Market Capacity Definitions and Generation Adequacy Cynthia - PDF document

Market Capacity Definitions and Generation Adequacy Cynthia Bothwell Benjamin F. Hobbs Johns Hopkins University FERC Workshop/ 9 th Annual Trans-Atlantic Infraday October 30, 2015 Work Supported in part by NSF grants OISE 1243482 (WINDINSPIRE) and ECCS 1230788 Outline • Motivation • Background • Methodology – General – Data – Model • Results • Next Steps Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Motivation • Earlier we examined how renewable technologies could impact capacity markets and allocation of market revenues among technologies  Reliability constraint had large impact on portfolio mix, cost, and market distortions – study of RM and VOLL – Next week at Informs  Given variable nature of renewable capacity, how do alternative definitions of capacity distort market outcomes?  Additionally, how does an energy market price cap distort outcomes? Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Motivation 27.2% Wind Nameplate =(63520-60874)/9744 19.2% Wind Nameplate =(63520-61648)/9744 8.1% Wind Nameplate =(62437-61648)/9744 Load and Wind Data – Texas 2009 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Motivation Same Load Profile and Wind Pattern Wind Scaled from 10% to 40% Energy Peak Contribution shifted from 19.2% to 10.1% Of Wind Nameplate 10.1% Wind Nameplate =(63520-59574)/38975 Wind does not have a fixed % capacity contribution .. It depends on Year and Penetration Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Background Terminology • Reserve Margin (RM) – MW of (weighted, in general) generation capacity above the peak load requirement • Value of Lost Load (VOLL)– assumed $/MWh customers are willing to pay to avoid disruption of electric service • Expected Unserved Energy (EUE) – amount of MWh not served, considering potential component failures and insufficient reserve 6 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Methodology: General • Identify equilibrium electric generation capacity mix given different planning criteria: – minimum reserve margin with energy market subject to price cap, – VOLL, with no energy price cap – Vary the renewable capacity to reserves • Set reliability equal – determine cost • Static (single year) Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Methodology: Reserves • No current reserve convention with renewables • Traditionally, reserves are the amount of excess generation capacity over forecasted peak demand. • Three variations considered: 1. Excluding Renewables 2. Renewables as negative load 3. Renewables as generators: capacity contribution either predetermined or actual annual performance Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Methodology: Data • ERCOT 2013 existing system using normalized hourly actual load, wind, and solar data • Load scaled to 50,000 MW Peak • New generation costs (EIA), except existing coal (lower “going forward” costs) Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Methodology: Model The Model Objective over 8760 hours: • Minimize TotalCost = InvestmentCost + VariableCost InvestmentCost = VariableCost = Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Methodology: Model Subject to constraints: Reserve Margin Σ Gen Capacity >= Load * (1 + ReserveMargin ) for every hour Dispatch Dispatch <= Capacity for each generator, every hour LoadBalance Σ Gen Dispatch + Wind + Solar >= Demand – LostLoad every hour Coal Capacity Capacity(coal) <= PeakDemand * 0.45 Curtailments Curtailment <= Wind + Solar for every hour Availability Σ Hours Dispatch <= Capacity * AvailabilityFactor every generator Forced Outages Σ Gen Dispatch <= Σ Gen (Capacity * (1-EFOR)) for every hour RPS Σ Hours (Wind + Solar– Curtailment ) <= Σ Hours Demand * RPS Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Results: Varying VOLL Generation mix: • Energy dispatch similar even with lowest reserves. • Investment in capacity changed primarily with regard to gas turbines. • Value only changes how much excess you buy. Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Results: VOLL vs EUE VOLL $10,000 VOLL $1,000 VOLL $10,000 Energy VOLL $1,000 Energy 13 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Results: Renewable Capacity 1.56¢/MWh for renewable subsidies 63¢/MWh Mkt Cap $1,000 – Wind Cap 40%, Solar Cap 75% Mkt Cap $1,000 – Wind Cap 25%, Solar Cap 50% Mkt Cap $1,000 – Wind Cap 14.6%, Solar Cap 50% 19¢/MWh Mkt Cap $1,000 – Wind Cap 0%, Solar Cap 0% Optimal: VOLL $10,000, No Cap 14 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Next Steps •Current work: – Expand cases with more actual data – Add more operational characteristics – Examine magnitudes of market distortions •Analyze market equilibrium investment & operations under capacity designs • Assess the resulting distortions, efficiency, consumer impacts, and incentives for renewable investment 15 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs Results: Investment Mix Energy With Distortion Optimal Energy 16 Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs

Acknowledgements Modeling: Calvin Wood, undergrad Virginia Commonwealth University Data Mining: Enyang “Ricky” Xia, Masters student Johns Hopkins University Reference: C.Bothwell & B. Hobbs, “ Electric Capacity Market Performance with Generation Investment and Renewables”, United States Association for Energy Economics,.33 rd USAEE/IAEE North American Conference, October 2015, Pittsburgh Market Capacity Definitions and Generation Adequacy Bothwell, Hobbs