AS Demand Curve Capability in RUC

1. AS Demand Curve Capability in RUC Shams Siddiqi, Ph.D. (512) 619-3532 shams@crescentpower.net RTCTF Meeting July 12, 2019

2. Penalty Factors in RUC • Current RUC and ERCOT proposed RTC RUC penalty factors: 1. Over-generation: $5M. 2. Under-generation: $5M. 3. All GTC constraints: $110k. 4. All base case constraints: $105k. 5. All contingency constraints: $100k. 6. Resource's penalty prices for violating AS: a. Non-Spin, $20k; b. RRS, $30k; c. RegUp, $50K; d. RegDn, -$5k. • Already AS penalty factors are differentiated and are not hard constraints – basis for the various AS penalty factors seems arbitrary and there is no documentation or stakeholder decisions justifying these numbers • “RUC needs to protect the full AS Plan to meet NERC requirements” – even under current design and ERCOT’s proposal, full AS Plan in not protected if costs exceed these penalty factors

3. What decision is needed today? • We have plenty of time to debate the exact numbers, but we need to decide whether we want the capability to have AS Demand Curves (instead of one penalty factor per AS) in RUC • Recommendation: Design RUC to have the capability to use AS Demand Curves. Demand Curves can easily be used to model penalty factors – basically penalty factors are flat, single valued demand curves

4. AS Demand Curves • According to ERCOT, the shifted ORDC for 2020 is approximately: • $3,000/MW/h and $600/MW/h, respectively, if all ECRS and Non-Spin capacity is offline • $2,000/MW/h and $120/MW/h, respectively, if historical patterns in online/offline capacity continue • $1,500/MW/h and $60/MW/h, respectively, if all ECRS and Non-Spin capacity is online • ASDCs reflect the total cost the market is willing to pay for an additional MW of AS – thus if the system is projected to be short 1 MW of NSRS for 1 hour taking into account all offline <30min start capacity, then a 1-hour start 500MW resource with $15,000 Startup and Min Energy Cost should not commit to be paid $120/MW/h. • However, $20,000/MW/h RUC penalty factor will commit that Resource for NSRS and crush both the AS prices and energy prices with LSL price-taking energy. If we modify RTRDPA to now address the impact on AS prices of RUC, then AS price would at best go back to $120/MW/h – resulting in a massive unnecessary uplift of $15,000 – ($120 + RTRDPA adjust energy payment). • The large penalty factors are working against the market price signals sent by ASDCs on the value of AS – they negate the behavior and outcomes that ASDCs are trying to incentivize and result in large uplifts (further distorting market prices and ability to hedge)

5. ERCOT Example • ERCOT example shows societal and consumer (load) loss with RTRDPA and producer loss without RTRDPA due to this unnecessary RUC • Once 500MW resource RUCed, additional 500MW of cheap NSRS capacity is awarded by RTC resulting in NSRS MCPC to drop to say $15/MW. • With RTRDPA, NSRS MCPC is adjusted back to $60/MW resulting in significant societal loss (hatched area)

6. Conclusion – Design for ASDCs • Design RUC to have the capability to use AS Demand Curves. Demand Curves can easily be used to model penalty factors – basically penalty factors are flat, single valued demand curves. As long as the ASDC capability is built into RUC, we can debate the exact curves or penalty factors to use. • Any penalty factor that is different than ASDCs used by SCED works against the market price signals sent by SCED on the value of AS – they negate the behavior and outcomes that ASDCs are trying to incentivize and result in large uplifts (further distorting market prices and ability to hedge)