t subsequent intervals N reasn t apply this t resurces that are nt ramp-cnstrained Interim slutin: Apply LMPM nly in intervals that it is triggered; CAISO Waiver Misapplicatin LMPM applies t all EIM transfer paths except paths int the CAISO BAA (which is deemed cmpetitive) Is it apprpriate t apply LMPM t EIM transfer paths t lcatins where there is n ptential fr lcal market pwer? Ptential slutin: Permit entities with n custmers expsed t EIM prices t pt ut f LMPM applicatin n their imprt transfer paths (LMPM wuld still apply if triggered due t transfers n ther paths) Inaccurate DEB The abve issues cause harm when the seller s DEB < seller s estimate f its marginal pprtunity csts Ptential slutin: Develp a furth DEB Optin that prvides sellers f energy-limited resurces sufficient flexibility 3

4 Effectiveness Of CAISO LMPM Design Hinges On DEBs That Reflect An Accurate Estimate Of A Resurce s Marginal Opprtunity Csts When DEB seller s estimated marginal cst, CAISO s LMPM design is wrkable Appears generally wrkable fr resurces within the CAISO BAA Appears generally wrkable fr EIM participating resurces that are nt energy-limited When DEB < seller s estimated marginal cst, CAISO s LMPM is nt wrkable Inefficient dispatch Ecnmic lsses fr seller Discurages vluntary participatin What factrs make it mre r less wrkable t use external estimates f marginal csts as a DEB? 1. Are marginal csts driven by variable prductin csts r by pprtunity csts? 2. Is the relevant infrmatin limited t a few inputs, with a simple relatinship (e.g., fuel price, heat rate) r des it invlve a large number f inputs that interact in a cmplex way? 3. Is the relevant infrmatin reliably available (e.g., liquid price indices) r must it be subjectively derived frm carser infrmatin? 4. Is the estimated marginal cst relatively stable frm day t day, and frm hur t hur, r is it highly dynamic? 4

5 CAISO Tariff Currently Has Three Optins Fr Calculating A Resurce s Default Energy Bid 1. Variable Cst Optin - based n heat rate, fuel price, GHG csts, etc. Nt relevant fr hydr resurces whse marginal csts are driven largely by pprtunity csts rather than variable prductin csts 2. LMP Optin - based n lwest 25 th percentile f LMPs at which resurce was dispatched in the last 90 days Nt wrkable fr hydr resurces Backward lking, whereas pprtunity csts are driven by current and expected future cnditins 3. Negtiated Rate Optin frmula negtiated between the resurce s scheduling crdinatr and CAISO / DMM Theretically wrkable fr all resurces in CAISO BAA and EIM Nt wrkable in practice fr hydr resurces lcated utside CAISO BAA Requires ability t accurately determine methdlgy / frmula t estimate expected marginal csts, which are cmplex, dynamic, and invlve bth bjective and subjective variables 5

6 Challenges Of Estimating Marginal Opprtunity Csts Fr Energy- Limited Strage Hydr Resurces Key Cnsideratin 1: What quantity f energy will be available t sell r t purchase? 1. Will depend n weather (inflws) and n native lad, n treaty bligatins, n interdependence f facilities, etc. 2. Will als depend n many cnstraints, which change ver time min/max elevatins, discharge, envirnmental, safety, etc. Key Cnsideratin 2: What are the pprtunities t make sales r purchases? 1. Hurly pprtunities may exist ver many mnths, at a large number f gegraphic lcatins 2. Frward market data is generally available nly fr mnthly prducts, and nly at a few market hub lcatins Each f these cnsideratins and inputs is subject t: 1. A range f pssible utcmes, requiring subjective estimatins 2. Cntinual change frm day t day and ften within each day This results in marginal pprtunity csts being cmplex, dynamic and subjective Any decisin t sell r purchase energy carries risk (and this risk may be asymmetrical) * The abve describes the general decisin-making challenge when a resurce is energy-limited, but in certain hurs r cnditins it may als be capacity-cnstrained (due t generatin limits, transmissin limits, etc.) 6

