Discussion Paper: Alberta Capacity Market Resource Adequacy

Transcription

1 Discussion Paper: Alberta Capacity Market Resource Adequacy Background This document is part of Alberta Energy s stakeholder engagement on the resource adequacy standard as a factor in the reliability of Alberta s upcoming capacity market. The objective is to solicit feedback on the presented resource adequacy options. This feedback will be considered when making policy recommendations to government for decision, which will be incorporated into legislation or regulation. In November 2016, the Government of Alberta announced that the province s electricity system would transition from an energy-only market to a capacity market framework that includes a capacity market operating in conjunction with energy and ancillary services markets. 1 The first capacity procurement is expected to take place in , with the first delivery of capacity obligations in Central to the operation of a capacity market is establishing a resource adequacy standard, which drives the amount of procured capacity. This document lays the groundwork for determining the optimal resource adequacy standard to help ensure supply adequacy at a reasonable cost. Resource adequacy Resource adequacy is a measure of society s tolerance for load shed events due to shortfall in bulk power supply. The resource adequacy standard establishes the capacity required to serve the forecasted load, and to avoid involuntary load shed during system shortages. It is usually specified as a certain number of load shed events or hours per time period, and may incorporate frequency, duration, or magnitude measures. The choice of a resource adequacy standard informs the capacity requirement, a key parameter in the capacity demand curve and market clearing mechanism. Reliability, for end users, is a combination of distribution and transmission system reliability, and resource adequacy. In an energy-only market there is no administratively set standard to which suppliers must procure capacity. However in a capacity market consumers bear the costs of having capacity available to meet the resource adequacy standard. 1 See 1

2 Potential resource adequacy standards Resource adequacy can be assessed as either physical (based on industry experience) or economic (based on a comparison of increased capacity costs and the associated increased reliability benefits). 2 Physical standards Table 1 describes the most commonly used physical resource adequacy standards. 1-in-10 Standard Loss of Load Event Loss of Load Hours (LOLH) (LOLEV) One load shed event in hours of load shed in 10 years (0.1 events per year) years (2.4 hours per year) Table 1: Physical resource adequacy standards Normalized Expected Unserved Energy (EUE) Expected percentage (e.g., %) of system load in megawatt-hours that cannot be served The relevance of the 1-in-10 Loss of Load Event (LOLEV) standard has been scrutinized in recent years, as it ignores the system size and load shed magnitude, and can represent different levels of reliability for different systems. 3 As such, LOLEV may lead to more capacity procurement than is economically efficient. The Loss of Load Hours (LOLH) improves upon this by incorporating load shed duration, which decreases stringency and risk of over-procurement. The EUE is the total expected number of megawatt-hours of load that will not be served in a given year due to demand exceeding available capacity across all hours. This number can be normalized based on the assessment area s total Net Energy for Load, providing a measure relative to the size of the area. The EUE is energy-centric and analyzes all hours of a particular year. As resource and demand characteristics change over time, annual loss of load may accrue during historically off-peak months. The EUE solves LOLEV and LOLH drawbacks by incorporating outage magnitude, but does not account for frequency or duration of occurrences. The North American Electric Reliability Council (NERC) recommends the LOLH or the EUE for their consistency across areas of different sizes. 4 For example, they can apply 2 This section borrows from The Economic Foundations of Capacity Markets, Charles River Associates (2017); Resource Adequacy Criteria Overview and Alberta Historical Performance against Resource Adequacy Criteria, Alberta Electric System Operator (2017); and Resource Adequacy Requirements: Reliability and Economic Implications, The Brattle Group and Astrape Consulting for FERC, (2013). 3 A one-hour outage on a given day is weighted the same as a day-long outage under the LOLEV standard. 4 Pilot Probabilistic Assessment, North American Electric Reliability Corporation (2012) and Probabilistic Assessment: Technical Guideline Document, NERC (2016) 2

3 equally to Alberta s 16,600 megawatt system or to PJM s 183,600 megawatt system, allowing for comparisons between the two. Economic standard There is also the economic resource adequacy standard, which determines the capacity level that minimizes overall system costs to achieve economic efficiency. This requires an estimate of the Value of Lost Load (VOLL), the price an average consumer would be willing to pay to avoid an involuntary interruption to the electricity supply. An estimate of the cost of capacity is also required, to balance against the increased generating capacity. While an economic standard can be more efficient than a physical one depending on their respective levels, it also carries lower reliability (higher risk of load shed), and lower risk of over-procurement. The economic standard is not under consideration for Alberta because of the complexity involved. An estimation of a VOLL for Alberta across industrial, residential and commercial customer classes would be challenging, because of the different values each class puts on lost load. 5 Only the physical standards are considered because they are expected to deliver higher adequacy than the economic standard, and are more widely used in capacity markets. They are also straight forward to implement and provide greater certainty on the level of reliability. 6 Other jurisdictions Table 2 shows the standards used in different jurisdictions. All but Australia currently operate in capacity markets, with Ireland in the process of implementing one. The American markets considered all use a 1-in-10 LOLEV, while Great Britain and Ireland use an economic standard. Australia is the only market under review using the Normalized EUE. 5 About 65 percent of Alberta Internal Load is industrial (source: AESO). 6 Based on a simulation of a hypothetical Regional Transmission Organization (RTO) system conducted by The Brattle Group and Astrape Consulting for FERC, (2013), Resource Adequacy Requirements: Reliability and Economic Implications, pp. iv vi, table ES-1, pp

