Development of CAISO / PacifiCorpEnergy Imbalance Market

Briefing on CAISO Straw Proposal & Benefit Study

Presentation to WECC Market Interface Committee, July 18, 2013

Jim Price, Senior Advisor, Market Development & Analysis, CAISO

Additional info: http://www.caiso.com/informed/Pages/StakeholderProcesses/EnergyImbalanceMarket.aspx

Presentation overview: PacifiCorp implementation and EIM stakeholder process are in progress (following study of benefits)

Page 2

Implementation agreement

System testing market simulation

2013 2014

FERCreview

Implementation work

Filing

FERCreview

Go live 10/1/2014

tariff language

Process Merger

Board authorization

11/8/2013

FERC acceptance

Filing 4/30/2013

Board authorization

3/20/2013

FERC acceptance 6/28/2013

EIM stakeholder process

Stakeholder meetings:4/11/2013 – Folsom6/6/2013 – Folsom7/9/2013 – Phoenix

8/20/2013 – Portland9/30/2013 – Folsom

March 2012, CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM)

Page 3

• No critical mass required – each participant can enter EIM when ready

• Preserves participants’ autonomy and current practices

– Balancing authorities balance and provide their own ancillary services

– Balancing authorities can trade bilaterally

– Participants retain all physical scheduling rights

– Flexible modes of participation are available

BAA 1

BAA 2

BAA 3

CAISO proposed a scalable approach for implementing Energy Imbalance Market (EIM)

Page 4

BAAs

network modeling

transmission monitoring

bidding/self-scheduling

intra-hour dispatch

settlements

Benefits of Energy Imbalance Market

• Leverages existing CAISO market• Enhances reliability through improved situational

awareness in CAISO and EIM footprint• Captures the benefits of geographical diversity of load

and resources• Potentially reduces reserve requirements• Provides easy entry/exit for EIM participation

Page 5

Energy Imbalance Market definitions

EIM Entity is a balancing authority that enters into the pro forma EIM Entity Agreement to enable the EIM to occur in its balancing authority area (BAA). By enabling the EIM, real-time load and generation imbalances within its BAA will be settled through the EIM.

EIM Participating Resource is a resource located within the EIM Entity BAA that is eligible and elects to participate in the EIM.

• In the 5-minute market, eligible resources may include Generating Units, Physical Scheduling Plants, Participating Loads, Proxy Demand Resources, Non-Generator Resources and Dynamic Schedules.

• In the 15-minute market, imports and exports that can be scheduled on a 15-minute basis are also eligible to participate.

Page 6

FERC Order 764 introduces financially binding 15-minute market to real-time market design

Page 7

CAISO EIM

Day Ahead Schedule

15-Minute Schedule

Real-Time Dispatch

15-Minute Schedule

Real-Time Dispatch

Base Schedule

Real-time market processes

• Hour Ahead Process– CAISO accept block intertie transactions

• 15-Minute Market: Real-Time Unit Commitment (RTUC)– CAISO unit commitment, incremental AS, energy schedules– EIM energy schedule changes from base schedule

• 5-Minute: Real-Time Dispatch (RTD)– Energy dispatch within CAISO and EIM footprint

Page 8

Market input data

• As needed– Resource operational characteristics

– Network model topology

– Static contingencies observed

• Prior to operating hour (T-75 minutes)– Economic bids and hourly base schedules

• Ongoing– Transmission and generation outages

– 15-minute base schedules

– Load and VER forecasts– Dynamic contingency list– Actual ETC/ATC scheduling limits and ETC uses

Page 9

Hourly process for real-time market

Page 10

No hourly financially binding schedules in real-time

Market 1 Market 2 Market 3 Market 4

T-75: Real-Time Bid Submission Deadline

T-45: Results from Hourly Process to Accept Block Schedules Published

T-20: Intertie Hourly Transmission Profile and Energy Schedule for Market 1 E-Tag Deadline

T

T = Start of the Hour

T-37.5: Start of Market 1 Optimization

15-Minute market timeline under FERC Order 764

Page 11

• Honor intra-hour 20 minute e-Tag submission to avoid seams issues

Financially Binding

Market 2

T-5: Market 2 Energy Schedule E-Tag Deadline

T-22.5: Self Schedule Changes for Market 2

T-7.5: Market 2 Energy Schedule Awards

T

T-22.5: Market 2 Optimization Starts

37.5 Minutes

20 Minutes

T = Start of the Hour

RTD Market Timeline under FERC Order 764

Page 12

• No changes to RTD 5-minute dispatch

• RTD provides operational instruction to all generation and demand response resources