7 Key Cnsideratin 1: What Quantity f Energy Will Be Available T Sell Or T Purchase? GMS Mica Pwerex s EIM Aggregate Participating Resurce (APR) represents surplus capability frm these BC Hydr resurces Ktenay Canal Seven Mile Cheakamus Bridge River Peace Revelstke Many ther resurces, including numerus ther interdependent hydr facilities INFLOW DISCHARGE Arrw Treaty Obligatins Many uncertain inputs, cnstraints, and cnsideratins, including Range f ptential inflws ver many mnths Inter-dependence f facilities Envirnmental, fld and ice cnstraints Native lad requirements Treaty bligatins Hw much surplus energy will be available fr sale this year at each facility? Hw much flexibility will be available t decide when t sell it? Native Lad Requirements 7

8 Key Cnsideratin 2: What Are The Opprtunities T Make Sales Or Purchases? Pwerex buys and sells electricity at ver 80 lcatins acrss Western Nrth America: BC-US brder Alberta intertie lcatins Bilateral market lcatins CAISO intertie lcatins Frward prices are nly available at a few trading hubs and nly with mnthly granularity Extensive analysis and experience is required t estimate future hurly prices ver many mnths and many lcatins When and where will the marginal sales pprtunity arise? BC-US Brder Alberta interties Bilateral lcatins CAISO interties Trading hubs Is it ecnmic t sell (an uncertain quantity f) energy nly abve $25/MWh, $37/MWh r $48/MWh? Surce: Lcatins in Pwerex s FERC EQR reprts frm 2016 and

9 Challenges Of Estimating Marginal Csts Fr Energy-Limited Strage Hydr Resurces It is implausible that a third-party, n matter hw sphisticated, will cnsistently arrive at the same numerical estimate f marginal pprtunity csts as the seller This is nt a critique f the analytical capabilities f different entities Rather, it reflects the inherent impssibility f relying exclusively n a frmula t estimate hydr system marginal pprtunity csts This is cmpunded by the cnstraints n DEB calculatins Cmpleted the day prir t peratins (cannt respnd t new infrmatin during the day) and D nt have hur-by-hur granularity (cannt reflect different perating cnfiguratins, limitatins intra-day) This is further cmpunded by external third-parties lacking all relevant infrmatin, cnsideratins, and the many years f experience necessary t evaluate the numerus inputs, cnsideratins, interdependencies and risks An externally-determined frmula will always differ frm a seller s estimate, except by cincidence 9

10 These Are New Challenges, Nt Previusly Faced In CAISO Markets The challenges faced by energy-limited hydr resurces in the EIM are new, and generally nt experienced by generatrs within the CAISO BAA ftprint Resurces in an RTO ftprint: 1. Sell all utput at a single generatr bus Nt 80+ destinatin market lcatins 2. Market peratr has extensive infrmatin abut cnditins n its wn grid Des nt need infrmatin t frecast external market pprtunities each hur in the future 3. In-state resurces have been separated frm lad-service bligatins; can ffer full unit capacity Rather than needing t determine the amunt that is surplus t native lad needs 4. In-state hydr resurces are nt subject t the same treaty bligatins r the same peratinal and envirnmental restrictins e.g., BC Hydr must cnsider treaty bligatins, ice flw restrictins, and ther unique cnsideratins in the peratin f its facilities, and in the determinatin f surplus capabilities made available t Pwerex 10

11 Recent Examples Frm Pwerex s EIM Experience Pwerex has experienced numerus instances in which LMPM was triggered fr its APR This can happen when there is a: True Psitive: e.g., when imbalance demand is high within a cnstrained area False Psitive: e.g., when there is abundant surplus energy utside the cnstrained area Fast-ramping hydr resurce DEC bids, even if nly slightly in merit, can quickly fill EIM imprt transmissin Mitigatin t a DEB level belw Pwerex s wn estimates f its marginal pprtunity cst results in: 1. Harm t Pwerex Frced unecnmic sales and lst ecnmic purchases 2. Harm t market efficiency in current hur Market slutin des nt represent least-cst dispatch 3. Harm t market efficiency in future hurs Less water available t serve lad, imbalances, and t displace resurces in mre valuable hurs later 4. Discuraging EIM participatin 11

