BUILDING WESTERN MARKETS

PART 1 – MARKET DESIGN

SESSION GOALS:

• UNDERSTAND THE BREADTH OF MARKET ISSUES

• IDENTIFY IMPORTANT ISSUES FOR CLEAN ENERGY

GUIDING QUESTIONS:

• ARE MARKETS GOOD FOR CLEAN ENERGY?

• ARE MARKET IMPROVEMENTS NEEDED?

• WHAT IS THE PATH FORWARD?

INFORMAL WORKING GROUP DISCUSSIONSREFLECTED IN THIS SESSION AND IN THE

“MARKET OPTIONS” OUTLINE.

Dave Olsen

Mark Ahlstrom

Steve Beuning

Doug Larson

Western Grid Group

Ron Lehr

Brian Parsons

Amanda Ormond

Kate Maracas

WHY THIS SESSION?

• Advocates are strong on planning, utility operations

• We are less familiar with markets, market design, market operations, and market monitoring

• Lots of interesting implications, many TBD

• Get ready to support EIM expansion, PAC merger with CAISO, and emerging RSO.

• “we support these markets”

• “we understand opportunities to improve them”

Advantages of Organized Market Expansion

 

1. Geographic/Resource Diversity• Less overall RE variability, • Non-coincident peak demands and load shapes• More generation diversity (e.g. for flexibility)• Lowest marginal cost dispatch from a larger pool of

generators

2. Reduced reserve needs

3. Better use of existing transmission

4. Higher resolution sub-hourly dispatch, facilitating a transition away from block and bilateral transactions

5. Better grid coordination and awareness improves reliability

6. Can enable access to market by distributed generation and demand response

BROAD FOOTPRINTS AND PARTICIPATION IN NEAR-REAL TIME MARKETS ARE THE KEYS TO EFFICIENT GRID

INTEGRATION AND ECONOMIC OPERATIONS WITH LARGE AMOUNTS OF WIND AND SOLAR POWER

Market expansion can also provide…

• Improved opportunities for non-traditional sources of grid services

• Expanded opportunities for stakeholder input

… IF regulators and market operators require them to be included

KEY FACTORS AND QUESTIONS

• How to implement wind and solar dispatch for least cost integration

• Implement some features thru standard practices or additional market products?

• Proactively requiring advanced capabilities, and access/compensation mechanisms for actual use

• Should customer-side PV, storage and demand response be included in markets?

• What issues are better addressed now thru internal reforms, rather than in transition to a regional system operator?

• Role of regional operator staff and/or stakeholders in market design and reform

• Is the 2002-2005 FERC Standardized market design useful for features and lessons learned?

MANY OTHER OPEN TOPICS

• Seams

• Distributed energy resources - is aggregation & dispatch eventually needed?

• Are interconnection queues and system impact study approaches fair to VERs?

• Once markets are established, what “disruptions” are reasonable?

• Legislatively-mandated large block purchases (i.e, HQ into New England)

• Is this conceptually the same as a major new import or transmission line?

REGIONAL SYSTEM OPERATION AND GOVERNANCE

A CLEAN ENERGY IMPROVEMENTS CHECKLIST

MARKET OPTIONS 3.5

A READER’S GUIDE

THREE PARTS1. Principles to apply to “regional system operator”

2. Reforms for RSO expansion

“Market Options Supply Curve”

