WSPP Spring Meeting. California Energy Markets and Regional Expansion Policy Update. March 8, 2018

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1 WSPP Spring Meeting California Energy Markets and Regional Expansion Policy Update March 8,

2 CES Core Service Offerings We maximize value of existing and emerging electric infrastructure through active resource management. 2

3 Market Intelligence provides ed reporting and analysis of nearly all ISO rules, initiatives, and stakeholder meetings Why CES? Market changes analysis helps avoid errors in pricing, basis-risk and compliance Hosted portal with current and historical reports Unparalleled team of experts Search Library Feat ures Access All Report s 3

4 Key Policy Themes Generation Risk of Retirement Resource Adequacy Reform Renewable Integration (Manage Net-Load Curve) The Changing Landscape Reforming RMR, CPM and Resource Adequacy CAISO- Flexible RA Redesign CPUC RA Proceeding RA Program reform Day-Ahead Market Reforms Regional Expansion Light Storage and Distributed Energy Resources Expanded Opportunities for Trading in the West 4

5 Risk-of-Retirement Challenging state for conventional generation 5

6 Continued Focus on Preferred Resources In response to the three recent RMR designations the CPUC issued Resolution E-4909 ordering PG&E to conduct an accelerated solicitation for energy storage and preferred resources to address the subarea deficiencies with a goal to have projects online in time to avoid renewal of the RMR contracts in PG&E has launched the RFP Proposals due in March California Energy Commission s announcement that it intends to deny the application for NRG s 246MW Puente Power Project in the Moorpark Sub Area. This is the first time a project with an approved PPA has been subject to double jeopardy SCE announced it will conduct a competitive solicitation focused on preferred resources and energy storage in lieu of Puente. Should be launched any day. PG&E announced that it will conduct an RFP to procure preferred resource and energy storage solutions (20-45MWs) to replace aging Oakland CTs as part of a transmission planning process solution. 6

7 Conventional Generation - Deficient Processes and Limited Opportunities Few options available to conventional generation Market dynamics persistently low/negative energy prices do not support merchant operations. More renewables submitting economic bids (-$25 to -$50/MWh) IRP projects 59% renewables by Increasing opportunities for clean low-cost PNW hydro. Very limited if any opportunities for conventional generation to compete in RFPs. As noted in previous slides, all focus is on preferred resources and energy storage and even approved projects (Puente) for gas-plants are being challenged. Failure to secure resource adequacy (RA) contracts necessary to support capital and maintenance expenditures even for resources in local reliability areas. This has lead to new RMR contracts (a return to cost-of-service). Other CAISO backstop measures deemed inadequate - CPM Risk Of Retirement (ROR) does not provide certainty necessary to support multi-year capital/maintenance expenditure programs. 7

8 Conventional Generation Conclusions Considering California s movement towards a near zero carbon grid, and the challenges faced by the conventional generation fleet, there is a strong need for a strategic plan to address the orderly retirement of the conventional generation fleet and a plan to evaluate and compensate generators that are still needed for reliability. The events of 2018 show that the CAISO and other state agencies will no longer be able to postpone or ignore the conventional generation risk-of-retirement issue. In its 2018 Roadmap the CAISO has committed to addressing changes to its RMR process, CPM Risk-of-Retirement and potentially evaluating whether the two risk-ofretirement processes should be merged into one. The CPUC and CAISO s commitment to address fundamental changes to the RA Program in 2018 and 2019 also highlight the agencies commitment to this issue. 8

9 9 Resource Adequacy Reform Update

10 Resource Adequacy Products 10 10

11 Challenges with Existing RA Program Annual process lack of multi-year revenue stream and certainty for generators Renewable Integration (what kind of capacity resources does the system want/need?) Rapid expansion of Community Choice Aggregators Up to 80% of IOU load at risk LSEs have no incentive to enter long-term forward-contracts when load at risk Tricky procurement and cost allocation issues Challenges with local RA procurement Key resources not getting procured in RA process (inconsistency between CAISO needs and procurement rules) Resulting increase in backstop procurement by CAISO (RMR, CPM) CAISO not getting operational attributes needed from fleet providing Flexible RA Broad spectrum of resources can qualify to provide service and value is very low 11

