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Locational Forward Reserves Market

Locational Forward Reserves Market. NEPOOL Markets Committee September 20, 2004 Marc D. Montalvo ISO-NE Markets Development. Outline. Defining the Reserve Zones Establishing the Zonal Requirements LFRM Price Caps Performance Penalties Cost Allocation for Reserve Zones.

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Locational Forward Reserves Market

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  1. Locational Forward Reserves Market NEPOOL Markets Committee September 20, 2004 Marc D. Montalvo ISO-NE Markets Development

  2. Outline • Defining the Reserve Zones • Establishing the Zonal Requirements • LFRM Price Caps • Performance Penalties • Cost Allocation for Reserve Zones

  3. Forward Market Products • 10 Minute non-spinning Reserves • 30 Minute Operating Reserves • Local 30 Minute Operating Reserves

  4. Reserve Zones • Reserve Zones are proposed for areas of the power system that routinely require RMR commitments to cover 2nd contingency reliability criteria. • The proposed zones are import constrained. • Proposed Reserve Zones: • SW Connecticut • Connecticut • NEMA/Boston

  5. Pool-Wide Forward Reserve Requirements • 10 Minute Spinning Reserve -- 50% of first contingency loss • 10 Minute Non-Spinning Reserve -- 50% of first contingency loss • 30 Minute Operating Reserve -- 50% of second contingency loss • ISO is evaluating the continued inclusion of Replacement Reserves in the requirement.

  6. Locational Reserve Requirements • Locational reserve requirements will reflect the need for additional 30 minute Operating Reserves to provide 2nd contingency coverage in import constrained zones. • Locational reserve requirements will be satisfied by Resources located within the Reserve Zone. • Locational reserve requirements may be met by resources capable of providing 30 minute or higher quality reserve products. • For nested Reserve Zones, qualifying Resources may be used to meet the reserve requirements of adjacent zone or the system requirement.

  7. Setting Forward Locational Reserve Requirements -- Overview • Use historical information regarding loads, interface limits, RMR requirements, and commitments to establish forward requirements. • Establish rules that address how changes in system configuration or unit disposition expected within a location might impact the six month forward requirement.

  8. Zonal Requirement Methodology (1) • The requirements will be derived from an analysis of the same data used to perform the RAA process. • The requirements will be established on a seasonal on-peak and off-peak basis. • The historical requirements will be split into summer and winter bins. • Absent an expected change in the configuration of the transmission system or disposition of major generating resources, the on-peak LFRM Requirement will be set equal to the 95th percentile level for the season in question. • The off-peak LFRM requirement will be set to zero.

  9. Zonal Requirement Methodology (2) • In the event that a change in the configuration of the transmission system or disposition of major generating resources occurs, the proxy limits and 2nd Gen assumptions will be modified as appropriate. • This information will be derived from the RTEP. • The requirements will be recalculated using the modified assumptions and locational requirements established. • If a change is expected within a procurement period, the decision to use the modified requirements or the historically derived requirements will depend, at least in part, on the expected timing of the change during the procurement period.

  10. Sample Requirements The following seasonal on-peak locational reserve requirements have been derived from the historical data according to the methodology described above. • SW CT Summer 750 MW • SW CT Winter 670 MW • CT Summer 890 MW • CT Winter 530 MW • NEMA/BOS Summer 950 MW • NEMA/BOS Winter 900 MW

  11. LFRM Price Caps • Price Caps will be set for each zone. • Caps will be based on the cost of an aero-derivative CT. • Approx. $13/kW-month per 31 August 2004 LICAP filing. • Cap will be set recognizing the interaction of the LFRM market with the LICAP market. • ISO is evaluating the use of a LFRM demand curve.

  12. Performance Penalties (1) • Resources that fail to meet their obligations pursuant to the LFRM will forgo LFRM payments. • The penalty components will be depend on the type of failure. • The Day-Ahead Failure to Reserve penalties will be a fixed value established prior to the conduct of the auction. • The Real-Time Failure to Reserve penalties will be composed of two parts: a fixed value established prior to the conduct of the auction and the real-time reserve price. • The Real-Time Failure to Activate penalties will be a function of the real-time LMP.

  13. LFRM Cost Allocation (1) LFRM charges assessed to a Local Reserve Zone will reflect the incremental cost of meeting the Reserve Zone requirements. • Recall that purchases to meet Local Reserve Zone requirements can also serve the System in general. • It would be inappropriate to allocate all the FRM costs on the Local Reserve Zone. • The Local Reserve Zone cost allocation methodology will assign to the location the incremental cost of reserves above that which would otherwise occur absent constraints.

  14. LFRM Cost Allocation (2) • LFRM costs and penalties will be allocated using the Incremental Cost Ratio derived from Forward Reserve Market auction prices. IncrCostRatioX = ReserveZoneIncrPriceX / ReserveZonePriceX ReserveZoneIncrPriceX = ReserveZonePriceX – ReserveZonePriceX-1

  15. Questions

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