071112 IAEE Analyzing spot prices in a context with high

Analyzing spot prices in a context with high penetration of Variable Energy Resources (VER):gy ( )

The key role of the pricing rules

Andrea Veiga, Pablo Rodilla, Carlos Batlle<{Andrea.Veiga, Pablo.Rodilla, Carlos.Batlle}@iit.upcomillas.es>

31st USAEE/IAEE North American ConferenceAustin, 7th Nov 2012

IntroductionVER, cycling costs and market prices

l f h hl bl l d h bl d h dl•A large penetration of highly variable, less dispatchable and hardly predictable renewables (Variable Energy Resources, VER) changes

the way electric power systems are operated— the way electric power systems are operated— production costs— and short-term pricesp

•One of the expected impacts of VER is the need to increase the cycling operation of conventional thermal plants

i h b f d h b f h i i— Increase in the number of starts and the number of hours at minimum stable load

— The operation costs and specially the non-convex costs increaseThe operation costs and specially the non convex costs increase• The fuel operation cost, fuel start cost & operation and maintenance cost

— The O&M cost increases due to the increased maintenance requirements

l l•We assess how pricing rules may amplify or reduce the impact of the increase in costs on short-term prices

Linear (non discriminatory) vs non linear (discriminatory) pricing rules

Analyzing spot prices in a context with high penetration of variable energy resources: The key role of the pricing rules Analyzing spot prices in a context with high penetration of variable energy resources: The key role of the pricing rules Austin, November 7th, 2012Austin, November 7th, 2012

— Linear (non-discriminatory) vs. non-linear (discriminatory) pricing rules

VER, unit commitment costs and market price formationThe increasing cycling needs and costs

l h h f h l d h h•VER output alters the shape of the net load, changing the traditional way to schedule the thermal portfolio

Increases the cycling operation of conventional thermal plants— Increases the cycling operation of conventional thermal plants

30

40

20

CHP+PV+Biom.

Wind

Pump. gen.

Hydro

Imports

GW

11GW

0

10

Fuel-oil

CCGT

Coal

Nuclear

Exports

2 GW

11GW6GW

•In the short-term, these impacts translate into a cost increase:

Pump. purch.-5

Monday Tuesday Wednesday Thursday Friday Saturday Sunday

— Fuel operation cost— Fuel start-up costs

Operation & Maintenance cost?


— Operation & Maintenance cost?

VER, unit commitment costs and market price formation The increasing cycling needs and prices

h l h b f h l h f f•The larger the number of starts, the lower the amount of firing hours the unit can operate before a major maintenance is triggered

Increasing the number of starts increases O&M costs— Increasing the number of starts increases O&M costs— Major overhauls become more frequent

•Starts are responsible of the increment of O&M costp— As a consequence, the cost of each start increases

•This increase in non-convex costs impacts market prices but this ill d dwill depend on

— the power system configuration ...• e g the cycling effect is particularly acute in systems in which storage• e.g. the cycling effect is particularly acute in systems in which storage

facilities are scarce (e.g. hydro reservoirs)— the short-term market design

h l h f


• The start-up cost not always intervenes in the price formation

VER, unit commitment costs and market price formation The increasing cycling needs and prices

h l h b f h l h f f•The larger the number of starts, the lower the amount of firing hours the unit can operate before a major maintenance is triggered

Increasing the number of starts increases O&M costs— Increasing the number of starts increases O&M costs— Major overhauls become more frequent

•Starts are responsible of the increment of O&M costp— As a consequence, the cost of each start increases

•This increase in non-convex costs impacts market prices but this ill d dwill depend on

— the power system configuration ...• e g the cycling effect is particularly acute in systems in which storage• e.g. the cycling effect is particularly acute in systems in which storage

facilities are scarce (e.g. hydro reservoirs)— the short-term market design

h l h f


• The start-up cost not always intervenes in the price formation

Short-term market rulesLinear vs. non-linear pricing

l ( k d )• Non-linear (aka discriminatory) pricing— Market prices (based on marginal costs**) + side-payments (for some)

** Non convex (start up no load) costs are not considered** Non-convex (start-up, no-load) costs are not considered• On top of the hourly market prices for all agents, some additional side-

payments are provided to some generators on an individual basis— e.g. PJM, CAISO, ISO-NE, etc.

