Delisting: Exit of capacity resources from the market. Eligibility WG October 24, 2017

Transcription

1 Delisting: Exit of capacity resources from the market Eligibility WG October 24, 2017

2 Overview SAM3.0: Directional Indication - How will the capacity market manage the exit of capacity resources? Overview of how the capacity market will manage the exit of capacity resources. Consider market power issues Discuss delisting approaches Public 2

3 Retirement or Long Term Outages Retirement or mothball Generation owner may decide to retire or mothball a generation unit due to legitimate economic rationale. If an asset cannot earn sufficient market revenues to cover going-forward costs it should be able to exit the market freely and re-enter once price signal strengthens. Long term outages Public If an asset will have a prolonged outage for substantial maintenance the owner may request a temporary leave from the capacity market 3

4 Delisting consideration: market power In a capacity market construct the AESO will have to procure enough capacity to cover a reliability target for the Alberta system. An obligation to procure translates into highly inelastic demand for capacity. Reduction in quantity of capacity MW leads to higher prices. Price of Capacity $/MW-Day P2 P1 Increased revenue from reducing the amount of capacity available Q2 Demand for Capacity Q1 Lost revenue from the contraction in quantity of capacity sold Quantity (MW) Public 4

5 Market Power in Alberta Alberta s market is highly concentrated with few market participants controlling sizable generation portfolios. Concerns about physical withholding of capacity resources from the auction through retirement or mothball. In 2012, 5 largest suppliers ~70% of total market capacity. In theory a capacity supplier with a large enough portfolio can retire a marginally economic asset to increase capacity market prices. Losses on the retired unit can be offset by higher prices that are more than offset by the gains made with the suppliers other assets. Public 5

6 Delisting Key Design Question(s) How will the Capacity Market manage the exit of capacity resources (retirement, mothball, long term turnaround) Alternative Description of Alternative Alternative 1 Capacity Resource can only retire (or mothball) from the capacity market once the economics of the facility been reviewed and the retirement approved by a market monitor. Alternative 2 Capacity Resources can retire from the capacity market without the need to justify economic viability or review by a market monitor. 6

7 Jurisdictional Review Alternatives ISO-NE PJM NYISO GB Alternative 1: Economic review by a market monitor before retirement can take place. All capacity retirements or exits are reviewed by a market monitor for economic rationale. Capacity Market seller must provide notice of deactivation to a market monitoring unit to support economic decision. Any proposals for retirement may be subject to an audit by the ISO to assess whether the proposal has a legitimate economic justification. Alternative 2: Resource free to exit the market without a review by a market monitor. Exit from capacity market is allowed without the need for economic justification. Other mitigation approaches are utilized. 7

8 Pros / Cons Alternatives Pros Cons Alternative 1: Economic review by a market monitor before retirement can take place. Minimize the risk of an incumbent supplier retiring an economic resource to increase capacity prices. Protects consumers from immediate harm. Provides a clear hurdle for generators to declare uneconomic operating conditions. Administratively burdensome Based on factors that are not easily quantified. Market monitor may not be able to take into account different risk profiles. Existing rules (FEOC) may eliminate incentives to withhold in the first place. Review of exit economics by a monitor may lead to issue with over mitigation. Alternative 2: Resource free to exit the market without a review by a market monitor. Minimize administrative burden, some subjectivity in the process Over mitigation issues may be avoided. Recovery of damages post auction is more costly than mitigating the issue upfront. Lessens the barriers to physically withhold capacity for portfolio gain. 8

9 Design Criteria Criteria Alt. 1: Alt. 2: Capacity market should be fair, efficient, and openly competitive Procurement of capacity should employ market-based mechanisms and a competitive market for capacity should be developed A wide variety of technologies should be able to compete to provide capacity provided they are qualified to meet the eligibility criteria N/A N/A Capacity market mechanisms, outcomes and relevant data should be transparent N/A N/A There should be a well-defined product and an effective and efficient price signal N/A N/A Generally Positive Neutral Generally Negative N/A Not Applicable 9

10 Design Criteria Criteria Alt. 1: Alt. 2: Cost and Risk Investment risks should continue to be largely borne by investors rather than consumers Generally Positive Neutral Generally Negative N/A Not Applicable 10

11 Design Criteria Criteria Alt. 1: Alt. 2: Supply Adequacy and Reliability The capacity market should achieve desired reliability objectives by creating a measurable supply adequacy product designed to provide energy production or reduced consumption when needed Generally Positive Neutral Generally Negative N/A Not Applicable 11

12 Design Criteria Criteria Alt. 1: Alt. 2: Flexibility Unique aspects of Alberta s electricity system should be considered in the design of the capacity market The capacity market should be compatible with other components of the electricity framework N/A N/A Generally Positive Neutral Generally Negative N/A Not Applicable 12

13 Design Criteria Criteria Alt. 1: Alt. 2: Timely Development Market should be targeted to open in 2019 for start of first capacity procurement for delivery of capacity starting in 2021 Changes to energy and ancillary service markets required to achieve the most efficient steady state electricity market possible may need to be staged to ensure timely initial implementation To the extent a staged implement of the overall electricity market is pursued, the expected timing and nature of future changes should be provided before opening the first procurement N/A N/A N/A N/A Generally Positive Neutral Generally Negative N/A Not Applicable 13

14 Design Criteria Criteria Alt. 1: Alt. 2: Timely Development The risks of regulatory delay and need for redesign should be minimized Common practices and lessons learned from other capacity market implementations should be leveraged as much as practicable and applicable Simple and straightforward initial implementation should be a priority Generally Positive Neutral Generally Negative N/A Not Applicable 14

15 Thank you