Long-term Analysis of the Chilean National Electricity System Considering Variable and Intermittent Energy Resources Terms of Reference AG 2017/01 February 2017
Index 1. Introduction... 2 2. Objectives and Scope... 4 3. Evaluation Cases... 5 4. Electrical Studies Analysis... 6 5. Results... 6 6. Input Data... 7 7. Technical Proposal... 9 8. Period of clarification... 9 9. Final Results Deadline... 9 10. Consultants... 10 11. Proposals... 10 12. Evaluation of Proposals Received and Adjudication... 11 13. Proposal Submission... 11 14. Confidentiality... 11 15. Language... 12 16. Ownership and Right to the Use of Information... 12 17. Domicile... 12 Asociación de Generadoras de Chile Page 1 of 12
1. Introduction Over the past 10 years, the electric generation market has experienced substantial changes in Chile and at the global level. These adjustments, which are both technological and regulatory in nature, have contributed to the development of an increasingly renewable energy generation. The incorporation of renewable energy has taken place within a national and international context that is aligned with energy policies that seek to respond to the challenges imposed by the diversification of the country s generation sources, energy independence and efficiency, the phenomenon of climate change and, in a broad sense, the sustainability and security of the national energy matrix. However, since the first market reform in 1982, Chile has not engaged in a significant structural reform of the market regulation in order to face this new challenge. The NCRE has been promoted through specific amendments in the electricity law. In 2008, Law 20.257 was passed, which established a 10% Non-Conventional Renewable Energy (NCRE 1 ) quota by 2024, in the form of a renewable portfolio standard (RPS). This law was later complemented by Law 20.698 passed in 2013, which increased the NCRE quota to 20% by 2025. The annual NCRE required by the system is calculated on the basis of withdrawals associated with the energy supply contracts. In addition, in case of lack of NCRE, the government can organize bids to supply de deficit. As a consequence of the significant cost reduction of wind a solar PV and the government promotion, an important amount of Variable Renewable Energy (VRE) has been incorporated to the system, impacting the normal system operation, which was not prepared for this event. In fact, the operation of conventional power generation facilities has been changed in order to maximize the placement of energy generated by VRE sources available in the system. This has taken the form of operational requests that involve a higher number of start-ups and shut-offs of thermoelectric plants (combined cycle and steam turbines), as well as the reduction of their minimum operation levels. In addition, the request for back-up power imply that fossil-fuel generation will have a reduced load factor, while the renewable electricity supply, much of which has a zero variable cost, will be more than sufficient to meet demand many hours per year, causing the price of those hours to fall to zero. 1 In Chile, the definition of NCRE includes wind, solar, geothermal, biomass and maritime generation technologies as well as hydraulic technologies that are less than 20MW. Asociación de Generadoras de Chile Page 2 of 12
If the costs of wind and solar PV power continue to decrease, the government is expecting a massive incorporation of these technologies in the next 10 years. In fact, in February 2017, 2 the short-term nodal price technical report ( precio de nudo ), which is a biannual report prepared by the National Energy Commission (NEC), presents a generation expansion plan that suggests that new projects of conventional technologies will be displaced by VRE resources. Increasing the level of VRE on the grid raises both, technical and economic issues, related mainly to management of high levels of intermittent generation and the technical feasibility and cost that this represents. Faced with more volatile spot prices and low load factors for back-up generation, some are concerned that supply security will be compromised or VRE penetration will be capped. In fact, the efficiency of the market is being questioned and there are concerns about whether or not VRE will be built in the right place at the right time, operated in a manner that allows it to deliver at the lowest possible cost. The uncontrolled increase of VRE production imply additional costs for existing power plants, which are beyond the market prices defined in the Chilean electricity market. Therefore, the government and the generators agree that an amendment to the current electricity law will be required. Thus, in order to face these new requirements, between March and October 2017, the NEC will call for a public regulatory discussion for the definition of the new Ancillary Services Regulation required for VRE massive integration (Law 20.936). 3 The System Operator (SO) requires reserves to balance supply and demand, and part of this cost can be attributed to the contribution that each wind farm and solar park adds to the total. Costs can be reduced with a better forecast and better procurement and management of reserves. A well-designed market would incentivize the SO to engage and monitor the plants that have the lowest cost of supplying balancing services. In this context, the Electric Power Association of Chile (Asociación de Generadoras de Chile, AG) wants to contribute with this discussion. For this purpose, the AG is calling for a study to estimate the integration cost and the system reliability involved with this massive VRE integration. 2 https://www.cne.cl/tarificacion/electrica/precio-nudo-corto-plazo/ 3 https://www.leychile.cl/navegar?idnorma=1092695 Asociación de Generadoras de Chile Page 3 of 12