• Linear (aka non-discriminatory) pricingM k i (b d i l ) lif (f ll)— Market prices (based on marginal costs) + uplift (for all)• The same hourly price is used to remunerate all the production in that

hour and no side-payments existp y— e.g. Ireland (complex auction), EU PXs (semi-complex auctions)

200

250

5

100

150UpliftShadow prices

EU

R/M

Wh


0

50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Short-term market rules and cycling due to VERObjectives and methodology

h k h h h l l d ff b•The key issue here is that these rules result in different payments by consumers and also different income for the generating units

Which market rule (if any) is right?— Which market rule (if any) is right?•We use of a stylized short-term unit commitment model to get

— optimal production of each groupp p g p— marginal cost of the system in each time periodconsidering fuel start-up costs, energy production costs ( d h l h ) d(considering the incremental heat rate curve) anda detailed representation of O&M cost due to cycling

We propose a method to allocate these O&M costs— We propose a method to allocate these O&M costs• Between the firing hours and the start ups, for they represent the variables

that trigger the major maintenanceh— Per-firing hour and per-start adder components due to O&M expenses

(expressed in $/fh and $/start respectively)

•We compute market prices, side payments and uplifts and


e co pute a et p ces, s de pay e ts a d up ts a devaluate generating units' turnover for both pricing rules

Short-term market simulationModel structure

Short-term unit-commitment model1

Scheduling

Cost allocation (in each hour)2 Marginal cost of each hour

fh FH S VOMC+fhomc FH suomc S VOMC⋅ + ⋅ =

max/fhomc VOMC FH=

( ) /suomc VOMC FH fhomc S= - ⋅

Hourly upilfts3 Side payments4

, ,min ,0

i

i h h i hh h

SidePayment

TotalCost g il

=æ ö÷ç ÷ç - ⋅ "÷ç ÷÷çè øå å

( )( ), ,

h h huplifth h

i h h h i hh h

Min uplift L

TotalCost uplift g i

l

l

+ ⋅

£ + ⋅ "

åå å


h hè ø0

h h

huplift h³ "

Real-size case exampleData

h l d h h h l• Thermal mix inspired in the Spanish thermal mix— Nuclear (10 GW)

CCGT (28 GW)Technology

Start-up costper installed MW

[$/start]

Pmax[MW]

Pmin[MW]

No-load cost[$]

Variable fuel cost

[$/MWh]— CCGT (28 GW)— NSE

• O&M Long-Term Service Agreement of the CCGT technology

[$/sta t] [$/ ]Nuclear - 1000 1000 0 6.79CCGT 30 400 160 2202 49.55NSE - - - - 2500

O&M Long Term Service Agreement of the CCGT technology— Major overhaul cost: US$ 40 million— Limits: 900 starts or 24000 firing hours

Failure region

300

600

900

Option B

Option C

Option A

• Net thermal hourly load (demand-solar PV)— Load: Spain (November 8th to 14th, 2010)

N i d d GW l h l i fil

00

24000160008000

— No wind and 35 GW solar photovoltaic profile

30

35

40

GW

5

10

15

20

25

demand

net demand


0Monday Tuesday Wednesday Thursday Friday Saturday Sunday

Real size case exampleResulting unit commitment without and with VER

35

40

GW

20

25

30

5

10

15

0

35

40

GW

20

25

30

5

10

15


0

Real size case exampleMarket income

l d d• Results on Wednesday— Marginal costs (non-linear pricing)

60

20

30

40

50

w/o pv

w/pv

— Side-payments (non-linear pricing)0

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

With solar Without solar

Average side payment ($/MWh) 9.44 7.70

— Uplifts (Ireland-based linear pricing)

Maximum side payment ($) 134654 121031

Up ts ( e a d based ea p c g)

60

80

100

120

140

160

$/M

Wh

w/o pv

w/ pv

$/MWh With solar Without solar

Weighted 16 52 13 56


0

20

40

1 3 5 7 9 11 13 15 17 19 21 23 Hours

average uplift16.52 13.56

Real size case exampleBase load unit turnover

h h h d h hl d d• With VER operation costs are higher and turnover highly depends on the pricing rule

