Solving the Dual Constraint A Physical Counterflow Feasibility Run

Transcription

1 Solving the Dual Constraint A Physical Counterflow Feasibility Run April 30, 2012 Alex Morris Southern California Edison Alexander.Morris@sce.com MARKET STRATEGY & RESOURCE PLANNING Page 1

2 Objectives and Contents The Dual-Constraint drivers and issues Possible Solutions Assess one solution: Physical Counterflow Feasibility Run (PCFR) How it could work Simple example Further considerations Pros and Cons Next Steps MARKET STRATEGY & RESOURCE PLANNING Page 2

3 Four Guiding Principles 1. Convergence profits self-fund among willing counterparties by design Example: Profits result from other virtuals or from doing what physicals should have done 2. Convergence bids facilitate price convergence 3. Convergence bids are fungible with like physical bids within the relevant market optimization 4. Costs that result from convergence bids are allocated based on causation Example: if additional steps after the IFM are needed to ensure reliability and/or physical feasibility The four characteristics should help achieve the originally cited benefits for Virtual Bidding. MARKET STRATEGY & RESOURCE PLANNING Page 3

4 Resolving the Dual Constraint Solving the Dual-Constraint will be a critical element design aspect for re-activating Intertie Convergence Bids (ICBs). The Dual-Constraint problem results from two pieces: ICBs cannot create physical flow or counterflow on a line Yet, to provide benefits, ICBs should nevertheless be fungible with physical intertie bids The optimization should select the cheapest, regardless if physical or virtual As previously designed, the Dual-Constraint created harmful outcomes Physicals picked up but paid less than bid. Physical liquidity reduced! Virtual Bids paid more than deserved (based on clearing price) Multiple prices created, violating a core benefit of convergence bidding Alternative solutions are needed SCE reviewing options, no clear winner in mind just yet. Alternatives may involve trade-offs or be limited by larger rules or goals Some solutions may not be worth it, e.g. they materially reduce intertie liquidity Some solutions may be impractical/infeasible, e.g. changing protocols WECC wide could be difficult. Some solutions may create uplift costs MARKET STRATEGY & RESOURCE PLANNING Page 4

5 Possible Solutions* * Representative Only! Other solutions may apply! Option A No Physical Constraint 2 Pass w/ Cuts for Feasibility (Powerex) Physical Counterflow Feasibility Run (PCFR) Allow a physical price and a virtual price at the same intertie Don t require physical feasibility in DA. (No 3pm check-out.) After market, a second pass cuts awards (in economic order) to ensure physical feasibility. See Powerex Proposal. Also a two-pass solution, the after-market pass makes additional physical awards to make feasible schedules Focus of this presentation The CAISO should assess many options in its design process. Infeasible or costly options should be eliminated. MARKET STRATEGY & RESOURCE PLANNING Page 5

6 PCFR How it Could Work 3 Step Process If the IFM yields a feasible schedule, no feasibility changes needed If schedule infeasible, PCFR awards physicals to ensure schedule feasibility. Feasibility achieved by adjusting physical flows. Requires awards to physicals that were out of the money. Requires a balanced transaction Because PCFR awards go to out of the money physicals, costs go to intertie virtual bidders. Allocation based on causation principles This uplift plus congestion difference create risks. High-Level Overview Many Considerations May Apply! MARKET STRATEGY & RESOURCE PLANNING Page 6

7 Example PCFR in action Leading the Way in Electricity SM 1. Imagine an intertie w/ 100 MW of capacity 2. Satisfy physical plus virtual constraint Only. Clear price of $50 results. (Phys Import + Virt Import) (Phys Exp + Virt Export) <= line limit ( ) (15 + 1) = 100 <= line limit 3. After the IFM, PCFR Checks for Physical Feasibility with the Physical Constraint. Phys Import Phys Exp <= line limit = 101, VIOLATES line limit! INFEASIBLE. 4. PCRF makes new physical awards to create physical feasibility. Assume a $51 Physical Internal Supply bid exists. PCRF awards this energy. Assume a $49 Physical Export available. PCRF awards this energy. IFM Phys Import IFM Phys Exp +- PCRF Phys Import (Export) <= line limit = 100, Phyiscal Feasibility ACHIEVED! 4. PCFR uplift ($2) allocated on cost-causation to virtual bidders. Costs of $2 result from Export pmt of $49 vs. Supply costs of $51. MARKET STRATEGY & RESOURCE PLANNING Page 7 $50 MCP $50 MCP $2 PCFR Cost Original Solutions Imports Exports MW phys. 1 MW virt. PCFR Solutions Imports Exports 116 MW phys. 0 MW virt MW phys. 0 MW virt. 15 MW phys. 1 MW virt. plus New 1 MW internal phys supply award ($51) New 1 MW external phys demand award ($49)

8 PCFR Further Design Considerations Leading the Way in Electricity SM Cost-Allocation to ICBs based on causation principles Costs born by virtuals on that intertie Scale of uplift costs needs assessment/study and sanity check Uplift could include congestion price differential plus spread between opposing demand/supply bids needed for physical counterflow. Options needed, potentially allowing virtuals to void trade if uplifts are too high, e.g. w/ an uplift sensitivity curve Timing PCFR may need to occur within RUC. Preserve IFM price which reflects virtuals as fungible w/ physicals Additional discussion needed. How does this fit w/ an IFM-RUC Cooptimization? Other rules need consideration Exposure to commitment costs as above, perhaps remove virtual and re-run IFM in cases of extreme cost exposure Role/need for position limits or other controls Costs for PCFR conversion to address multiple interties Impact on CRR payments and the need to insulate CRRs MARKET STRATEGY & RESOURCE PLANNING Page 8

9 Evaluating Solutions Leading the Way in Electricity SM SCE does not endorse any solution at this time additional discussion, ideas, trade-offs, and critical evaluation are needed to identify the right design. Solution Pros Cons CAISO Option A Preserves physical feasibility Aligns w/ WECC/WSPP protocols Allows fungible treatment and a single price Undermines value proposition of Convergence Bidding May create new balanced trade arbitrage opportunities No Physical Constraint 2 Pass w/ Feasibility Cuts PCFR Allows fungible treatment and a single price Prevents market power for intertie transmission rights owners Preserves physical feasibility Aligns w/ WECC/WSPP protocols Allows fungible treatment and a single price Preserves physical feasibility Aligns w/ WECC/WSPP protocols Allows fungible treatment and a single intertie price Allocates costs correctly May threaten liquidity and physical reliability. Would likely drive RUC (due to uncertainty over physicals imports, a.k.a. the implicit virtual problem) Misaligns w/ WECC markets Will at times set overly high MCP New needs additional consideration. Impact of exposure to congestion prices needs assessment Allocation unknown in advance New needs additional consideration MARKET STRATEGY & RESOURCE PLANNING Page 9

10 Next Steps Stakeholder consideration welcome Could perhaps go into comments to the CAISO Pending CAISO direction, plan for further discussion in a Working Group session SCE requests that other ideas be raised and discussed too Review ideas for implications, problems, and other pros and cons Solutions to key issues are needed to make this idea work. SCE does not endorse this idea in its current form Contact SCE for discussion: Alex Morris Alexander.Morris@sce.com Jeff Nelson Jeff.Nelson@sce.com MARKET STRATEGY & RESOURCE PLANNING Page 10