CAPACITY MARKET TECHNICAL DESIGN WORKING INDUSTRY GROUP RECOMMENDATION

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1 CAPACITY MARKET TECHNICAL DESIGN WORKING INDUSTRY GROUP RECOMMENDATION Working Industry Group Eligibility Date: 11/21/2017 Informal Poll Date: 11/07/2017 Click or tap to enter a date. RECOMMENDATION TOPIC: CAPACITY MARKET RESOURCE AGGREGATION KEY DESIGN QUESTIONS What are the key design questions being examined? 1. Can resources aggregate to participate or improve their capacity values? RECOMMENDATION The WIG recommends: - Yes Resources should be able to aggregate when participating in the Alberta Capacity Market Please see the following information that was provided to the Eligibility and Capacity Value Determination Group when analyzing these Design Element Questions: - Nov 7: AESO Resource Aggregation DAS - Nov 7:Enernoc Eligibility_Aggregation of Loads Rationale: o Brief explanation on why this is the preferred option / alternative. Aggregation may allow resources that differ by fuel type, seasonal output or technology to achieve a higher total UCAP, resulting in higher average revenues for all participants of aggregation. Aggregation may increase the number of resources able to participate in the market which should decrease costs and increase competition. WIG Recommendation Aggregation.docx Page 1 of 6 AESO Protected

2 o Provide key assumptions, requirements and boundary conditions for the preferred alternative to remain the most attractive one. Resource aggregation should be allowed if one the following two conditions are met Aggregation allows the combined units to meet the minimum size threshold established by the market Aggregation allows the UCAP of the combined resources to be higher than the UCAP of each individual resource The approach to determining UCAP for aggregated resources will need to be described in detail. This work is scheduled to occur post SAM 3.0. This will likely require each individual resource to have the historical performance statistics in sufficient detail to allow for a prospective UCAP calculation. The performance requirements, penalty assessment and penalty levies for aggregated resources will be consistent with all other capacity market resources It s not expected that aggregated resources will need to be owned by the same entity There is not expected to be a size limitation on aggregated resources but rule regarding market power determination and mitigation as well as capacity market offer block divisibility will apply to aggregated resources as they apply to non-aggregated resources. o Outline known and potential risks associated with the preferred option / alternative and any risk mitigation strategies where applicable. Resource aggregation will somewhat increase the complexity of the AESO s capacity resource management and settlement tools compared to a scenario where resource aggregation was not allowed. WIG Recommendation Aggregation.docx Page 2 of 6 AESO Protected

3 Poll Results Poll Status Number of Votes % of Votes Agree Click or tap here to enter text. Click or tap here to enter text. Agree, with reservations Click or tap here to enter text. Click or tap here to enter text. Objections Click or tap here to enter text. Click or tap here to enter text. Reservations: Objections: WIG Recommendation Aggregation.docx Page 3 of 6 AESO Protected

4 APPENDIX - RESEARCH OVERVIEW Provide an overview of the WIGs research and analysis, which should include: Key definitions o Aggregated capacity resource: the combination of one or more eligible capacity assets into one resource for the purpose of establishing a capacity market obligation All options / alternatives considered o Option A: Assets should not be able to aggregate to form one capacity market eligible resource o Option B: Assets should be able to aggregate to form one capacity market eligible resource Jurisdictional research conducted o The ISONE, PJM, and NYISO allow resources to aggregate. The IESO is expected to allow resources to aggregate. The UK only allows demand side resources to aggregate. Options / Criteria Matrix Criteria Option A: Aggregated Resources are not eligible Market Option B: Aggregated Resources are eligible Option C: Capacity market should be fair, efficient, and openly competitive Procurement of capacity should employ market-based mechanisms and a competitive market for capacity should be developed A wide variety of technologies should be able to compete to provide capacity provided they are qualified to meet the eligibility criteria Capacity market mechanisms, WIG Recommendation Aggregation.docx Page 4 of 6 AESO Protected

5 outcomes and relevant data should be transparent There should be a well-defined product and an effective and efficient price signal Cost and Risk Investment risks should continue to be largely borne by investors rather than consumers The market structure, which includes the capacity market, energy market and ancillary services market, should create conditions such that private investment can be reasonably expected There should be an effective balance between capacity cost and supply adequacy The term of the capacity obligation should be as short as possible, while ensuring supply adequacy objectives are achieved through sufficient investment in new capacity supply The design should allow consumers to manage the cost of capacity, if and where appropriate Supply Adequacy and Reliability The capacity market should achieve desired reliability objectives by creating a measurable supply adequacy product designed to provide energy production or reduced consumption when needed The capacity market should contribute to the reliable operation of the electricity grid, and implementation should be consistent with, and complimentary to, WIG Recommendation Aggregation.docx Page 5 of 6 AESO Protected

6 existing measures aimed at reliability Flexibility Unique aspects of Alberta s electricity system should be considered in the design of the capacity market The capacity market should be compatible with other components of the electricity framework Timely Development Market should be targeted to open in 2019 for start of first capacity procurement for delivery of capacity starting in 2021 Changes to energy and ancillary service markets required to achieve the most efficient steady state electricity market possible may need to be staged to ensure timely initial implementation To the extent a staged implement of the overall electricity market is pursued, the expected timing and nature of future changes should be provided before opening the first procurement Neutral The risks of regulatory delay and need for re-design should be minimized Common practices and lessons learned from other capacity market implementations should be leveraged as much as practicable and applicable Simple and straightforward initial implementation should be a priority WIG Recommendation Aggregation.docx Page 6 of 6 AESO Protected