2. Objectives and Scope The purpose of this study is to estimate the integration cost and the system reliability under the NEC projection which considers a massive VRE integration. Also, the study must analyze the economic impact of maintaining the quality, security and reliability standards under the scenario described above, identifying costs that are not covered by price or cost signals currently used in Chile's electric energy generation market. The capability of existing and new power plants to support the variability and uncertainty of VRE will be defined as the system "flexibility" to manage new renewable technologies. As such, the study must identify the economic impact of such flexibility required by the SEN including, among others, the impact on the efficiency of the existing power plants and other effects due to a greater demand on the operational mode of these generating plants (for example greater cycling mode and/or lower minimum stable levels of operation). In order to provide the necessary scope, the consultant must develop a multi-nodal system, model to describe the short-term financial operation with a resolution of at least one hour, including at least the following technical characteristics of existing and projected thermal and hydro power plants: System optimal dispatch with a resolution of at least one hour for years of interest Ramp-up and ramp-down Stabilization times (startup profile) Minimum time in service and minimum down-time, including possible banking conditions Start-up and shut-down costs Minimum stable level of operation and its impact on efficiency Environmental constraints Maximum number of start-ups in a period Fuel switching (if necessary) Optimal level of spinning reserve The technical features of each power plant must be contrasted with real operational data, including the main restrictions, and with data for power plants with similar conditions around the world. The study must consider the transmission expansion planning and all of Asociación de Generadoras de Chile Page 4 of 12
the information related to new power plant projects committed to as a result of the most recent bidding processes and consider a spatial representation of demand over load curves. The model must identify the system reserve and backup requirements consistent with a given VRE penetration. The study must consider an appropriate modeling for solar and wind power plants, considering a representative intermittence in the short-term analysis. It also should take into account the forecasting deviations that exist today in order to differentiate between the scheduled operation, and the real operation. The study should determine the flexibility cost in each scenario for 2021, 2025 and 2030. 3. Evaluation Cases The study must provide a system analysis for the operation of 2021, 2025 and 2030 with a resolution of at least one hour. The analysis must consider three hydrological scenarios: the driest, the wettest and an average scenario, as well as three energy demand growth scenarios: high, low and medium. All of these scenarios (three times three, nine in total) should include a simulation of the scheduled operation based on the use of the renewable resource forecast presented in the NEC projection. They also should include the instantaneous reserve necessary to comply with quality, security and reliability standards. These scenarios must also include a variant related to real operations, where the renewable generation differs significantly from scheduled generation. The study must considerer sensitivity to additional percentages of VRE penetration of 30% and 50% over the base case (NEC projection). If necessary, the consultant must recommend additional electricity transmission projects which are suitable for the system in order to ensure complete use of the variable generation at all times, particularly in cases that involve greater penetration as per the previous paragraph. These projects should be accompanied by an estimate of the related costs. The consultant also must evaluate the possibility of including new technologies such as pumping and storage plants and shall compare their costs to other technologies that provide similar services. Asociación de Generadoras de Chile Page 5 of 12
4. Electrical Studies Analysis Regarding the proposed solution and expected results, the research must include an analysis of system stability considering possible contingencies such as power plant and grid failures as well as system operational criteria such as system inertia. This transient stability analysis should be performed using the software DigSilent Power Factory or a similar program approved by the AG. 5. Results The consultant must submit an editable final report that includes all aspects of the research carried out. Specifically, the report must contain a description of the methodology used, the data and assumptions considered, the results and their analysis, the proposals for improvement and their evaluation, and the final conclusions of the research. The consultant must propose a calendar that provides the date for submitting a preliminary report for review and comment by AG prior to the delivery of the final report. The consultant must also be available to take part in a workshop in Santiago, Chile during the second or third quarter of 2017 on the topic of this study. The results of the research must contain the system operational conditions for 2021, 2025 and 2030 with high penetration of renewables, identifying the availability, resource sufficiency and contribution of the Ancillary Services and other services to provide flexibility for a reliable and efficient operation. In addition, technologies that contribute more flexibility in terms of instantaneous reserve and frequency control should be identified. Based on the above, the research must present conclusions regarding the system operation, considering at least the following aspects: Information used in all cases related to demand, transmission and generation plan, technical parameters, cost of plants, etc. Marginal cost variability (daily variation) Operational cost of SEN. Current and future ancillary services costs Load factor of LNG and coal-fired power plants Number of start-ups of each power plant Asociación de Generadoras de Chile Page 6 of 12
Technical feasibility of voltage and frequency control Estimate of future demand for ancillary services or other services Identification of costs not covered by signals of price or cost that govern the current electrical energy generation market in Chile Analysis of the option of alternative or new technologies for ancillary services, their economic viability and the impact on conventional providers Total system costs calculated as the present value of the sum of capital, operational and unserved energy costs. 6. Input Data There will be three sources of data: Data supplied by the AG Data supplied by the consultant Data agreed to by the parties The table below presents detailed information about the data: Asociación de Generadoras de Chile Page 7 of 12
