Aspen Energy Week – Aspen CO

Francis O’Sullivan

July 14th, 2018

Power in Transition – The Changing Market Landscape

1

As the role played by renewables transitions from marginal to meaningful, the

bulk power system is beginning to face new challenges

Source: P. Brown, F. O’Sullivan, CAISO

2

Growing instances of negative power prices raise issues regarding how fit-for-

purpose existing wholesale electricity market structures are

Average hourly CAISO DAM LMP in March 2017

$/MWh

Average hourly CAISO DAM LMP on March 12th 2017

$/MWh

Source: P. Brown, F. O’Sullivan, CAISO

3

The dynamics in the value of renewables generation as penetration grows means

that project economics are becoming more complicated

Source: P. Brown, F. O’Sullivan, CAISO

4

Modeled yearly revenue for U.S. solar PV generation capacity based on 2016 DAM LMPs

$/kWac-yr

Transmission capacity Flexible dispatchable

generation

Energy storage Active demand

management

Increased system flexibility is a key enabler of an efficient, reliable and resilient

future power system

5

4 hr2015

Day-ahead

Assessment of energy arbitrage value across U.S. ISOs

Earning a return from energy arbitrage is very challenging with today’s storage

economics – Opportunities do exist, but the market is very dynamic

Source: MIT Analysis, P. Brown6

7

ERCOT offers an interesting example of how storage economics are sensitive to

market volatility and transmission infrastructure

Source: MIT Analysis, P. Brown

2011

2012

2013

2014

2015

2016

ERCOTYearly revenue $/kWh-yr

Cost savings arising from EIM integration Q4 ‘14 to Q1 ‘16

$ MillionsThe Energy Imbalance Market – A first step towards

greater market integration in the Western U.S.

- CAISO’s development of the EIM is aiding the

optimization of the real-time dispatch and reducing

costs appreciably among 5 participants

- Estimated $330M in real-time dispatch savings

since November ’14

- Aiding California in meeting its renewable energy

targets by reducing renewables curtailment

- Reduced Q1 ‘17 CA renewables curtailment by

66GWhs

- Demonstrating the value of greater western

integration in a manner designed to best integrate

high levels of variable resources$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16

CAISO PacifiCorp NV Energy

Some of the challenges of large-scale renewables penetration can be mitigated

through market design – The EIM is a small but important example of how thoughtful

reform can yield value

Source: MIT Analysis, CAISO, F. O’Sullivan8

9

Unsurprisingly, the returns offered by a battery diminish as storage duration

increases – From a commercial perspective there is a sweet spot

Source: MIT Analysis, P. Brown

Hours of storage

Hours of storage

10

Supplementary Materials

An important short-term consequence of these changes in the power system is

that fact that gas units are being operated more dynamically – Merchant assets in

particular have seen a significant change in they are being dispatched

Assessment of the coefficient of variation of CCGT gas plant dispatch in CAISO

Daily σ/μ

As solar penetration

has risen in CA, the

intra-day operation of

merchant CCGTs in

particular has become

much more dynamic

Source: B. Clinton, F. O’Sullivan, CAISO

11

0 100 200 300 400 500

Energy Arbitrage

Frequency Regulation

Spin/Non-spin reserves

Voltage Support

Black Start

Resource Adequacy

Distribution Deferral

Transmission Congestion Relief

Transmission Deferral

Time-of-Use Bill Management

Increased PV Self-Consumption

Demand Charge Reduction

Backup Power

ISO

/RT

O S

erv

ice

sU

tility S

erv

ice

sC

usto

me

r Se

rvic

es

Service Value $/kWh-year

900

ISO/RTO

Utility

Customer

Stacking storage

services

enhances the

return on

investment

Possibility of 2-3X

increase in asset

value

Market and

regulatory

barriers are

extensive

Battery storage is one exciting new option for supporting the system’s changing

needs, but complex barriers remain to monetization

Source: Estimates include those from RMI, NYSERDA, NREL, Brattle Group, Kirby, EPRI, Sandia, and Sakti et al.12

Daily variability of wind and solar resource in Texas relative to load in 2014

Tomorrow’s power system is going to be much more reliant upon intermittent

resources and the operational challenges these bring

Source: MIT Analysis, NSRDB, ERCOT, P. Brown 13

How we think about the future of the system is being altered dramatically by new

technologies, new business models and changing customer behavior

Today’s Approach

Incorporation of

flexibility

Incorporation of inter-

temporality

Incorporation of

networks

Tomorrow’s Approach

Incorporation of

DERs

Incorporation of CHP

systems

Incorporation of

demand management

Incorporation of

advanced storage

New technologies

New business models

Growing customer

engagement

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