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Energy Markets: Overview of the Day-Ahead Market (DAM)

August 2004. Energy Markets: Overview of the Day-Ahead Market (DAM). Michael Taniwha Manager, Market Administration. 2000 hrs. Complete Reserve Adequacy Assessment. 1600 hrs. Post DAM Schedules. 1800 hrs. Verify DAM Schedules. 2200 hrs. Complete REGO Analysis.

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Energy Markets: Overview of the Day-Ahead Market (DAM)

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  1. August 2004 Energy Markets: Overview of the Day-Ahead Market (DAM) Michael TaniwhaManager, Market Administration WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  2. 2000 hrs.CompleteReserveAdequacyAssessment 1600 hrs.PostDAMSchedules 1800 hrs.VerifyDAMSchedules 2200 hrs.CompleteREGOAnalysis 1200 hrs.TradingDeadline 0001 hrs.RTMOpens Continue RAA Day before the Operating Day Operating Day • 1600 hrs.OpenRe-BidPeriod 1800 hrs.CloseRe-BidPeriod SMD Timeline for Day-Ahead Market (DAM) Real-Time Market Reserve Adequacy Assessment Day-Ahead Market WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  3. Why a Day-Ahead Market (DAM)? • Provides a “forward or futures” market for Market Participants to hedge against Real-Time (RT) price volatility • Allows Participants to buy or sell energy forward one day and hedge vulnerability to RT price fluctuations • Allows wholesale demand (buyers) to participate in Day-Ahead Market price determination • In comparison to Real-Time Energy Market where demand is a price taker • Improves Real-Time reliability by providing financial incentive for resources cleared Day-Ahead to deliver physically in Real-Time • Incentive created from energy deviations and OR charges WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  4. Fundamentals of the DAM • DAM clearing based on Market Participant submitted supply (offers) and demand (bids) • Market clearing is based on least cost means of satisfying cleared demand using a security constrained economic dispatch • DAM produces financially binding schedules for supply and demand • Based on hourly Locational Marginal Pricing (LMP) that include marginal cost of energy, congestion, and losses WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  5. Inputs to the DAM • Network information • Network model • Transmission elements and ratings • Approved transmission outages • Expected topology • Abnormal limits • Generation Requirements for Transmission (GRT) spreadsheet • Interface limits • Generation requirements • Transmission Related Abnormal Generation (TRAGO) sheet • Units committed for VARS WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  6. Inputs to the DAM (continued) • Reserve requirements • Ten Minute Reserve • 100% of 1st Contingency • 50% is spinning • Operating Reserve • 50% of 2nd Contingency • Replacement Reserve • 50% of 2nd Contingency WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  7. Inputs to the DAM (continued) • Demand Bids • Actual demand • Fixed • Price-sensitive • Virtual demand • Decrement bids (Decs) WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  8. Inputs to the DAM (continued) • Supply Offers • Actual resources • Generation • ICAP resources • Must-run • Economic • Unavailable • ICAP - Limited Energy Resource (LEG) • Intermittent resources • Non-ICAP resources • Virtual resources • Increment offers (Incs) WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  9. Inputs to the DAM (continued) • External Transactions • DA externals only • Three types • Fixed • Dispatchable • Up-to-congestion WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  10. Web Server MIS Data Flows ISO-New England Transmission Owners & Satellite Centers Market Participants MDb (Market Database) Outage scheduler eFTR eMKT UDS DMT LMPC DA/RAA - SPD Bids & Offers Schedules/Prices Outages WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  11. Clearing of the DAM • Least Cost Security Constrained Economic Dispatch • New England Power Pool, Market Rule 1 • Section 1.10.8, ISO Responsibilities • (a) The ISO shall use its best efforts to determine (i) the least‑cost means of satisfying hourly purchase requests for energy, the projected hourly requirements for Operating Reserve, Replacement Reserve and other ancillary services of the Participants, including the reliability requirements of the NEPOOL Control Area, of the Day-Ahead Energy Market WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  12. Clearing of the DAM (continued) • Least Cost Security Constrained Economic Dispatch • NEPOOL Manual for Market Operations (Manual M-11) • Section 5.1, ISO Philosophy • The ISO scheduling philosophy in the Day-Ahead Energy Market is to schedule and Dispatch generation, Increment Offers and External Transaction purchases on a least cost, security-constrained basis (minimize Start-Up Fees, No-Load Fees and incremental Energy costs) to meet the aggregate cleared Demand Bids, cleared Decrement Bids, cleared External Transactions sales and Operating Reserve and Replacement Reserve requirements, while maintaining the reliability of the NEPOOL Control Area. WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  13. Clearing the DAM (continued) Demand Bids > 0$ Supply Offers Cleared Not Cleared Price PDA 0$ QDA 0 MW > 0 MW Quantity WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  14. Clearing of the DAM (continued) • Software applications • Resource Scheduling & Commitment (RSC) • Security constrained unit commitment • Scheduling, Pricing and Dispatch (SPD) • Security constrained economic dispatch using the commitment profile produced by RSC • SPD is linear program (LP) optimization that clears schedule and calculates shadow prices (LMPs) • Simultaneous Feasibility Test (SFT) • Contingency analysis of SPD results • Constraint sensitivities fed back to SPD for reiteration • Uses STE contingency limits WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  15. Outputs of the DAM • Public • DAM LMP • DAM hourly net tie schedules • Binding constraints • DAM summary • Cleared demand • Operating reserves WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  16. Outputs of the DAM (continued) • Private • Supply schedules • Generation • Incs • Demand schedules • Load • Decs • External transaction schedules WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  17. Outputs of the DAM (continued) • DAM generation schedules are an initial input to the RAA. WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  18. Overview of DAM Settlement • Cleared demand (fixed or price sensitive) pays the price of its zone (the Zonal LMP) • Cleared supply (generation) is paid at the price of its node (the Nodal LMP) • Cleared virtual demand or supply pays or is paid at the location where bid (i.e., Hub, Zone, Node) • Financial Transmission Rights (FTR) holders are charged or credited based on the difference between the DAM congestion component between source and sink nodes WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

  19. Questions? WEM101 – Introduction to ISO-NE’s Wholesale Energy Market Market Analysis & Training

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