Recommendation: Dynamic Capacity Refund Regime 22 November 2012 - PDF document

Recommendation: Dynamic Capacity Refund Regime 22 November 2012 Problem: significant mismatch between refund factors and system conditions The Lantau Group

Proposed solution: clarify purpose of refund regime and align incentives • Dynamic refund factors reflective of system conditions Fix distortions – Minimum refund factor to tie refund exposure to capacity credit value Improve incentive – Maximum refund factor linked to MRCP Revenue neutrality • Recycling for efficiency and reduced risk of unintended consequences / distortions Sharper incentives – Rebates of refund revenue based on availability Non-discriminatory • Revenue loss to Market Customers offset by adjustments to RCM proposal – Offset RCR using 97 percent factor – Slope steepened to -3.75 from -3.25 • Other – Contractual disposition of refunds not affected / rebates can still go to party exposed to refund – Eligibility for rebate corresponds to exposure to refund risk The Lantau Group 2 Design Choices & Evaluation 3

Key decisions 1. Recycle or not 2 2. Availability vs dispatch-based rebates? A il bilit di t h b d b t ? 3. Dynamic refund factor settings? 4. How much to offset Market Customer value loss? The Lantau Group 4 (1) Recycle or not • Recycling sharpens incentives – Penalty increases: Refund + Loss of rebate > Refund Capacity Market Resources Customers – Incentive emerges: Gain of rebate • Recycling improves system security RECYCLING RCM – Better performance relative to average is rewarded – As average overall performance improves, standard gets tougher Performance Support Outcomes • Recycling shifts value – Refunds no longer flow to Market customers Refunds no longer flow to Market customers • Value shift can be compensated easily Recommendation: Recycling The Lantau Group 5

(2) Basis for rebates: availability vs. dispatch? • Rebates can be – paid to units dispatched in times refunds are incurred, or – paid to units that are available • The RCM is about incentivising availability. – Actual dispatch is the acid test of availability – But available resources have value, even if not dispatched Load Factor vs FO Rate • Forced outages are not correlated with dispatch 6.0% 5.0% – Data does not support dispatch-based refunds ge Rate 4.0% Foreced Outag 3.0% • Recommend rebate based on availability 2.0% 1.0% – Aligns with purpose of RCM 0.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% – No discrimination in contravention of Market Objectives Load Factor The Lantau Group 6 Example: Relationship between FO and Demand levels for some Peakers ALINTA_WGP_GT PINJAR_GT11 200 120 pacity (MW) pacity (MW) 100 150 80 Forced Outage Cap Forced Outage Cap 100 60 40 50 20 0 0 0 1000 2000 3000 4000 5000 0 1000 2000 3000 4000 5000 Demand (MW) Demand (MW) PINJAR_GT5 KWINANA_G2 40 120 MW) MW) 35 35 Forced Outage Capacity (M Forced Outage Capacity (M 100 100 30 80 25 60 20 15 40 10 20 5 0 0 0 1000 2000 3000 4000 5000 0 1000 2000 3000 4000 5000 Demand (MW) Demand (MW) The Lantau Group 7