Financially Binding

Market 1 Market 2

T+15RTD 4RTD 2 RTD 6

T+7.5: RTD 4 Optimization Starts

T+12.5: RTD 4 Dispatch, RTD 5 Optimization Begins

T+15

RTD 3 RTD 5

T = Start of the Hour

7.5 Min

Establishment of Load Aggregation Points (LAP)

• EIM Entity defines the LAPs within its BAA– For example, internal to the CAISO LAPs are defined by utility

service territories– The number of LAPs must be weighed against the availability of

multiple granular load forecasts

• CAISO will determine Load Distribution Factors (LDFs) using its state estimator– CAISO uses LDFs to distribute LAP forecast to individual nodes

within the network model– CAISO publishes LDFs used in the day-ahead market process

three days after the trade date

Page 13

Load forecasting

• Load forecast by LAP should:– Be the net of “behind the meter” generation – Include losses

• Two options for load forecast for establishing base schedule:– Use ISO forecast– Use EIM Participant forecast, but subject to under-scheduling

charges when errors exceed 4% threshold

Page 14

Base schedule should be balanced prior to start of real-time market

Load forecast from prior slide

Resource plans: base schedules– Self-scheduled resources– Intertie schedules– Base generation schedules

Resource plans also include:– Ancillary services reservations protected from dispatch– Operational characteristics (e.g., ramp rate)– Economic Bids

Page 15

=

Base schedule must be balanced or they will be adjusted prior to start of EIM.

Market optimization uses the economic bids submitted at T-75 minutes

• CAISO will provide advisory feedback on schedules up to the binding 15-minute market, so base schedules can be developed without congestion

• 15-minute process builds on FERC Order No. 764– Multi-interval Security Constrained Unit Commitment, with 15-

minute interval granularity– Imbalance energy = difference between base schedule and 15-

minute schedule

• 5-minute dispatch process– Multi-interval Security Constrained Economic Dispatch, with 5-

minute interval granularity– Imbalance energy = difference between 15-minute schedule and

5-minute dispatch

Page 16

Congestion management

• CAISO will manage congestion in EIM by automatically activating constraints, before flows approach capacity– This allows the EIM dispatch to try and resolve the congestion

– Alerts the EIM Entity that they may be required to initiate UFMP

– Once activated, constraint will be enforced to maintain flows below the limit

• EIM will coordinate with WECC’s Unscheduled Flow Mitigation Procedure (UFMP) and Enhanced Curtailment Calculator (ECC)– If EIM Entity initiates UFMP, CAISO will reflect the affected

schedules in EIM dispatch, and enforce constraint limits as requested by RC.

Page 17

EIM Entity identifies resource constraints to address reliability issues which cannot be modeled

• CAISO will not issue exceptional dispatch instructions to EIM Entity resources

• CAISO’s dispatch will reflect reliability constraint within EIM area until the base schedule can be updated

• Any resource constraint for reliability will be settled at the EIM LMP

Page 18

Publication of schedules

• 15-minute base schedules and energy schedules will be published to SCs through CAISO Market Results Interface (CMRI)

• 5-minute dispatch instructions will be communicated to the EIM Entity and the SCs

• Net scheduled interchange will change every five minutes through the Dynamic Schedule to ensure AGC control accuracy for the CAISO and EIM Entity

Page 19

Publication of prices and other information

• Locational marginal prices for 15-minute market and RTD will be published on OASIS for all nodes and LAPs.

• Binding transmission constraints and shadow prices will be published on OASIS– LMP marginal cost of congestion component reflects congestion

contribution from binding network constraints

• Additional market data that requires an NDA is published on CMRI

Page 20

Ancillary service requirements

• EIM Entity remains responsible for meeting ancillary services requirements per NERC and WECC, dispatching contingency reserves, and managing load reductions

• Reserve sharing schedules– EIM Entity is responsible for their share of DCS compliance– EIM Entity deploys operating reserves and regulation in

conformance with NERC, WECC, and reserve sharing group policies– If reserves are dispatched, they will be subject to EIM imbalance

settlement until reflected in the base schedule– Capacity to meet reserve sharing obligations is included in the

resource plans used for base schedules. The capacity is protected for dispatch through EIM.

