Comparison of Installed Capacity (ICAP) & Unforced Capacity (UCAP) Capacity Value Calculation Methods Eligibility WG Meeting #3 July 4, 2017
Overview The following materials provide an examination of the question: Should we use Unforced Capacity (UCAP) MW or Installed Capacity (ICAP) MW to represent capacity when determining capacity values? Outline High level definition of ICAP & UCAP Jurisdictional Review of ICAP & UCAP methodologies for Thermal Resources Example UCAP calculation for Thermal Resources Outage rate impact on UCAP calculations Implications of ICAP and UCAP Jurisdictional review of ICAP & UCAP methodologies for Variable Resources Example ICAP/UCAP calculation for Variable Resource Summary of options relative to criteria 1
High Level Definitions Installed Capacity (ICAP) represents physical generating capacity adjusted for ambient weather conditions. Unforced Capacity (UCAP) represents the percentage of ICAP available after a unit s forced outage rate is taken into account. Specific Examples for PJM Installed Capacity (ICAP) A MW value based on the summer net dependable capability of a unit and within the capacity interconnection right limits of the bus to which it is connected. Unforced Capacity (UCAP) - The MW value of a capacity resource in the PJM Capacity Market. For a generating unit, the unforced capacity value is equal to the installed capacity of the unit multiplied by (1- unit's EFORd). Equivalent Demand Forced Outage Rate (EFORd) - A measure of the probability that generating unit will not be available due to a forced outage or forced derating when there is a demand on the unit to generate 2
Jurisdictional Review: Capacity Contribution Methodologies for Thermal Generation Implementation (with capacity basis for controllable facilities) