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PCI Overview of Energy Imbalance Markets in West
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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
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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
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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.
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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.
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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.
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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?
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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.
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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.
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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. The following table shows the cost to serve load for each company:
There are no settlement charges or
credits because the resources self supplied
their own load.
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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
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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.
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Company A collects $3600 in revenue but 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 additional margin!
The cost to serve for both Company A & C
is lowered with a market!
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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.
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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.
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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.
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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.
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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.
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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.
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Energy Imbalance Markets
4. If our company stays out of an EIM, but those around us join, how could it impact us?
• If the market is CAISO’s EIM, you will be able to buy and sell at the tie lines (interfaces) into the market at 15 minute intervals.
• A market can provide a huge opportunity to dynamically bid and offer into the market and have it cleared automatically in CAISO’s EIM 15 Minute Market. Most designs even support self-scheduling at the ties.
• To leverage this opportunity a company will need to create bid and offer curves based on their supply portfolio. These curves must be dynamically updated because they can change every hour.
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Energy Imbalance Markets
4. If our company stays out of an EIM, but those around us join, how could it impact us? continued…
• A disadvantage of being surrounded by EIM players is increased loop flows.
• By design, SCED dispatch will increase overall utilization of transmission system by dispatching resources to reflect transmission constraints. This higher utilization of transmission lines can cause energy sometimes to flow on neighboring systems, thus creating more loop flows.
• Electricity doesn’t flow by contract path, but by path of least resistance.
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Energy Imbalance Markets
5. If you are considering joining EIM, what should your analysis take into account?
• A major factor is to understand all the drivers that could influence future electric prices (Gas prices, Weather, Hydro availability, Transmission constraints, Unit outages, etc..)
Unwinding this thought…. ‒ Future prices depend on the expected marginal
cost of generation. ‒ How much wind and solar will there be? ‒ How much generation will be supplied from
hydro production? ‒ Natural Gas is expected to be the marginal fuel
source, but at what price? ‒ The availability of Natural Gas from fracking
and the impact of fuel switching in the non-electric industries impact price.
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Energy Imbalance Markets
5. If you are considering joining EIM, what should your analysis take into account? continued…
• When predicting savings of joining EIM, be careful that the estimates for fuel and electric prices don’t become additive or negate each other.
• It is recommended that whatever analysis is done, it is also back casted against a known period of time using your future generation mix. Check your model against known fuel and electric prices, load and renewable production as a test for reasonableness.
• Any analysis should take into account the degree of participation of generating resources in the EIM market. The more resources put into EIM, the more savings that should be expected.
• Something also worth considering is how well your resources can follow 5-mn dispatch instructions. Markets are all about stating what you can do and then doing what you said. If you can’t do what you say, then you may have to work on a company’s culture to be successful.
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Energy Imbalance Markets
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?
Every company has a list of improvements that are desirable, but the following list is a recommendation for any company thinking of joining EIM.
• Fully identify resource capabilities and costs.
Make sure there is a clear understanding of a resource’s costs across their full operating range including minimum and maximum limits, ramp rates and even startup times and costs.
• Implement Optimized Dispatch.
Make sure that the system is being optimally dispatched for the greatest savings. This dispatch will be used to create base or native load schedules for use in hedging congestion in an EIM.
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Energy Imbalance Markets
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? continued…
• Upgrade metering and Energy Accounting.
Identify any potential metering problem that does not support the accuracy or data requirements of a market. This can take time and it is better to get this done prior to joining a market. The second item is make sure your Energy Accounting system can handle the analysis and reporting necessary. Remember all errors in a market are monetized so errors in metering will become dollars in settlements.
• Implement a Real-Time Pricing tool.
A Real-Time Pricing tool determines the cost when to make energy buy and sell decisions. Knowing when to make the right decision is second important to having an energy dispatch optimized solution. This capability will help a company to improve margins and validate resource can respond as advertised.
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Energy Imbalance Markets
7. What type of software is needed whether you plan to join EIM or participate in one at interface?
The following recommendations are not in any particular order but more depends on a current organization’s situation:
• Optimized Dispatch Software – PCI GenTrader Makes sure resources are dispatched based on actual costs. This will also be needed for calculating schedules.
• Energy Accounting Solution – PCI Energy Accounting Make sure all metering and calculations support market operations.
• Market Bid/Offer Software – PCI GenManager Software needed to communicate bids/offers and download results from the Market Operator.
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Energy Imbalance Markets
7. What type of software is needed whether you plan to join EIM or participate in one at interface?
The following recommendations are not in any particular order but more depends on a current organization’s situation: • Market Settlement Software – PCI GenManager
Software needed to validate settlements and support reporting needs.
• Fuel Management Software – PCI Gas Management Depending upon your resource mix, a company will need to manage their fuel supply around the demands of the market.
• Asset Operations Software – PCI Asset Operations Manage Outages, Plant Interfaces, GADS and Energy Scheduling with plants to streamline the data and communication process.
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Energy Imbalance Markets Power Costs, Inc.
Graph or photo
PCI is the premier, one-stop provider of essential software solutions for energy supply, trading and marketing organizations. Companies utilize PCI products to capitalize on their portfolio capabilities in order to minimize costs while maximizing market opportunities and profits.
Feel free to reach out to us with questions or inquiries: Tony Delacluyse
405-326-1496 [email protected]
Jason Kram
832-228-8474 [email protected]
Go here for PCI’s Product Booklet: http://www.powercosts.com/wp-content/uploads/PCI_ProductBooklet1.pdf
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