Page 21

EIM settlement

• Instructed imbalance energy settled in two tiers at the relevant LMP:– 15-minute instructed imbalance energy

– 5-minute instructed imbalance energy

• Uninstructed imbalance energy treatment based upon meter granularity– Generation, participating load, and dynamic resources that are

metered in 5-minute intervals settle at relevant interval LMP

– Non-participating load settles at the volumetric hourly weighted average LMP for the LAP based upon the difference between the load forecast and the actual use

• Allocation of uplift costs will track costs within EIM Entities and minimize comingled charges to the extent possible.

Page 22

EIM accounting

• Unaccounted-for energy– Net energy delivered into UDC adjusted for service losses– EIM Entities need to define UFE service areas within footprint

• Inadvertent energy– CAISO will maintain a dynamic schedule to track energy

between EIM Entities and CAISO• The hourly energy will be updated on the e-Tag within 60 minutes of

the end of the operating hour

– EIM Entity responsible for tracking and administering payment for inadvertent energy via WECC process

• Settlement metering is required for generators. Options:– CAISO Metered Entity– Scheduling Coordinator Metered Entity

Page 23

EIM administration

• Administrative Costs– Administrative rate if $0.19 per MWh volume as calculated by:

• Generation = max (5% of gross generation, generation imbalance energy), plus

• Load = max (5% gross load, load imbalance energy)

– Startup costs equal $0.03 times an EIM Entity’s total annual energy usage

• Forecasting Services– CAISO load forecast is included in Administrative Rate– VER forecasting available for $0.10 per MWh

• Dispute resolution is through Customer Inquiry, Dispute and Information (CIDI)

• Market monitoring provided by CAISO

Page 24

Transmission Service

• Since initial transfer capability between CAISO and PacifiCorp will be limited and as-available, initial design proposes no charge for transmission for EIM dispatch

• EIM stakeholder process will continue discussion of transmission rate design for EIM transfers

Page 25

CAISO is committed to ensuring EIM design will properly account for GHG costs

• Entities that import energy to California have obligation to surrender compliance instruments to CARB

• The net incremental transfer to CAISO from EIM will be tracked through e-Tag for dynamic schedules

• The market optimization will consider GHG costs

Page 26

Other design items

• Parallel stakeholder initiative will address governance, with white paper published by August 13 for discussion starting at August 20 stakeholder meeting in Portland

• Process for new EIM Entities:– Interested parties are encouraged to engage as early as

possible– Future implementations may occur on an annual commitment

cycle with 12-18 month lead time, reflecting significant network modeling changes and alignment with CAISO’s spring and fall software release cycle

– Implementation agreement filed with FERC will establish specific schedule and start-up payment ($0.03/MWh of annual energy)

Page 27

Analysis of EIM Benefits

Page 29

E3 quantified 4 benefits of PacifiCorp-CAISO EIM

• Interregional dispatch savings, by realizing the efficiency of combined 5-minute dispatch, which would reduce “transactional friction” (e.g., transmission charges) and alleviate structural impediments currently preventing trade between the two systems;

• Intraregional dispatch savings, by enabling PacifiCorp generators to be dispatched more efficiently through the ISO’s automated system (nodal dispatch software), including benefits from more efficient transmission utilization;

• Reduced flexibility reserves, by aggregating the two systems’ load, wind, and solar variability and forecast errors; and

• Reduced renewable energy curtailment, by allowing BAs to export or reduce imports of renewable generation when it would otherwise need to be curtailed. (GridView simulations first estimated economic imports to CAISO using projected solar, wind, & load profiles, then fixed the imports as a minimum and observed renewable curtailments using actual profiles.)

