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Flexibility in Wholesale Electricity Markets

This presentation discusses the need for more flexibility in wholesale electricity markets, particularly in response to variable and uncertain net load. It explores the importance of ramping capabilities and proposes flexible ramping products as a solution. The status of these products in various ISOs is examined, along with the need for higher ramping prices to incentivize investment in flexible capacity. Finally, options for increasing flexibility in RTOs/ISOs are explored.

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Flexibility in Wholesale Electricity Markets

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  1. The Need for More Flexibility in Wholesale Electricity Markets USAEE Capital Area Chapter Annual Conference April 24, 2019 Emma Nicholson, Concentric Energy Advisors

  2. Variable and uncertain net load in wholesale energy markets • Independent System Operators and Regional Transmission Operators (ISOs/RTOs) must balance the system to serve net load • net load = load – intermittent generation • both load parts of the net load equation are becoming more uncertain • ISO/RTO must respond quickly to unforecasted changes in net load • provide beautiful 60 Hz power • carry necessary reserves per reliability requirements

  3. RTO/ISO existential question: What is your spirit animal? California ISO Duck Curve Midcontinent ISO Alligator Curve Source: California Independent System Operator Source: Fresh Energy

  4. RTO/ISOs will need more flexibility to balance net load in the future • Resources often categorized as • Dispatchable: resources that can respond to a dispatch signal • Non-dispatchable/Variable: resources that cannot respond or can only respond to dispatch signal in a limited fashion • Several different types (or dimensions) of flexibility are valuable to the system • short minimum run time (minutes) • low or zero minimum operating level (MW) • fast start-up (minutes) • fast shut-down (minutes) • fast up and/or down ramp (MW/minute)

  5. Scheduling and dispatching resources in the good old days Stylized 3 unit example MW Peaking Unit dispatchable ramp Intermediate Unit Baseload Unit hour

  6. Scheduling and dispatching resources with variable and uncertain net load MW need more dispatchable ramp to meet steeper and more uncertain net load hour

  7. Variable net load creates uncertainty for RTOs/ISOs Deficient Gen -need ramp up baseline + less intermittent Surplus Gen -need ramp down baseline load forecast baseline + more intermittent net load in period t net load in period t +1

  8. RTO/ISO flexible ramping products • Procure ramp to cover uncertainties in the change of net load between the current interval t and the following interval t+1 • Ancillary service product – procured in units of ramp capability (MW/minute) • California ISO: fifteen minute- and real-time markets • Midcontinent ISO: day-ahead and real-time markets • Quantity of ramp procured • dynamic tradeoff between holding back/ prepositioning resources from generating energy in the current period and minimizing expected production costs in a future period(s) • balance the cost of experiencing a shortage in the future against the cost of procuring more reserves and a potentially sub-optimal dispatch in the current period

  9. Status of flexible ramping products in RTOs/ISOs • California ISO and Midcontinet ISO have flexible ramping products in place • ISO New England, New York ISO, and Southwest Power Pool staff have studied flexible ramping products and engaged with stakeholders • ISO New England and New York ISO do not appear to have plans to implement a flexible ramping product any time soon • To my knowledge, the PJM Interconnection has not considered a flexible ramping product but filed a proposal with the Federal Energy Regulatory Commission in March 2019 to procure additional reserves in part to address concerns about net load variability (Docket No. EL19-58-000)

  10. Are ramping product prices high enough to incent investment in flexible capacity? • Not currently – prices mostly zero or very low, but this will not be the case as ramping constraints start to bind in the future • Incentives from ramping products • short-run incentive: give flexible resources the incentive to follow dispatch • no long-run incentive: do not enable fixed-cost recovery to stimulate investment in or maintenance of flexible capacity • What happens when LMPs approach zero or go negative? Reserves and ramp will cost more than energy

  11. Options for increasing flexibility in RTOs/ISOs • Flexibility can come from generation resources, RTO/ISO coordinated demand-response, or non-RTO/ISO price-responsive load • Energy market: • flexible ramping products • procure additional reserves • fast frequency response product • clear day-ahead market on a 15-minute basis (longer solve time) • Capacity market: California ISO flexible capacity requirement • Something in between: shorter-term flexible capability product that matches the RTO/ISO system needs on a more granular timeframe than an annual product

  12. Emma Nicholson enicholson@ceadvisors.com 202-836-8321

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