12 Parallel Operatins Example: February 5, 2018 HE 12 February 5 prvides several clear examples f utcmes with and withut bid mitigatin Data frm parallel peratins, nt binding peratins, and used fr illustrative purpses nly DEB was an initial default value Pwerex s bids and ffers (blue line) were nt mitigated in the 15-minute market Bids t purchase were in merit t purchase energy Pwerex purchased 75 MWh at an average price f $21/MWh (green circles) But thse same bids and ffers were mitigated in the 5- minute market Bids/ffers re-priced t DEB f $2.96/MWh (grey line) Pwerex s mitigated ffers were then in merit t sell energy Pwerex sld 214 MWh at an average price f $2.96/MWh (range circles) In 15-minute market, bids nt mitigated, Pwerex buys 75 MWh Default Energy Bid $/MWh $40 $35 $30 $25 $20 $15 $10 $5 Pwerex s riginal bids/ffers In 5-minute market: bids are mitigated, Pwerex frced t sell 214 MWh $ Bid/Offer Quantity (MW) 12

13 Summary Of Bid Mitigatin During Parallel Operatins February 1 March 30, 2018 RTUC MWh 3,000 2,500 2,000 1,500 1, Pwerex s 15-minute market mitigated sales quantity Pwerex s 15-minute market ttal sales quantity Mitigatin ccurred in ne r mre intervals during 52 f 58 days f parallel peratins Rughly 30% f the vlume f sales frm Pwerex s participating resurce were at unecnmic mitigated prices Mitigatin als inefficiently blcked a significant quantity f Pwerex purchases RTD MWh 0 3,000 2,500 2,000 1,500 1,000 Pwerex s 5-minute market mitigated sales quantity Pwerex s 5-minute market ttal sales quantity Have been unable t quantify the vlume r value f blcked purchases Mitigatin is mre frequent during perids when the calculated DEB is lwer (early Feb) Feb 8-Feb 15-Feb 22-Feb 1-Mar 8-Mar 15-Mar 22-Mar 29-Mar Pwerex ntes that results frm parallel peratins may differ frm results under binding market peratins, and may r may nt predict future utcmes 13

14 Summary Of Prblems With Applying Existing LMPM/DEB Design T Energy-Limited Strage Hydr Resurces In EIM Current LMPM/DEB framewrk is unwrkable fr external energy-limited strage hydr resurces Cre assumptin that marginal pprtunity csts can be accurately calculated by an external entity is nt valid Any external calculatin will inevitably differ frm seller s wn assessment in virtually every hur (ther than by cincidence) Means that in a large number f hurs, DEB will be belw seller s wn assessment f its marginal pprtunity cst Harms sellers thrugh frced unecnmic sales and blcked ecnmic purchases Results in inefficient use f hydr resurces, depleting water in the wrng perids Discurages EIM participatin by external hydr resurces, which are exactly the types f resurces that can best help integrate renewables and balance lad in the EIM Pwerex s EIM business case has been harmed Pwerex appreciates CAISO s effrts n this issue If unaddressed, may als impact: Expansin f the EIM, particularly in the Pacific Nrthwest Business case fr EDAM participatin 14

15 Ptential Slutins What is the mst apprpriate apprach t LMPM and DEBs fr EIM energy-limited participating resurces (lcated utside the CAISO BAA)? Given that: Third-party estimates f marginal pprtunity csts will always be inaccurate Sellers are best psitined t estimated their wn marginal pprtunity csts The EIM is a vluntary market Whenever LMPM is triggered (and the ptential exists fr seller s ffers t reflect the exercise f market pwer): Status Qu: Autmatically ver-ride the seller s ffers with a DEB that represents a third-party frmulaic estimate f marginal pprtunity cst and dispatch the resurce using its replaced bids and ffers Optin 1 (Furth DEB Optin): Add a DEB ptin under Tariff that prvides enugh flexibility t allw suppliers t determine their wn bid/ffer prices withut being verridden, while still prtecting against lcal market pwer Optin 2 (Blcked Exprts): D nt dispatch ffers that are abve the DEB, when the dispatch results in exprts frm the applicable BAA Optin 3 (Hybrid Apprach): Cmbine elements f Optin 1 and Optin 2 15

