PCI Overview of Energy Imbalance Markets in West 1
Webinar Purpose Purpose of Webinar: Provide high level overview of energy imbalance markets and address common questions that PCI hears from entities considering joining an energy imbalance market. Agenda: • PCI Experience in EIM • EIM History • Financial Implication of EIM – Simple Example • Common Questions & Answers • Wrap Up / Questions 2
PCI Overview Company: – Software Development for Energy Markets – 160 employees and growing – Founded 1992 / Privately Owned Experience: – Supported better utilization of asset portfolios for over 20 years. System: – PCI GSMS (Generation Supply Management System) Portfolio Optimization Market Systems Asset Operations Transaction Management Data Warehouse & BI Market: – 60% of US generation capacity using PCI – 70% of Fortune 500 Utility & Energy companies 3
Key Takeaways Energy imbalance markets in most cases can help participants better utilize asset portfolios and/or reduce costs to serve obligation PCI supports better asset portfolio utilization whether or not a customer participates in an energy imbalance market or not. 4
Energy Imbalance Markets EIM History The electric Energy Imbalance Market (EIM) concept is taking a foothold in the Western U.S. • The California ISO (CAISO) is offering an imbalance market which is an extension of their Real- Time market, and • The Northwest Power Pool is actively pursuing setting up an independent imbalance market. 5
Energy Imbalance Markets EIM History On November 1, 2014, the CAISO successfully began an Energy Imbalance Market with the two Balancing Authorities owned by PacifiCorp. CAISO’s EIM is an extension of their current Real-Time Market which consists of both a 15 minute and a 5 minute resource clearing process. This success is bringing two more utilities into the EIM: • Nevada Energy (NVE) – October 1, 2015 • Puget Sound Energy – October 1, 2016 There is an expectation that 1-2 more utilities will announce that they will join CAISO’s EIM sometime after 2015. 6
Energy Imbalance Markets Webinar Topics Today’s PCI Webinar will target these questions: 1. Can an imbalance market cause financial "pain"? 2. Can an imbalance market be avoided while increasing solar or wind resources? 3. If a company is already optimally dispatching resources, is there really any savings that can be realized? 4. If our company stays out of an EIM, but those around us join, how could it impact us? 5. If you are considering joining EIM, what should your analysis take into account? 6. If you are not sure whether you will join a market, are there things that could be done now that will be beneficial either way? 7. What type of software is needed whether you plan to join EIM or participate in one at interface? 7
Energy Imbalance Markets 1. Can an imbalance market cause financial "pain"? • The simple answer is “no” if offering at costs. • Many companies fear that EIM will in some way drain revenue from their system through additional charges and uplifts. In truth, a company’s generation and schedules (whether base • schedules in EIM or Native Load Schedules in other designs) act as a hedge against energy and congestion costs. 8
Energy Imbalance Markets Example A: 3 Companies Serving Their Load The following example has three companies each serving their own load in an unconstrained transmission system. LMP is $25.00 at all locations because adding 1 MW anyway will result in the Company A generation being dispatched at a cost of $25.00. ? 9
Energy Imbalance Markets Example A: 3 Companies Serving Their Load When companies serve their own load through self-scheduling, there are no imbalance charges with the market operator. There are no settlement charges or credits because the resources self supplied their own load. The following table shows the cost to serve load for each company: ? 10
Energy Imbalance Markets Example B: 3 Companies in a Basic Energy Market The following example has three companies participating in an energy imbalance market. Company A is able to provide less expensive generation to Company C. Both companies profit from the market ? 11
Energy Imbalance Markets Example B: 3 Companies in a Basic Energy Market Company A is paid for additional generation at the LMP which will be at or above their offer and Company C is able to buy energy below their marginal energy cost to generate. Company A collects $3600 in revenue but f it costs them $2000 to produce the additional MWs ($25 x 80 MW) resulting in $1600 of additional margin! Company C gets charged $3600, but avoids production costs of $5200 ($65 x 80 MW) resulting in $1600 of The cost to serve for additional margin! both Company A & C is lowered with a market! ? 12
Energy Imbalance Markets Example C: 3 Companies in a Constrained Basic Energy Market The following example has three companies participating in an energy imbalance market with a transmission constraint of 25 MW between Bus 2 and 3. Transmission congestion alters LMPs, but companies are hedged by their schedules. ? 13
Energy Imbalance Markets Example C: 3 Companies in a Constrained Basic Energy Market The following example has three companies participating in an energy imbalance market with a transmission constraint of 25 MW between Bus 2 and 3. Real-Time Congestion occurs due to the constraint which results an over collection. Typically the over collection is dispersed through load ratio share. In this example congestion has raised Company A’s margins significantly which has reduced their cost to serve their load drastically. Also note that each company’s generation acts as a hedge to rising LMPs. If prices rise to their marginal offer, they are dispatched. ? 14
Energy Imbalance Markets What are Examples A, B and C showing us: A company’s generation acts as a natural hedge against high LMP prices. Less expensive generation will be run to offset higher cost generation up to the transmission limitations of the grid. Offering at or near costs provides a safe energy imbalance market strategy. Generation assets will be redispatched to prevent violating transmission limits which will result in a higher utilization factor of the transmission system. Base or Native Load Schedules provide a congestion hedge in the event there is LMP price separation between generators and load. Most companies will benefit from a pooled generation (i.e. SCED-security constrained economic dispatch), but there could be times when a company’s own generation is the least expensive solution. ? 15
Energy Imbalance Markets 2. Can an imbalance market be avoided while increasing solar or wind resources? • The simple answer is “yes” provided a company can provide large quantities of flexible-ramp reserves. However, maintaining large volumes of flexible-ramp reserves can be very costly • It comes down to the cost of having highly dynamic resources that can ramp quickly both up and down. • An intra-hour imbalance market provides geographic diversity where imbalances caused by load-forecast errors, intermittent resources, etc… can be offset across the market footprint. The difference in balancing to 5 minute dispatch in lieu of hourly schedules will reduce the cost of flexible-ramp reserves. 16
Energy Imbalance Markets 2. Can an imbalance market be avoided while increasing solar or wind resources? continued… • The CAISO EIM design provides an intra-hour 15 minute and 5 minute balancing mechanism that helps offset impacts from solar, wind and demand changes. • When the MISO market integrated their Southern region of 30 GW, MISO didn’t add any additional regulation because of their geographic footprint! • A key to integrating renewable resources is to be able to spread the forecasting error across a large enough footprint where it is either negated or the impact diluted. 17 ?
Energy Imbalance Markets 3. If a company is already optimally dispatching resources, is there really any savings that can be realized? “Yes,” but the impact depends upon the size and generation mix • of the company. • Companies with high-cost resources will save money by purchasing energy from lower-cost resources while companies with lower-cost resources will see more benefits from running their resources at higher capacity factor. • Intra-hour balancing will reduce the cost of maintaining regulation and flexible reserves for all players in the EIM market. • A pooled dispatch using SCED will always result in additional savings because the market operator redispatches generation to resolve constraints instead of cutting schedules. 18
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