FLAT (2) Dispatch-based rebates transfer value based on utilisation (when FO events are independent) 15.00% Refund ( ‐ ),Rebate (+) & Net Exposure (as % of RCP) Net Exposure (as % of RCP) 12.00% 12.0% % of Refund hours Factor 10.00% Baseload Peakers Baseload Peakers 10.00% 10.0% 100% 1 8.00% 75% 1 6.00% 5.00% 8.0% 67% 1 4.00% 50% 1 0.00% 2.00% 6.0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 33% 1 0.00% ‐ 5.00% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 4.0% 25% 1 ‐ 2.00% 10% 1 ‐ 4.00% ‐ 10.00% 2.0% 5% 1 ‐ 6.00% 1% 1 ‐ 15.00% ‐ 8.00% 0.0% Refund/MW Min Max Rebate/MW Min Max Average (LHS) Min Max Failure Rate (RHS) Net Exposure/MW Net Load Net Load Availabili Availabili Plant No. Capacity FOR (%) Factor Plant No. Capacity FOR (%) Factor Rebate/MW (as % of unit refund) ty (%) ty (%) 300% (MW) (%) (MW) (%) 1 200 5.0% 80.0% 85.0% 14 200 5.0% 41.0% 85.0% Note: Planned Outages were g 250% 2 200 5.0% 77.0% 85.0% 15 200 5.0% 38.0% 85.0% scheduled into lower 50% of 3 200 5.0% 74.0% 85.0% 16 200 5.0% 35.0% 85.0% 200% 4 200 5.0% 71.0% 85.0% 17 200 5.0% 32.0% 85.0% load duration curve 5 200 5.0% 68.0% 85.0% 18 200 5.0% 29.0% 85.0% 150% 6 200 5.0% 65.0% 85.0% 19 200 5.0% 26.0% 85.0% 100% 7 200 5.0% 62.0% 85.0% 20 200 5.0% 23.0% 85.0% 8 200 5.0% 59.0% 85.0% 21 200 5.0% 20.0% 85.0% 50% 9 200 5.0% 56.0% 85.0% 22 200 5.0% 17.0% 85.0% 10 200 5.0% 53.0% 85.0% 23 200 5.0% 14.0% 85.0% 0% 11 200 5.0% 50.0% 85.0% 24 200 5.0% 11.0% 85.0% 1 293 585 877 1169 1461 1753 2045 2337 2629 2921 3213 3505 3797 4089 4381 4673 4965 5257 5549 5841 6133 6425 6717 7009 7301 7593 7885 8177 8469 12 200 5.0% 47.0% 85.0% 25 200 5.0% 8.0% 85.0% Time (Peak ‐‐ > Offpeak) 13 200 5.0% 44.0% 85.0% 26 200 5.0% 5.0% 85.0% Note: Failure rate = FOR / Availability. Higher failure rate implies the chance that the facility would run into FO during its available period is higher. The Lantau Group 8 FLAT (2) Dispatch-based rebates transfer value based on utilisation (when FO events are independent) 15% Refund ( ‐ ),Rebate (+) & Net Exposure (as % of RCP) Net Exposure (as % of RCP) 12% 12% % of Refund hours Factor 10% Baseload Peakers Baseload Peakers 10% 10% 8% 100% 1 75% 1 6% 5% 8% 67% 1 4% 50% 1 0% 2% 6% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 33% 1 0% ‐ 5% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 4% 25% 1 ‐ 2% 10% 1 ‐ 4% ‐ 10% 2% 5% 1 ‐ 6% 1% 1 ‐ 15% ‐ 8% 0% Refund/MW Min Max Rebate/MW Min Max Average (LHS) Min Max Failure Rate (RHS) Net Exposure/MW Net Load Net Load Availabili Availabili Rebate/MW (as % of unit refund) Plant No. Capacity FOR (%) Factor Plant No. Capacity FOR (%) Factor 300% ty (%) ty (%) (MW) (%) (MW) (%) 1 200 5.0% 80.0% 85.0% 14 200 5.0% 41.0% 85.0% 250% 2 200 5.0% 77.0% 85.0% 15 200 5.0% 38.0% 85.0% 3 200 5.0% 74.0% 85.0% 16 200 5.0% 35.0% 85.0% 200% 4 200 5.0% 71.0% 85.0% 17 200 5.0% 32.0% 85.0% 150% 5 200 5.0% 68.0% 85.0% 18 200 5.0% 29.0% 85.0% 6 200 5.0% 65.0% 85.0% 19 200 5.0% 26.0% 85.0% 100% 7 200 5.0% 62.0% 85.0% 20 200 5.0% 23.0% 85.0% 8 200 5.0% 59.0% 85.0% 21 200 5.0% 20.0% 85.0% 50% 9 200 5.0% 56.0% 85.0% 22 200 5.0% 17.0% 85.0% 0% 10 200 5.0% 53.0% 85.0% 23 200 5.0% 14.0% 85.0% 1 293 585 877 1169 1461 1753 2045 2337 2629 2921 3213 3505 3797 4089 4381 4673 4965 5257 5549 5841 6133 6425 6717 7009 7301 7593 7885 8177 8469 11 200 5.0% 50.0% 85.0% 24 200 5.0% 11.0% 85.0% 12 200 5.0% 47.0% 85.0% 25 200 5.0% 8.0% 85.0% Time (Peak ‐‐ > Offpeak) 13 200 5.0% 44.0% 85.0% 26 200 5.0% 5.0% 85.0% Note: Failure rate = FOR / Availability. Higher failure rate implies the chance that the facility would run into FO during its available period is higher. The Lantau Group 9