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Real-Time Demand Curve For Reserves

Real-Time Demand Curve For Reserves. NEPOOL Markets Committee Meeting 01/24/2001 M.S. DePillis. Basic Concepts. Price is determined by intersection of bid supply and demand curve. If last bidder lies below demand curve, then P is from demand curve.

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Real-Time Demand Curve For Reserves

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  1. Real-Time Demand Curve For Reserves NEPOOL Markets Committee Meeting 01/24/2001 M.S. DePillis

  2. Basic Concepts • Price is determined by intersection of bid supply and demand curve. • If last bidder lies below demand curve, then P is from demand curve. • Old ex post market flaws are still there.

  3. Normal Intersection With Bid Supply Curve P of MW Price When Last Bid > D P* Q of MW

  4. Highest Bidder Less Than Demand Curve P of MW Price When Last Bid < D P* Q of MW

  5. Some Old Flaws • Still works with designation. • High bids not designated or paid. D Bidder D not paid P* C B A Q of MW

  6. Changes to Demand Curve • Change 1: Demand Curve applies throughout range of TMOR. • Change 2: "Target" point on Demand Curve changes with UC Conditions.

  7. Demand Curve Throughout • Solves discontinuity problem. • Recognizes that bid determined prices in OP-4 are not competitive market prices.

  8. New Demand Curve P of MW Zero TMOR 1/2 2nd Contingency 100 50 Full 30 Minute Replacement Reserve Q of MW

  9. Alternative Solution to Discontinuity Problem Considered setting OP-4 point to E(ECP) 1/2 2nd Contingency Est. ECP1 Est. ECP2 Est. ECP3 Q of MW Old Market

  10. Reasons For Rejection • Over-pricing (by definition always at or close to OP-4 cap). • Physical real-time withholding is rewarded (raises demand curve). • Could have TMOR = E(ECP) =$300 at t1 then TMOR=$40 t2 when further into OP-4.

  11. Target Point • Result of discussions with Operations. • Represents Unit Commitment practice.

  12. Target Point Adjusted for NY Shared Reserve of 300MW P of MW Zero TMOR 100 Target Point at 600MW of TMRR 50 Target Point at 300MW of TMRR Q of MW

  13. Other Proposal Changes • No co-optimization before Phase 1. • Price Cascading of TMOR Only.

  14. No Co-optimization Before Phase 1 • Would only apply for about 8 months. • Would be major rework of SPD. • Would require significant testing to reduce risk. • Risk/Benefit ratio not satisfactory.

  15. Minimal Price Cascading • TMOR price determined by demand curve is price floor for TMNSR and TMSR. • TMOR represents willingness to pay for lower quality good.

  16. Problem With Full Reverse Price Cascading • Current market instances of high TMNSR prices do not represent economic value except by chance. • Difficult to argue that TMNSR should be cascaded back to TMSR.

  17. Unit Commitment and Demand Curves • Operations still committed to use a demand curve. • First Step is Observing Effect of NY Sharing Agreement on Unit Commitment and Target Point. • Will require that long-term reliability is defined and maintained. • White paper being developed, first draft.

  18. Proposed New Type of Unit Commitment Analysis

  19. Unit Commitment and Demand Curve, Continued • "Target" of real-time demand curve would be derived from process described above. • Must have action plan in place if demand curve results in measurable and significant deterioration of reliability. • Not yet ready for rule writing. • Need to revise Unit Commitment System Operating Procedure to reflect changes.

  20. Result of Investigating Price of TMOR during OP-4 • Price calculated as follows: • All observations have TMOR deficiencies. • All observations are from 5 minute data since start of markets. • All observations are capped at the 5 minute energy price.

  21. Result of TMOR Price Study

  22. Approximately Same Revenue Result P of MW Zero TMOR 1/2 2nd Contingency 100 72.13 50 Q of MW

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