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The Future Ain't What It Used to Be: What Variable Renewables Mean for

Conventional Generation

NY Association for Energy EconomicsAugust 23, 2012

Benjamin F. HobbsSchad Professor of Environmental Management, Whiting School of Engineering

Director, Environment, Energy, Sustainability & Health Institute (E2SHI)The Johns Hopkins University

Chair, Market Surveillance CommitteeCalifornia Independent System Operator

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Outline

I. Our goals: economy, environmentII. The challenge of variable output & pricesIII. Investment impactsIV. Why won’t the market provide needed

capacity? And how can it be fixed?

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A Lesson about Electricity

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1. Min cost / max net economic benefits

2. Min emissions & other environmental impacts

I. Fundamental Goals of Market Design

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K1. ?

• “a2. S

Source: Kay, 2011

Proxy Goals

• Maximizing proxies not same as maximizing fundamental efficiency & environmental objectives

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Renewable Portfolio Standard Policies, June 2012

29 states,+ Washington DC and 2 territories,have

Renewable Portfolio Standards

(8 states and 2 territories have

renewable portfolio goals).

Source; DSIRE, NCSU, www.dsireusa.org/summarymaps

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Outline

I. Our goals: economy, environmentII. The challenge of variable output & pricesIII. Investment impactsIV. Why won’t the market provide needed

capacity? And how can it be fixed?

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II. The Challenge of Variability:Dispatch Conventional Gen to Net Load

M. Rothleder, CAISO, Operational Flexibility Study Update, 6/22/2012 Market Surv. Comm. Mtg.

8

Load

& N

et L

oad

(MW

)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

20,000

22,000

24,000

26,000

28,000

30,000

32,000

34,000

36,000

38,000

40,000

42,000

44,000

46,000

0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30 0:00

Load Net Load Wind Solar

Load, Wind & Solar Profiles – High Load Case, Jan. 2020

Win

d &

Sol

ar (M

W)

8,000 MW in 2 hours

6,300 MW in 2 hours

13,500 MW in 2 hours

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Can increase both costs and emissions• KU-Leuven stochastic unit commitment (De Jonghe, Hobbs, Belmans 2011):

■ Minimizing wind spill increases fuel costs & CO2 (relative to dispatch under 0 €/MWh wind bid)

• 17% reduction in spill possible• Per MWh of spill reduction:

0.71 t CO2 increase (+1.5% total CO2) 49 € cost increase (+1.3% total cost)

Example of Fundamental vs. Proxy Goals: Absolute Priority for Wind in Dispatch Makes

No Economic or Environmental Sense

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What’s Happened To Prices? Texas

David J. Maggio, ERCOT, Presentation IEEE PES, 7/2012

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What’s Happened to Prices? South Australia: 17% Wind

Cutler, Boerema, MacGill & Outhred, Energy Policy, 2011; I. MacGill, IEEE PES Mtg, 7/2012

• Revenue by gen type 47 $AU for wind 90 $AU for other

Load (MW) Duration Price ($/MW) Duration

Wind MW

Wind MW

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What Might Happen to Prices? CaliforniaCAISO 20% Penetration Study (2010)

Gas weekly MW generation

2012 Base Casevs.

20% Wind Case

Spring Energy Price Distribution

20% RPS 2.5% Lower Prices

Steam Gas CC Gas CT Gas0

10

20

30

40

% Revenue Loss under 20% RPS

Hour

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What Might Happen to Prices? NYISO2010 NYISO “Growing Wind” integration study

Price Duration Curve for 1275 and 8000 MW Wind Capacity(Superzones A-E)

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Why Revenues Diverge Among Gen Types

2000Net Load, MW

1000

timeFast 0 0 400 0 MWSlow 1000 1000 1600 2000 MWWind 600 500 200 100 MW LMP: 30 -10 70 30 $/MWh

• E.g., a system with two types of thermal generation: – 1000 MW of quick start peakers @ $70/MWh– 2100 MW of slow thermal @ $30/MWh; Max ramping = 600 MW/hr

• Morning ramp up and resulting generation:

W W

W W

Avg. Price Received$70$34.3$18.6

Spot prices reward flexibility!

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Outline

I. Our goals: economy, environmentII. The challenge of variable output & pricesIII. Investment impactsIV. Why won’t the market provide needed

capacity? And how can it be fixed?

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III. What do those Prices Imply for Long Run Generation Mix? The WECC Case

J. Bushnell, “Building Blocks: Investment in Renewable & Nonrenewable Technologies,” Iowa State U, 2010

Baseload CC Peakers

MW MW

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What do those Prices Imply for Long Run Generation Mix? The UK Case (15% Wind)R. Green & N. Vasilakos, Imperial College, The Long-Term Impact of Wind

Power on Electricity Prices and Generating Capacity

Wind

Peakers

CombinedCycle

Baseload

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CAISO: 33% Wind in 2020 Potentially 4,600MW of Upward Flexible Resources Needed (Hi-Load Scenario)

M. Rothleder, CAISO, Operational Flexibility Study Update, 6/22/2012 Market Surveillance Comm. Mtg.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Trajectory, Environmental, Cost, Time Constraint Cases

(1-in-2 year load, 5,688 MW of incremental DR, 5,145 MW of

Energy Efficiency)

2020 LTPP Operational Case (10% (5,500 MW) Higher Load)

2020 LTPP Operational Case(3,173 MW Local Capacity

Resources)

2018 Sensitivity Risk of Retirement Case

Capa

city

(MW

)

Generic Upward Capacity Needs to Meet Observed A/S Load Following Shortages

Local Capacity Needs (Based on LCR Studies of OTC Retirement) System Neeeds

18

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Outline

I. Our goals: economy, environmentII. The challenge of variable output & pricesIII. Investment impactsIV. Why won’t the market provide needed

capacity? And how can it be fixed?

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IV. CAISO Needs It, But Are They Getting It?

www.calpine.com/power/plant.asp?plant=28

- Announced intent to retire new (2001) CC Plant (Sutter)

- Losing 11 GW of Once-Through Cooled Capacity?

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Why Doesn’t the CAISO Get Its Needed Capacity?

Spot Market Failures: Markets suppress price variability

Flexibility not rewarded- 5-15-60 minute averaging times- Risk disregarded in scheduling- Public/operator distaste for price spikes

Bid & price caps

“Missing Money”

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Fixes?I. Operational market fixes

- Shorter intervals- Ramp constraints/products in spot markets

- MISO- CAISO: Twice as costly as spin in Q2 2012

- Stochastic unit commitment/dispatch?

II. Capacity market fixes- Different flavors of capacity- Longer horizon & liquid capacity market

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New York: Monthly Capacity Market

S. Harvey, S. Pope, W. Hogan, Preliminary Evaluation of the New York ISO Capacity Market, New York ISO ICAP Working Group, 7/31/2012

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More thanenough capacity …..

PJM Capacity Market (RPM): Eliciting Capacity Investment from Surprising Sources

Brattle, Second Performance Assessment of PJM’s Reliability Pricing Model Market Results 2007/08 through 2014/15, Aug.2011

…At prices lower than “CONE”

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PJM RPM: Surprising Capacity SourcesBrattle, Second Performance Assessment of PJM’s Reliability Pricing Model Market Results 2007/08 through 2014/15, Aug.2011

GainsLosses

Target

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Conclusions

Variable net loads and prices • Lower margins from spot energy for

thermal generation

To get an economic & clean gen mix, more revenues needed from:

• Ancillary services E.g., CAISO flexiramp

• Capacity markets E.g., PJM RPM

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Questions?

bhobbs@jhu.eduE2SHI, The Johns Hopkins University