12 12 Challenges with Existing RA Program

13 Challenges with Capacity Varying forms of capacity Resource Adequacy System all capacity resources qualify short-term up to a year generally $1-2/kw-mo. Local Must be within 10 local areas short-term generally $3/kw-mo. Flexible Most capacity resources qualify short-term - generally no premium for flex All capacity must offer into the market Reliability Must Run (RMR) Annual designations (can be renewed) Originally intended to mitigate energy market power (not a capacity backstop) Condition 1 receives fixed option payment to contribute to fixed costs can also participate in the market. Condition 2 - receives full cost-of-service payment (including capital additions) cannot participate in market (must credit revenues) No current must-offer obligation Capacity Procurement Mechanism Generally short term (30-60 days), capped at soft offer cap $6.31/kw-mo. Risk-of-Retirement one-year forward commitment, RMR-type COS. Must offer into markets if designated 13

14 Need to align the varying forms of capacity Resource Adequacy Proceeding Challenges with Capacity May unbundle flex from system may result in more explicit premium for flexible capacity. Need to create RA program wherein suppliers have an incentive to contract for RA rather than fall back on backstop measures (RMR/CPM) Need also to establish incentive for LSEs to want to forward contract on multi-year basis (while managing risk of load migration) and not push backstop costs on other LSEs RMR/CPM Need to combine or further align two different backstop mechanisms CAISO proposing to establish RMR must offer obligation 14

15 RA Reform Update New CPUC RA Proceeding The CPUC issued a Order Instituting Rulemaking (OIR) for a new RA proceeding and has opened the door to consider an overhaul of the RA Program for first time since Issues in scope include: Multi-year procurement (local...system, flex?) CPUC proposing for local RA only. Centralized buyer (CCA and Small LSE issue) Some parties promoting application to more than just local RA and centralized capacity market Local RA Reform rules to align CAISO needs and procurement rules Flexible RA Reform CAISO discussing changes in parallel in its own stakeholder process Continued refinement of ELCC methodology Impact of BTMPV Changes to be implemented for the 2019 and 2020 RA procurement years 15

16 CAISO Flexible RA Reform CAISO assessment of operational needs indicates: Need for faster ramping resources Increase in magnitude of one-hour ramps and sub one hour ramps Increased reliance on regulation Need to manage significant uncertainty between market intervals Source: FRACMOO 2 Revised Framework Proposal 16

17 CAISO Flexible RA Reform (Cont.) The CAISO is proposing to align the flexible RA products with CAISO market dispatch opportunities. The CAISO is proposing three conceptual products for Flexible RA that would replace existing product design: Day-ahead ramping range capacity; 15 minute dispatchable flexible capacity; and 5 minute dispatchable flexible capacity. The CAISO has submitted proposal into the CPUC s RA proceeding for consideration and will publish a revised proposal in April

18 Flexible RA Current versus Proposed Flexible RA Today CAISO s Flex RA Proposal Structure Overall Requirement Three categories procured (1,2,3) Three-hour net load ramp in the CAISO s system plus contingency reserves Three products -Day-Ahead, 15-minute and 5-minute Overall requirement - Same as today (largest three-hour net load ramp + contingency reserves) but now adding curtailed renewables back to three-hour net load ramp. Requirement for 5-minute product Based on range of historic uncertainty between the 15- minute market and real-time dispatch. Requirement for 15-minute product - based on historic uncertainty between day-ahead and 15- minute market. The term uncertainty refers to the potential amount of imbalances that must be met by dispatchable resources in the real-time market Qualification Criteria Counting Criteria (EFC) Varies between categories, include continuous energy requirements, # of startups per day Ability to ramp and sustain output for threehour period For Real-time products must have < 60 minute start-up time. Real-Time products = ability to ramp in 5 or 15 minute period. Day- Ahead criteria same as today. External Resource Participation Not allowed EIM Participating Resources and External Resources (Imports) can qualify Variable Energy Resources EFC capped at NQC Increased Opportunity CAISO proposes to modify calculation of EFC Must-Offer Obligation Bundled Product 18 Different across categories Yes with system and local RA Requirements are 24 X 7 with variation for variable energy resources Potential for unbundling of flexible RA from system and local

19 CAISO Flexible RA Opportunities Potential higher value for flexible resources. Increased potential for wind and solar to provide flexible RA. New product proposal would allow shorter-duration energy storage to provide Real-Time flexible RA products. Existing Category 1 has 6-hour continuous energy requirement CAISO has now differentiated counting criteria for real-time products versus day-ahead Imports would qualify to provide Day-Ahead and 15-minute product The ISO would require information on the physical resources used to support the resource ID No block hourly schedules would be allowed EIM Participating Resources would also qualify to provide Day-Ahead, 15 and 5-minute products 19

20 Resource Adequacy Reform - Conclusions The focus on RA reform for 2018 and 2019 is key to addressing some of California s generator risk of retirement issues and to ensure the right resources are procured to meet local reliability. The CAISO s increasing operational challenges speak to the need for the flexible RA product to better align with how resources are actually utilized in the market. The CAISO s proposed changes to the flexible RA product - if designed properly - should result in a higher value for resources that have fast responding/ramping capabilities. Unbundling Flexible RA products for conventional RA products will allow resources to offer flexible attributes to grid without having to meet the requirements to be fully deliverable in the interconnection process and potentially incur costly transmission upgrades. Day-Ahead market enhancements will impact requirements for Flexible RA, especially as it pertains to he 15-minute product. More on this in the next few slides 20

21 Managing the net-load curve - Day-Ahead Market enhancements 21

22 Renewable Integration Managing Net-Load Curve Day-Ahead Market Enhancements The CAISO states that grid operations challenges point to the need for DAM enhancements to better manage the net-load curve in real-time. The CAISO proposes to change day-ahead scheduling granularity from hourly to 15- minute scheduling granularity This will allow resources to be scheduled in intervals that more closely follow the load curve as forecasted by the CAISO. The CAISO states that moving to fifteenminute granularity in the IFM, the hydro fleet can be better utilized to meet the forecasted steep ramps in the CAISO and receive imbalance reserve awards to address uncertainty that may materialize. Source: CAISO Issue Paper Day-Ahead Market Enhancements 22

23 Renewable Integration Managing Net Load Curve Day-Ahead Market Enhancements Create a Day-ahead flexible reserve product biddable product with a must-offer obligation into real-time. Will replace Residual Unit Commitment (RUC) availability bids. Imbalance reserves will ensure sufficient real-time economic bids are available to resolve deviations that occur between the IFM and real-time market. The total imbalance reserve requirement will be based on potential imbalance needs that occur between the IFM and real-time market. The requirement will be split between fifteen minute and five minutes eligible resources in both the up and downward direction. Combined Integrated Forward Market (IFM) and RUC Increase efficiency by simultaneously clearing bid in demand and balancing area net load forecast. Full network model phase 2 Improved modeling of intertie transaction sources/sinks. 23

24 Renewable Integration Managing Net-Load Curve (cont.) Extension of Day-Ahead Market to EIM Entities (Regionalization Light ) This would provide benefits of day-ahead unit commitment across a larger footprint, market efficiencies and more effectively integrate renewables. This enhancement will not require EIM Entities to join the CAISO Balancing Authority Area. Sub initiatives in this category to be addressed include: Aligning transmission access charge (TAC) paradigms Ensure EIM Entities recover transmission costs consistent with existing bilateral transmission framework. The CAISO states that it will develop consistent billing determinants across the DAM footprint for market efficiency. Congestion Revenue Rights (CRRs) over expanded footprint The CAISO states it will implement congestion hedging similar to what is available to the CAISO BAA. Currently in the CAISO BAA load that pays the TAC charge receives CRRs free of charge. Day-ahead resource sufficiency evaluation Ensure balancing areas are not leaning on others for capacity, flexibility, or transmission 24