Page 30

Interregional Dispatch and Flexibility Reserve Benefits: modeling approach used production simulation

Page 31

Intraregional Dispatch Savings

PacifiCorp 2017 savings = CAISO 2009 savings1 *

PAC 2017 peak load

CAISO 2009 peak load

PacifiCorp 2017 savings =

$105 MM

*

10,079 MW

=

$23 MM

yr 45,486 MW yr

or

1. Refer to Frank A. Wolak, 2011, “Measuring the Benefits of Greater Spatial Granularity in Short-Term Pricing in Wholesale

http://www.stanford.edu/group/fwolak/cgi-bin/sites/default/files/files/benefits_of_spatial_granularity_aer_wolak.pdf

Page 32

Assumption

Low transfer capability

Medium transfer capability

High transfer capability

Low Range

High Range

Low Range

High Range

Low Range

High Range

Maximum hydropower contribution to contingency and flexibility reserves*

25% 12% 25% 12% 25% 12%

Share of intraregional dispatch savings achieved

10% 100% 10% 100% 10% 100%

Share of identified renewable energy curtailment avoided

10% 100% 10% 100% 10% 100%

*Percent of nameplate capacity for each project

A range of assumptions were considered with focus on making low end conservative

Low and high range assumptions under low (100 MW), medium (400MW), and high (800MW) transfer cabability

Page 33

Benefit Category

Low transfer capability

Medium transfer capability

High transfer capability

Low Range

High Range

Low Range

High Range

Low Range

High Range

Interregional dispatch $ 14.1 $ 11.0 $ 22.3 $ 17.7 $ 22.4 $ 17.8

Intraregional dispatch $ 2.3 $ 23.0 $ 2.3 $ 23.0 $ 2.3 $ 23.0

Flexibility reserves $ 4.0 $ 20.8 $ 11.0 $ 51.3 $ 13.4 $ 77.1

Renewable curtailment $ 1.1 $ 10.8 $ 1.1 $ 10.8 $ 1.1 $ 10.8

Total benefits $ 21.4 $ 65.6 $ 36.7 $ 102.8 $ 39.2 $ 128.7

Significant benefits observed using range of assumptions

Low and high range annual benefits (Million 2012$) under low (100 MW), medium (400MW), and high (800MW) transfer capability

Page 34

Conclusions:•Significant benefits for PacifiCorp and ISO exist under an EIM, based on conservative assumptions.•Higher range of potential benefits exist depending on transfer capability and operational conditions.

Low and high range annual benefits (million 2012$)

Page 35

Attribution of EIM benefits to PacifiCorp in 2017

Benefit Category

Low transfer capability

Medium transfer capability

High transfer capability

Low Range

High Range

Low Range

High Range

Low Range

High Range

Interregional dispatch $ 7.0 $ 5.5 $ 11.2 $ 8.9 $ 11.2 $ 8.9

Intraregional dispatch $ 2.3 $ 23.0 $ 2.3 $ 23.0 $ 2.3 $ 23.0

Flexibility reserves $ 1.2 $ 6.1 $ 3.2 $ 14.9 $ 3.9 $ 22.5

Renewable curtailment $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0

Total benefits $ 10.5 $ 34.6 $ 16.7 $ 46.8 $ 17.4 $ 54.4

Note: Attributed values may not match totals due to independent rounding.

Low and high range benefits attributed to PacifCorp (Million 2012$) under low (100 MW), medium (400MW), and high (800MW) transfer capability

Page 36

Attribution of EIM benefits to CAISO in 2017

Benefit Category

Low transfer capability

Medium transfer capability

High transfer capability

Low Range

High Range

Low Range

High Range

Low Range

High Range

Interregional dispatch $ 7.0 $ 5.5 $ 11.2 $ 8.9 $ 11.2 $ 8.9

Intraregional dispatch $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0

Flexibility reserves $ 2.8 $ 14.7 $ 7.8 $ 36.4 $ 9.5 $ 54.6

Renewable curtailment $ 1.1 $ 10.8 $ 1.1 $ 10.8 $ 1.1 $ 10.8

Total benefits $ 10.9 $ 31.0 $ 20.0 $ 56.0 $ 21.8 $ 74.3

Note: Attributed values may not match totals due to independent rounding.