16 Furth DEB Optin: Threshld-Based Apprach Optin 1: Furth DEB Optin (fr Energy-Limited Strage Hydr Resurces Lcated Outside CAISO BAA) Add a DEB ptin under Tariff that prvides external hydr suppliers with enugh flexibility t allw them t determine their wn bid/ffer prices withut being verridden, while prtecting against lcal market pwer Based n cnduct threshlds that have been apprved fr generally uncnstrained areas in MISO, NYISO and ISO-NE Bids belw $25/MWh never mitigated; Bids that d nt exceed a reference price by the lesser f $100 r 300% f reference price are als nt mitigated Furth DEB = Max ($25/MWh, Reference Price + Min (300% x Reference Price, $100/MWh) Reference price culd be set at ICE Day Ahead On-Peak Mid-C Index fr BC / NW energy limited resurces ICE Day Ahead On-Peak PV Index fr SW energy limited resurces Each f these indices represent ne available pprtunity fr hydr resurces, and are readily available Pwerex believes these threshlds wuld be wrkable, reasnable, and wuld generally nt prevent it frm reflecting its pprtunity csts in its bids. 16

17 Furth DEB Optin: Applicatin in Optin 1: Furth DEB Optin (fr Energy-Limited Strage Hydr Resurces Lcated Outside CAISO BAA) $1,000 $900 Price Cap Prpsed Furth DEB adjusts t reflect nearterm grid cnditins US$/MWh $800 $700 $600 $500 $400 $300 $200 Furth DEB Optin ICE Day-Ahead On-Peak Mid-C $100 $ Buyer prtectin against lcal market pwer Offer price flexibility fr sellers Histrical data shws that prpsed Furth DEB wuld prvide extensive prtectin against ptential exercise f lcal market pwer by remving mst f seller s flexibility under the $1,000/MWh price cap Pwerex believes flexibility prvided wuld likely be sufficient under mst cnditins 17

18 Furth DEB Optin Prvides Flexibility T Reflect Opprtunity Csts Pwerex Sales in Western U.S. April 2016 Daily and Hurly frm FERC EQR US$ Bilateral Sales Sales t CAISO Furth DEB Optin ICE Day Ahead On-Peak MidC Pwerex s reprted daily and MW hurly sales (FERC EQR) $ Excludes: $ Frward sales $40 $30 $20 $10 BC-US Brder sales Alberta sales Illustrates the suitability f the prpsed Furth DEB Optin, relative t Pwerex s alternative sales pprtunities $0 ($10) 01-Apr Apr Apr Apr Apr-16 18

19 Furth DEB Optin Prvides Flexibility T Reflect Opprtunity Csts Pwerex Sales in Western U.S. July 2016 Daily and Hurly frm FERC EQR Bilateral Sales Sales t CAISO Furth DEB Optin ICE Day Ahead On-Peak MidC Pwerex s reprted daily and hurly sales (FERC EQR) Excludes: Frward sales BC-US Brder sales Alberta sales Illustrates the suitability f the prpsed Furth DEB Optin, relative t Pwerex s alternative sales pprtunities 19

20 Furth DEB Optin Prvides Flexibility T Reflect Opprtunity Csts Pwerex Sales in Western U.S. Nvember 2016 Daily and Hurly frm FERC EQR Bilateral Sales Sales t CAISO Furth DEB Optin ICE Day Ahead On-Peak MidC Pwerex s reprted daily and hurly sales (FERC EQR) Excludes: Frward sales BC-US Brder sales Alberta sales Illustrates the suitability f the prpsed Furth DEB Optin, relative t Pwerex s alternative sales pprtunities 20

21 Furth DEB Optin Prvides Flexibility T Reflect Opprtunity Csts Pwerex Sales in Western U.S. March 2017 Daily and Hurly frm FERC EQR Bilateral Sales Sales t CAISO Furth DEB Optin ICE Day Ahead On-Peak MidC Pwerex s reprted daily and hurly sales (FERC EQR) Excludes: Frward sales BC-US Brder sales Alberta sales Illustrates the suitability f the prpsed Furth DEB Optin, relative t Pwerex s alternative sales pprtunities 21