Market results (Wednesday) for a base load unit— Market results (Wednesday) for a base load unit$/MWh With solar PV Without solar PV

Linear pricing 63.58 62.16p g

Discriminatory 49.55 49.55

Difference 14.03 12.61

• Non-linear pricing contextDifference in % 28.31 25.44

— Side-payments grow, but price does not change• Linear pricing context

lif d h l i i— Uplifts grow and thus also prices increase— Base-load units turnover grows, profits alsoSolar pv increases the difference between both pricing mechanisms


• Solar pv increases the difference between both pricing mechanisms

Analyzing spot prices in a context with high penetration of VER ... Conclusions

f l• Massive penetration of VER increases cycling— The number of starts increases and also the cost per start is higher

• The remuneration of generators changes in each designThe difference is higher for a base load unit than for a unit that cycles— The difference is higher for a base load unit than for a unit that cycles

• The pricing mechanism results in different payments for e p c g ec a e t e e t pay e tconsumers…… but will inevitably affect the future generation mix— Short-term marginal price is the main signal for capacity expansion


h kh kThankThank youyouThankThank youyouAndrea Veigaea e ga

[email protected]


IMPACTS OF VER IN MARKET PRICES•Two major impacts of VER in electric power system operation

— Which will also eventually affect market prices

ChangesChanges onon scheduledscheduled unitsunits11 ChangesChanges onon thethe operationoperation regimesregimes22

RampRamp (& reserves)(& reserves) C li tC li tMeritMerit orderorder effecteffect RampRamp (& reserves) (& reserves) requirementrequirement

Cycling costsCycling costs

High variable cost unitsHigh variable cost unitsare substituted by RESare substituted by RES

Flexible units Flexible units (usually peakers)(usually peakers)

are necessaryare necessary

Increases production costs in generalIncreases production costs in generalIncreases nonIncreases non--convex costs in particularconvex costs in particular

are necessaryare necessary

Reduces pricesReduces prices Increases pricesIncreases prices--HowHow doesdoes itit affectaffect marketmarket pricesprices??


Reduces pricesReduces prices Increases pricesIncreases prices --HowHow doesdoes itit affectaffect marketmarket profitsprofits??

MODELING THE IMPACT OF VER ON MARKET OUTPUT•The energy fuel cost associated to the units’ production is allocated

in each hour Th f l st ss i t d t h st t is im t d t th h in•The fuel cost associated to each start is imputed to the hour in which the unit starts.

•Allocating the costs associated to the variable O&M costs isAllocating the costs associated to the variable O&M costs is anything but evident.

fhomc FH suomc S VOMC⋅ + ⋅ =

•We have opted for representing the O&M-cost related costs as f llfollows:

max/fhomc VOMC FH=

( ) /VOMC FH fh S( ) /suomc VOMC FH fhomc S= - ⋅


LINEAR AND NON-LINEAR PRICING MECHANISMSff k h•Different market mechanisms:

— Calculation of the price: monthly, weekly, hourly, 5-minutesFormat of the generators offers:— Format of the generators offers:• Simple bidding or complex bidding

•In the context of complex bidding: t e co te t o co p e b dd g:— Prices:

• dual variables associated to the generation-demand balance constraint of h li i i i bl h i d i i h bthe linear optimization problem when commitment decisions have been

fixed.— These prices do not include the effect of non-convex costs:p

• additional payments are needed so as to ensure that every unit fully recovers its operating costs.

Two alternatives: linear or discriminatory pricing— Two alternatives: linear or discriminatory pricing.


Short-term unit commitment model


h d f h l f•For each segment defining the piece-wise-linear approximation of the MIF we have an equation form:

adad

..

•Where the segment of the piece-wise-linear MIF function is

( ) ( ) ( ) 0a b a b a b b aS MMC FH MMC FH FH MMC S MMC S VOMC S FH SFH⋅ ⋅ - ⋅ - ⋅ ⋅ - ⋅ + ⋅ ⋅ - £

Where the segment of the piece wise linear MIF function isdelimited by points and ,provided that

and .

( , )a aA FH S ( , )a aA FH S

a bS S³a bFH FH³

AB

S

C

O

D

FH


O FH


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