Low and high range benefits attributed to CAISO (Million 2012$) under low (100 MW), medium (400MW), and high (800MW) transfer capability

Page 37

Interregional dispatch savings assumptions

Benefit Category

Assumptions (conservative, moderate, aggressive)

Rationale

Interregional dispatch

Conservative- Moderate

• E3 limited PacifiCorp-ISO transmission transfer capability in the low transfer capability scenario to 100 MW, which limited EIM benefits

• E3 used hurdle rates to inhibit interregional trade in Benchmark Case (moderate assumption)

• Hourly cost differences between natural gas-fired generators are understated in production simulation models due to the use of uniform heat rates assumptions and normalized system conditions; these models understated EIM benefits

Page 38

Intraregional and intra-hour assumptions

Benefit Category

Assumptions (conservative, moderate, aggressive)

Rationale

Within hour dispatch

Conservative • Production simulation analysis modeled at hourly level, omitting potential benefits of sub-hourly dispatch (other studies indicate that these benefits could be substantial)

Intraregional dispatch

Conservative-Moderate

• E3 calculated nodal dispatch savings by scaling estimated ISO peak load-normalized savings by PacifiCorp peak load (moderate assumption); E3 assumed only 10% of these savings materialize for low range (conservative assumption)

Page 39

Flexibility reserve assumptions

Benefit Category

Assumptions (conservative, moderate, aggressive)

Rationale

Flexibility reserves

Conservative • E3 limited PacifiCorp-ISO transmission transfer capability in the low transfer capability scenario to 100 MW, which limited EIM benefits

• E3 included operating cost only; no capacity cost savings are included, which limited EIM benefits

• E3 allowed 25% of total hydropower capacity to contribute to flexibility reserves in the low range estimates, which limited EIM benefits

• E3 did not require lock-down of dispatch 45 minutes prior to the operating hour, as done in other studies, which would have raised the quantity of reserves required and increased EIM benefits

Page 40

Renewable curtailment assumptions

Benefit Category

Assumptions (conservative, moderate, aggressive)

Rationale

Renewable curtailment

Conservative • E3 did not evaluate renewable curtailment for PacifiCorp. Which limited EIM benefits

• In low range estimate, e# assumed wind and solar not producing significant over-generation (conservative assumption)

• Production simulation models understate the frequency with which low net load/high generation events occur due to their use of idealized operating assumptions; these models limit EIM benefits

Page 41

Hurdle rates between PacifiCorp-ISO to reflect removal of impediments to trade under EIM

Hurdle Rate ($/MWh) PACW ISO ISO PACW

Case CO2-related Non-CO2

related Total

Benchmark Case $10.76 $10.31 $21.07 $3.97 EIM Dispatch Case $10.76 $0.00 $10.76 $0.00*

*No CO2-related hurdle rate is applied to ISO exports to PACW because CO2 permit cost under AB32 isdirectly modeled in the dispatch for generators located inside California.

Page 42

Gas prices based on prices used in long term procurement proceeding

Area 2017

PACE_ID $3.99

PACE_UT $3.81

PACE_WY $3.95

PACW $3.91

PG&E_BAY $4.09

PG&E_VLY $4.09

SCE $4.18

SDG&E $3.96

(in 2012$/MMBtu)

Page 43

Flexibility reserve assumptions

Page 44

Flexibility reserve assumptions10-minute flexibility reserves by transfer scenario, Standalone & EIM Cases

PacifiCorp-CAISO Transfer

Minimum Reserve Holdings (MW)

Standalone (no EIM) 2,011

100 MW, with EIM 1,932

400 MW, with EIM 1,687

800 MW, with EIM 1,583

AreaAverage

Regulation Up (MW)

Average Load Follwing Up

(MW)

PacifiCorp East 103 313

PacifiCorp West 45 146

PacifiCorp Combined 115 357

CAISO 276 1,128

10-minute flexibility reserve detail for 2017, Standalone Case (no EIM)

Page 45

120 GWh curtailment potential based on comparison of two simulation runs:

• First run (representing unit commitment based on forecasted needs), projected solar, wind, and load profiles were used to estimate economic imports into ISO.

• Second run (representing real-time dispatch), actual solar, wind, and load profiles were used along with minimum import limits set to the level of economic imports from the first simulation.

• Curtailment occurred in second run represents conservative estimate of renewable curtailment.

Page 46

$90/MWh avoided cost of curtailment based on:

1. Renewable energy certificate (REC) value, assumed to be $50/MWh;

2. Production tax credit (PTC) value of $20/MWh; and

3. Avoided production cost of the thermal unit that an EIM enables to dispatch down, estimated to be $20/MWh.