Real Time Scarcity Pricing

Transcription

1 Real Time Scarcity Pricing 719 TF Hward J. Haas February 2-3, 2009 The Independent Market Mnitr fr PJM

2 Scarcity Pricing Scarcity related revenues can be cllected in the energy market r in the capacity market r sme cmbinatin Scarcity pricing is nt required fr revenue adequacy Scarcity pricing is relevant nly fr marginal signal t uncmmitted resurces Scarcity pricing requires a cmplete and transparent revenue ffset mechanism with RPM t ensure n duble cllectin f scarcity revenues

3 Issues t cnsider in any apprach t PJM s scarcity mechanism Energy market design must Permit scarcity pricing when such pricing is cnsistent with market cnditins Use transparent triggers and prices fr scarcity events Prevent the exercise f market pwer Prvide strng incentives fr cmpetitive behavir and strng disincentives t exercise market pwer. Where implemented in cnjunctin with capacity markets, must apprpriately reflect scarcity rents in the energy market as an ffset t capacity market ffers

4 Issues t cnsider in any apprach t PJM s scarcity mechanism Administrative scarcity pricing is a key link between energy and capacity markets. With a capacity market design that apprpriately reflects scarcity rents in the energy market as an ffset t capacity market ffers, scarcity pricing can be a mechanism t apprpriately increase reliance n the energy market as a surce f revenues and incentives in a cmpetitive market withut reliance n the exercise f market pwer.

5 Issues with PJM s current scarcity mechanism Reliance n the use f emergency administrative steps t indicate scarcity means that the system is in a cnditin f scarcity prir t it being declared under the current rules.

6 Issues with PJM s current scarcity mechanism The current administrative scarcity pricing rules result in a nn-lcatinal signal within the scarcity pricing regins Reginal price set equal t the highest price unit running within the scarcity pricing regin Signal is incnsistent with ecnmic dispatch and incnsistent with lcatinal pricing Scarcity price signal will nt necessarily reflect the severity f the scarcity event

7 Prpsed Scarcity Pricing Apprach The MMU recmmends that the current scarcity rule, as prvided in the PJM Tariff, be reviewed and enhanced t ensure cmpetitive prices and mre transparency f system shrtages: There shuld be several stages t the administrative definitin f scarcity Each stage shuld have an assciated administrative price, rather than the single step nw in the Tariff. Pricing signals shuld be ndal Shuld prvide signals cnsistent with ecnmic dispatch and lcatinal pricing during the varius scarcity stages

8 Prpsed Scarcity Pricing Apprach: Cnsistent with Dispatch Scarcity signals culd be implemented via reserve requirements mdeled as cnstraints fr scarcity regins in the cntext f the security cnstrained dispatch Administrative scarcity penalty factrs The level f the penalty factr and the reserve target wuld be determined by the severity level f the scarcity event. Wuld prvide a means t signal scarcity that is cnsistent with ecnmic dispatch, cnsistent with lcatinal pricing and cnsistent with cmpetitive market utcmes.

9 Prpsed Scarcity Pricing Apprach: Stages f Scarcity Administrative scarcity pricing shuld include stages, based n system cnditins, with prgressive impacts n prices. Use f emergency measures shuld cause an escalatin f the scarcity cnditin and shuld be reflected in lcatinal prices, as part f the system slutin prcess Each emergency measure taken in a given scarcity pricing regin wuld: tighten the reserve requirement cnstraint fr that regin increase the penalty factr assciated with the reserve requirement cnstraint

10 Prpsed Scarcity Pricing Apprach: Maintain Market Pwer Mitigatin Prperly set, the penalty factrs wuld increase prices n the system t prvide a ratinal lcatinal pricing signal prperly reflecting the severity f the shrtage in the scarcity pricing regin. Shuld maintain ffer capping rules during scarcity Eliminates the need and incentive fr participants t make nn-cmpetitive energy ffers in anticipatin f scarcity events. Operatinally cleaner slutin

11 Prpsed Scarcity Pricing Apprach: Other Requirements Any apprach wuld require accurate perating reserve supply infrmatin n a five minute basis Wuld require reginal, dynamically determined perating reserve requirements