Data supplied by the AG Hydrology conditions to consider Power plant technical parameters Current fuel costs according to authority data Regulatory framework: ancillary services and current electricity law Data for international interconnection scenario Data supplied by the consultant Technical characteristics of power plants with similar conditions to the Chilean system around the world Existing forecast errors in order to differentiate between the scheduled and real dispatch of solar and wind generation profile model of solar and wind generation variability with resolution of at least one hour Estimate of the system reserves required to match the demand under the reliability standards Consistency of long- and short-term simulation (management of water stored in reservoirs) Data Agreed to by the parties Power plant and transmission system development plans System demand projection Power plants technical characteristics Annual solar and wind generation profile with resolution of at least one hour Future forecast for fuel costs Asociación de Generadoras de Chile Page 8 of 12
7. Technical Proposal The technical proposal must contain at least the following items: Description of the team detailing the experience of each member in this kind of study (CV) Technical description of the project Technical description of the scope of the results Technical description of the methodology, modeling of VRE and computer tools to be used. Detailed work schedule proposed by the consultant. Schedule of milestones, detailing time and scope of each report Deadlines, including amendments Gantt chart schedule 8. Period of clarification The consultants will be able to send their questions and doubts on these terms of reference until February 24, 2017 to next e-mail: estudios@generadoras.cl; the subject line must state: Questions: Study AG 2017-01. AG will send the answers to the questions and doubts to all invited consultants no later than March 8, 2017. 9. Final Results Deadline Three types of deliverables will be considered: a. Bi-weekly reports with a presentation that demonstrates the progress made by the study with the AG Committee. The deliverable will be a detailed Word document and PowerPoint presentation that can be reviewed by the committee. b. A final report with the conceptual analysis (August 2017). c. Participation in a closing seminar to present the results and generate a discussion among various stakeholders in the Chilean market (May-June 2017) as well as Asociación de Generadoras de Chile Page 9 of 12
meetings with the government and other stakeholders as necessary (to be determined). For the technical proposal, the consultant should bear in mind that final results of the research are expected to be submitted by August 31, 2017. 10. Consultants Participation of consultants will be by invitation. The invited consultants must have renowned and broad experience in research, modeling and analysis of the operation of electric power systems with multiple generation technologies and high percentages of VRE. 11. Proposals The invited consultants who decide to participate with a proposal that meets the needs set out in these Terms of Reference must present a technical proposal based on item 7 of this document. Each participant must submit a budget outlining the cost of the respective technical proposal. Preference will be given to proposals with budgets that contain more detailed information on associated costs. The technical proposal and the budget will be submitted simultaneously on the date and in the format set out below. If the technical proposals involve scopes additional to the objectives set out in these Terms of Reference, the consultants must separately include in the budget the cost associated with these additional scopes. Receipt of this information shall not represent a commitment of adjudication on the part of the AG. In order to compare the received proposals, they must consider an executive summary with the next five contents: 1) Description of the working group (one page). 2) Description of the main results expected to be obtained (one page). 3) Description of the methodology to be implemented by the consultant (one page). Asociación de Generadoras de Chile Page 10 of 12
4) If applicable, description of the computational tools to be used by the consultant (one page). 5) Gantt chart and cost budget by activity, indicating those that correspond to additional scope proposed by the consultant (1 page). 12. Evaluation of Proposals Received and Adjudication The evaluation committee formed for these purposes will be integrated by representatives of the companies that form part of the AG. Once the period for receiving proposals has ended, it will proceed to evaluate the proposals received from invited consultants and will issue a notification about the results of the evaluation as quickly as possible. If there are questions about one or more submissions, the respective proponents will be contacted to provide clarifications or correct their proposals if necessary. The proposal that the evaluation committee determines has met the objectives from the technical perspective and which has a budget (financial proposal) that has been approved by the AG Board will be the winner. The AG shall not be required to award the study if it has well-founded reasons for deciding not to do so. 13. Proposal Submission Consultants shall submit their technical proposals and budgets by March 28, 2017 to next e-mail: estudios@generadoras.cl; the subject line must state: Proposal for Study AG 2017-01 14. Confidentiality The contents of the study are confidential. The AG will take the necessary precautions. The consultant who is awarded the project will be required to sign a confidentiality agreement that covers the information that he or she will receive from the AG and/or partner companies and the information generated through the development of the study. Asociación de Generadoras de Chile Page 11 of 12
15. Language All of the information generated by the consultant hired should be submitted in English. However, if the consultant hired submits his or her work in Spanish, they must provide a simple translation, which shall be charged against the price awarded and shall represent no additional costs or overages of any kind to the Association. 16. Ownership and Right to the Use of Information The Association will own the study in its entirety as well as all progress reports or any other material produced by the consultant hired and may make public use of them without any restrictions. 17. Domicile For all of the effects of this document, the parties establish a special domicile in the city of Santiago, Metropolitan Region, Chile. Santiago, February 13, 2017 Asociación de Generadoras de Chile Page 12 of 12