25 DA Market Enhancements Link to Flex RA Moving to 15-minute scheduling granularity will reduce uncertainty need between DA 15-minute minute market reducing need for 15-minute Flex RA product. Flexible Reserve product requirements and Flexible RA requirements closely linked. Flex RA addressing uncertainty on a monthly basis contracted on a forward basis. Flexible Reserve Product is a spot market product aimed at addressing intra - hour uncertainty. 25

26 The Changing Landscape New Opportunities GHG New IRP process (42MMT GHG reduction goal) California wants more clean resources More preferred resources (Renewables, demand response, energy efficiency, distributed generation) and storage (battery and hydro) Plan to shut down Aliso Canyon State asking CAISO to examine ways to increase transfer capability to gain access to clean Pacific Northwest hydro to replace gas-fired generation New Market Opportunities RA state opening the door for more external resources (clean/flexible hydro) to provide needed flexible capacity CAISO EIM expanding (both geographically and temporally day-ahead) CAISO, Peak/PJM, SPP all competing to provide market/reliability services Storage opportunities expanding both to provide energy and transmission services 26

27 Appendix 27 27

28 Integrated Resource Plan CPUC s New IRP process set to start in IRP intended to integrate environmental goals (RPS, GHG), development of preferred resources (DR, EE, Storage), transmission planning, and RA. 28

29 Reference System Portfolio The CPUC released its proposed reference system portfolio and a proposed decision for the integrated Resource Plan. Although parties raised concerns about modeling assumptions the CPUC did not propose any changes. The CPUC stated it does not intend to accelerate the procurement of renewables to capture tax credits Nor did the modeling effort identify a need for the near-term procurement of out-of-state wind, geothermal, or pumped hydro storage resources beginning in

30 30 CAISO 2018 Policy Roadmap

31 CAISO 2018 Policy Roadmap The CAISO has released the most aggressive policy roadmap seen in years, with a focus on day-ahead market enhancements and resource adequacy enhancements. Key drivers (according the CAISO) include: Grid operations challenges point to the need for DAM enhancements to better manage the net-load curve in real-time. Extending DAM enhancements to other EIM balancing areas provides regional benefits Increasing risk of retirement leading to increase in RMR driving need to reform the RA program. Continuing efforts to lower barriers to Distributed Energy Resources (DER) market participation and addressing T-D interface coordination in line with DER growth. 31

32 32 CAISO - Three-Year Roadmap

33 33 CAISO 2018 Annual Plan Heavy Policy Year

34 Existing Flexible RA Categories Parameter Category 1 (Base Ramping) Category 2 (Peak Ramping) Category 3 (Super-Peak Ramping) Non- Regulation Energy Management Resources Day-Ahead and Real-Time Market Economic Bid Must-Offer Obligation 5:00am 10:00pm 5 hour block (determined seasonally) 5 hour block (determined seasonally) 2018 hours same as Peak Ramping Energy Requirement Minimum 6 hours at EFC Minimum 3 hours at EFC Minimum 3 hours at EFC Daily Availability 7days/week 7days/week Non-holiday weekdays Daily Start-up Capabilities The minimum of two starts per day or the number of starts allowed by operational limits as determined by minimum up and down time At least one start per day At least one start per day Maximum or Minimum Quantity of Capacity Allowed in Category Minimum set monthly based on largest secondary net load ramp Maximum set based on difference between 100% of the identified need and Category 1 Maximum of 5% per month of the total need for the month Other Limitations No monthly or annual limitation on number of starts or energy limits that translate to less than the daily requirements No monthly or annual limitation on number of starts or energy limits that translate to less than the daily requirements Must be capable of responding to at least 5 dispatches per month 34 34

35 Thank You! Margaret Miller (916) Steve Greenleaf (916)