22 Furth DEB Optin: Summary Optin 1: Furth DEB Optin (fr Energy-Limited Strage Hydr Resurces Lcated Outside CAISO BAA) Histrical data indicates that Pwerex s prpsed Furth DEB Optin wuld Generally prvide sufficient flexibility fr sellers frm energy-limited participating resurces t participate in the EIM withut being mitigated belw their alternative current and future market pprtunities, which drive marginal pprtunity csts Prvide EIM purchasers with sufficient prtectin against the exercise f lcal market pwer Based n data frm the last five calendar years ( ), Furth DEB wuld have been: Belw $150/MWh in 95.8% f hurs Belw $250/MWh in 99.8% f hurs Well belw the ffer price cap f $1,000 / MWh in all hurs EIM sellers als have incentives t bid at their marginal pprtunity csts, even if DEB is higher EIM is highly cmpetitive, sales ffers abve marginal pprtunity csts risks freging ecnmic transactins Entities with hydr resurces als typically have lad and generatin imbalances Offer prices abve a seller s estimate f marginal pprtunity csts creates risk f the seller s wn imbalances being served unecnmically frm imprts 22

23 Limit EIM Exprts Optin 2: Ensure Mitigated Offers Are Nt Used T Supprt Exprts When mitigatin is triggered, resurces wuld nt be dispatched t the extent it resulted in exprts t ther EIM BAAs (r CAISO BAA) Reduces extent f inefficient depletin f limited energy, and reduces harm f unecnmic sales Shuld nt be prblematic fr rest f EIM 1. EIM is strictly vluntary i.e., n wrse than if participant declined t submit ecnmic ffers, r t make transmissin available 2. EIM entities are required t be Resurce Sufficient, and hence d nt rely n energy being available frm thers May be wrkable as a near-term slutin, but with imprtant shrtcmings 1. Seller cntinues t be harmed if mitigatin blcks its bids t purchase energy 2. Seller still expsed t selling imbalance energy in its wn BAA at inaccurately lw prices 3. Incmpatible with any future vluntary must-ffer arrangements entered int e.g., if seller vluntarily transacts RA, FRAC-MOO, etc., it will need a DEB 23

24 Hybrid Apprach Optin 3: Hybrid Apprach Fr lcatins where either Mitigatin is triggered in fewer than a defined number f hurs per year, r N third-party custmers are expsed t EIM prices in the cnstrained lcatin Apply Furth DEB as per Optin 1 But apply a mre restrictive DEB and/r blck exprts (Optin 2) if: 1. Mitigatin is triggered mre frequently than the defined value; and 2. Third-party custmers in the cnstrained regin are expsed t EIM prices 24

25 Interim Measures Pwerex appreciates CAISO s effrts t address this urgent issue in the near-term: CAISO Waiver Request Will prevent LMPM frm autmatically extending thrughut the perating hur (fr Pwerex APR) CAISO Business Practice Changes Will prevent Pwerex s APR frm being dispatched fr exprts, when in purchase bid range prir t LMPM Will prevent Pwerex frm prviding Flexible Ramping Up t Other BAAs, when exprts limited But these measures are neither cmprehensive, nr durable Pwerex s ecnmic purchase pprtunities are still blcked Pwerex s sales are still mitigated t unecnmic prices when LMPM is triggered Waiver limited t 18 mnths Pwerex agrees with CAISO s statements n the need fr supplier pricing flexibility: Management believes a cre design principle shuld be that suppliers are much mre able than the ISO t determine their csts. - Keith Casey Mem t CAISO Bard, CCDEBE Prpsal, March 14, 2018 at

26 Stakehlder Prcess Gvernance The develpment f a Furth DEB ptin, r ther measures t make LMPM wrkable fr energy-limited resurces participating in the EIM, must be under the primary decisinal authrity f the EIM Gverning Bdy The prpsed enhancements wuld apply t energy-limited resurces lcated utside the CAISO BAA Resurces lcated utside CAISO BAA are nt mitigated in rder t address lcal market pwer cncerns inside the CAISO BAA Hence lcal market pwer cncerns inside the CAISO BAA wuld be unaffected by this prpsal EIM Gverning Bdy is the apprpriate bdy t balance the cmpeting interests f differently-situated participants and regins Suppliers prefer maximum bidding flexibility Buyers prefer maximum prtectin frm lcal market pwer, and sme may ppse additinal bidding flexibility 26

27 Thank Yu Pwerex Crp Burrard Street Vancuver, British Clumbia Canada V6C 2X8 Tel Tll Free