4 Jurisdiction Standard Physical/Economic PJM 0.1 LOLEV per year Physical NYISO 0.1 LOLEV per year Physical ISO-NE 0.1 LOLEV per year Physical MISO 0.1 LOLEV per year Physical Great Britain 3 hours per year (expressed as Economic LOLH, CONE/VOLL-based) Ireland 8 hours per year (expressed as Economic LOLH, CONE/VOLL-based) Australia 0.002% Normalized EUE Physical Table 2: Resource adequacy standards in different jurisdictions (source: Alberta Electric System Operator) The resource adequacy standard and capacity procurement Once the resource adequacy standard is in place, it will be translated into a capacity amount in megawatts for procurement in the capacity market. The Alberta Electric System Operator (AESO) will carry out this calculation, based on assumptions about hourly load (incorporating weather, economics) and generation (outages, intermittency). More specifically, a Monte Carlo model simulates multiple possible versions of the future based on these initial conditions. The simulations yield assessments of the frequency, duration and magnitude of anticipated load shed events under various capacity levels, which in turn determine the amount of capacity to procure. Alberta s current standard and historic performance Alberta s energy-only market has no administratively set resource adequacy standard. However, under AESO Rules (Section Adequacy of Supply), the AESO must monitor adequacy to ensure the probability of a system supply shortfall in the next two years does not exceed a specific level. The AESO Rules use a two-year probability of supply shortfall model, with a long-term threshold which: 1. Represents the equivalent impact of having a system supply shortfall once every ten years; 2. Is calculated as the one-hour average Alberta Internal Load for a year divided by five. This threshold is calculated to be equivalent to a one-hour supply shortfall for the entire 8,000 megawatt system once every ten years, or a one-hour 800 megawatt shortfall per year in each of the two model years. 4

5 Alberta has had three load shed events since 2004: July , July and July The 2012 and 2013 events were attributable to a combination of planned and unplanned generator outages along with high demand. While increased capacity could have prevented the power outages from occurring, reducing either the number of offline generators at a given moment or the time spent offline could also have achieved a similar result. Data on the 2006 event is not available as of this writing. Historic performance compared with physical standards Table 3 combines Alberta s three load shed events since 2004 as Loss of Load Events, Loss of Load Hours, and Normalized Expected Unserved Energy. The second row shows the value according to each resource adequacy standard, and the third row shows the comparison to an equivalent industry standard based on AESO Rules. Alberta currently satisfies the LOLH and EUE by comfortable margins, but fails the LOLEV. A caveat is that the performance assessment is limited to load shed from inadequate system capacity or power supply; these standards do not capture load shed from distribution or transmission reliability. Assessment LOLEV (events) LOLH (hours) Normalized EUE Alberta Observed % Equivalent Industry Standard Table 3: Load shed event summary (source: AESO) % Summary and recommendation Table 4 summarizes the advantages and disadvantages of the different physical resource adequacy standards under consideration. 5

6 Pro Con LOLEV (events) Accounts for load shed event frequency Widely used in the US Expected higher reliability Low energy price volatility from higher procured capacity LOLH (hours) Accounts for load shed event duration Recommended by NERC Expected balance of adequacy and cost (less over-procurement) Normalized EUE Accounts for load shed event magnitude Recommended by NERC Expected balance of adequacy and cost (less over-procurement) Table 4: Summary of physical resource adequacy standards Ignores load shed event duration and magnitude Stringency may lead to overprocurement Has not been updated to account for changes in electricity industry Ignores load shed event magnitude, frequency Expected lower procured capacity than LOLEV Ignores load shed event frequency, duration Expected lower procured capacity than LOLEV The LOLEV standard (one event in ten years) may be too stringent and result in overprocurement. The LOLH (24 hours per ten years) or the Normalized EUE (set at percent, in line with AESO Rule 202.6) are more viable alternatives, because they have lower over-procurement risk, assess all hours of the year, and are aligned with Alberta s current rules and practices. They can also account, to varying degrees, for load shed event magnitude and duration. 6