Support EIM expansion

Support RSO, recognizing needed reforms

3. Ideas to “leapfrog” RTO problems, implement EIM and RSO expansion

RSO PRINCIPLES

•Covers mainly market design and operations

•Maintain California climate policies

• All resources, all tools

• Planning and investment

• Flexibility and curtailments

• Transmission costs and rates

•Market power and market monitoring

RSO REFORM OPPORTUNITIES

• Expand EIM and RSO—good for clean energy

•Reduce oversupply, decommit fossil

• Include DERs, aggregation, communications and control

• Encourage VERs with grid capabilities

•Highlight seams coordination issues

• Improve planning for regional perspective

•Use state of the art grid technology

MARKET OPTIONS SUPPLY CURVE• Expand and Improve Markets

• EIM and RSO

• Planning, Seams Coordination

• Forecasting and Scheduling

• Reduce Clean Energy Barriers

• Less self scheduling, must run

• Faster, deeper fossil turn down

• Engage Demand Response Resources

• Grid and Operations Reforms

• Analysis and options for Inertial and frequency response, load following

• Demonstrate, then deploy state-of-the-art grid technologies

• Demonstrate, then deploy dynamic, flow based path ratings

• Network transmission service and rates replace pancaked rates

• Contingency resources for reserve sharing

• VERS as system resources

• Capacity valuation

• AGC, communications, control and response

• Provides regulation, down and up

“LEAPFROG” AND INCREMENTAL TARGETS

• Leapfrog Ideas

•Regional Planning Perspective

•Regional Open Season

•Carbon Planning, Operations, Markets, Dispatch

•CPP Trading Market

• Incremental Targets

• EIM expansion

• Pacificorp merges with CAISO

NEXT STEPS

•Who can help?

•Can we expand our coalition?

•Does the discussion outline reflect your understanding and concerns?

•Would continuing conference calls help to refine our analysis?

•What next steps do you support?

HISTORY - STANDARD MARKET DESIGN

• 2002 - FERC Notice of Proposed Rulemaking

• Proposed that transmission operators be required to join an RTO

• Described a uniform market design for all RTOs

• 2003 - Wholesale Power Market Platform White Paper (2003)

• In 27 pages, describes the market design largely as used today by MISO, NYISO, PJM

• http://www.hks.harvard.edu/hepg/Standard_Mkt_dsgn/FERC%20SMD%203-02.PDF

REASONS FOR TERMINATING ORDER (2005)

• “Overtaken by events” such as formation of MISO as a voluntary RTO

• Strong objections to the proposed rule

• Infringed on state jurisdiction

• Transition would not provide sufficient protection for existing customers

• Too prescriptive and did not sufficiently accommodate regional differences

• Insufficient clarity on cost recovery for investment in new transmission facilities

https://www.ferc.gov/EventCalendar/Files/20050719123006-RM01-12-000.pdf

THE RTOS OF TODAY

• Voluntary membership, divergent designs, significant complexity

• Wholesale tariff of about 2000 pages plus 13,000 pages of business practice manuals

• Wholesale market settlements may involve over 100 different charge types

• Many advantages have been demonstrated

• Voluntary growth of membership, even from public power entities (MISO examples)

• Flexibility to accommodate wind dispatch and wind market participation

• In non-RTO regions, we still hear the same objections as in 2002-2005

PHILOSOPHICAL DIFFERENCES BETWEEN RTOS

• Two-settlement approach (DA and 5-minute RT) versus other approaches

• VERs as true power plants versus must-take and largely uncurtailable

• Nature of stakeholder process and influence

• Approaches to reserves and ancillary product design

• Approaches to long-term capacity procurement/capacity markets

RELIABILITY TRENDS

• Should all new generation resources have the capability for frequency and voltage support?

• The assumptions matter when modeling future high-renewable scenarios

• Rapidly growing concerns at NERC and RTOs

• Potentially a (red herring) issue for modest renewables scenarios (i.e., Clean Power Plan)

• Compensation issues must also be addressed

• New ancillary products, identifying and procuring the needed amounts, etc.

CAPACITY PAYMENTS AND CAPACITY MARKETS

• Is a capacity market for long-term procurement or medium-term tuning?

• Does the price signal facilitate entry of demand response and non-conventional resources?

• To what extent do capacity markets or out-of-market capacity payments depress energy prices and affect renewables

• Does this matter?

• Merchant plants versus IPP and utility business models

DOES ORDER 764 REQUIRE A 15-MINUTE MARKET?

• No

• Requires 15-minute interchange scheduling (in non-RTO regions or at seams)

• Only CAISO elected to interpret the rule as needing a 15-minute market

• Other RTOs are compliant while retaining their two-settlement market design

CONCERNS WITH CAISO 15-MINUTE MARKET?

• Effectively creates barriers that favor conventional resources and imports over true integration of VERs, demand response and distributed energy resources

• Longer gate closing window for forecast/schedule (compared with other RTOs) results in higher error/imbalance for variable resources

• Longer period (15 versus 5 minute) favors flat output, long-duration resources versus those that can better shift energy or predict energy for shorter time periods

• Diminishes the free flexibility and elegance of well-developed security constrained economic dispatch methods that are proven to work well in other RTOs