System Flexibility and Renewable Energy Integration

Transcription

1 System Flexibility and Renewable Energy Integration Overview of Market Design Approaches P R E S E N T E D T O Texas-Germany Bilateral Dialogue on Challenges and Opportunities in the Electricity Market P R E S E N T E D B Y Sam Newell F e b r ua r y 2 7, 2017 Copyright 2018 The Brattle Group, Inc.

2 Market Design for Flexibility The new market design challenge is to ensure enough flexibility to accommodate the variability of renewable energy resources In the operating timeframe, make efficient use of existing resources Strong energy price signals: nodal, short time intervals, scarcity pricing Dynamic intertie scheduling Ancillary services tailored to system needs and resource capabilities In the investment timeframe, attract and retain enough flex resources Same foundation as operating timeframe: E&AS price signals In capacity markets, consider modifying requirements if a deficit is likely 1 brattle.com

3 Energy Market Enhancements for Flexibility Energy Market Enhancements Adopted in Markets with Flexibility Needs Shorten intervals for dispatch, commitment, and settlement (5-min) Administer scarcity pricing reflecting probability and value of lost load Enable DR, DER, and storage to set prices at (high) willingness-to-pay Implement fast-start pricing Allow negative pricing (but improve clean energy incentives) Co-optimize commitment, dispatch, and pricing with ancillary services Look-ahead to future intervals/hours, with multi-interval optimization 2 brattle.com

4 Energy Market Enhancements for Flexibility ERCOT s Operating Reserve Demand Curve Responsive Reserves Price Energy Price Increases according to an operating reserve demand curve Prices increase toward the cap as reserves are depleted Marginal Energy Cost Source: The Brattle Group, Estimating the Economically Optimal Reserve Margin in ERCOT, January brattle.com

5 Efficient Utilization of Interties Interties are a major source of untapped flexibility in many markets Western EIM expansion largely driven by wind integration needs; jointlyoptimized 5-min intertie scheduling Other US markets moving to 15- or 5- min intertie scheduling European market now has an integrated day-ahead market; coupled intraday market being rolled out with 15-min intertie scheduling Western Energy Imbalance Market (EIM) Recent Expansions Original CAISO Future Expansions Sources: California ISO, Western Energy Imbalance Market (EIM). 4 brattle.com

6 Ancillary Services Enhancements for Flexibility Identify Specific Flexibility Needs Unbundle and Create New AS Products to Meet Needs and Enable All Resource Types Dynamically Establish Efficient Quantities Enhance Price Formation Re-evaluate Needs and Consider Flexible Capacity Requirements 5 brattle.com

7 Capacity Market Reforms for Flexibility Most capacity market designs have focused only on the need for sufficient installed capacity to meet annual peak load If future reliability events are increasingly flexibility-driven (rather than peak-driven), capacity markets may need to adapt to the new needs Design Element Modified Resource Adequacy Requirements or Add Flexible Capacity Requirements Or specify less, & rely more on E&AS Shortage Pricing and Capacity Performance Incentives Potential Reforms Develop models and standards that account for flexibility-driven events Resource capacity ratings consider contribution to avoided flexibility events Establish requirements for a quantity of flexible supply Create strong E&AS market incentives Impose strong penalties for underperformance during shortage events (whether peak-driven or flexibility-driven) 6 brattle.com

8 Flexibility Reforms in Various Jurisdictions Timeframe U.S. Europe Australia NEM Operations Creating new AS products and unbundling existing products to meet new needs and enable more resource types Move to 5-minute energy and AS settlement Enhanced scarcity pricing Look-ahead and co-optimization Move toward 5- and 15-minute intertie scheduling, with better coordination and pricing Move from 1-hour to 15-minute settlement intervals Market coupling and AS product consistency to enable pan-european competition Introduction of pan-european 15-minute intraday market Policies to improve scarcity pricing and increase price caps Reforms to balancing mechanisms to adopt marketbased approaches Effort to define new products (inertia, fast frequency response) Proof-of-concept trials to develop rules/standards enabling new resource types (e.g. DR and DER) for all products Investments California flexible capacity requirement in resource adequacy construct ISO-NE and PJM implemented performance incentives for capacity resources Policies to open competition to all resource types incl. demand, storage, interconnectors Greece interim flexible capacity requirement to prevent gas retirements Capacity or strategic reserve being considered to augment energy-only incentives 7 brattle.com

9 North American Markets: Advances in Flexibility Stakeholder initiative to explore flexibility enhancements in E&AS and capacity markets Comprehensive market renewal All North American markets are implementing broad flexibility enhancements, a subset of prominent reforms is reported here. Capacity performance incentives, scarcity pricing 5-min intertie scheduling, regional energy imbalance market, new ramping product, flex capacity requirement, scarcity pricing Scarcity pricing, coordinated intertie scheduling w/iso-ne & PJM Increased regulation requirement to account for variability Price cap at $9,000/MWh, scarcity pricing, proposal to reform AS products (rejected) 5-minute ramping product, scarcity pricing, dispatchable intermittent resources Capacity performance incentives, scarcity pricing, DR integration 8 brattle.com

10 Presenter Information SAM NEWELL Principal The Brattle Group, Boston, MA Dr. Samuel Newell, a Principal of The Brattle Group, is an economist and engineer with 20 years of experience consulting to the electricity industry. His expertise is in the design and analysis of wholesale electricity markets and in the evaluation of energy/environmental policies and investments, including in systems with high penetration of variable energy resources. He supports clients in regulatory, litigation, and business strategy matters involving wholesale market design, contract disputes, generation asset valuation, benefit-cost analysis of transmission enhancements, the development of wholesale demand response programs, and integrated resource planning. He frequently provides testimony and expert reports to RTOs, state regulatory commissions, and the FERC and has testified before the American Arbitration Association. Dr. Newell earned a Ph.D. in Technology Management and Policy from MIT, and a M.S. in Materials Science and Engineering from Stanford University. Prior to joining Brattle, Dr. Newell was Director of the Transmission Service at Cambridge Energy Research Associates. The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group. 9 brattle.com

11 About The Brattle Group The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governmental agencies worldwide. We combine in-depth industry experience and rigorous analyses to help clients answer complex economic and financial questions in litigation and regulation, develop strategies for changing markets, and make critical business decisions. Our services to the electric power industry include: Climate Change Policy and Planning Rate Design and Cost Allocation Cost of Capital Regulatory Strategy and Litigation Support Demand Forecasting Methodology Renewables Demand Response and Energy Efficiency Resource Planning Electricity Market Modeling Retail Access and Restructuring Energy Asset Valuation Risk Management Energy Contract Litigation Market-Based Rates Environmental Compliance Market Design and Competitive Analysis Fuel and Power Procurement Mergers and Acquisitions Incentive Regulation Transmission 10 brattle.com

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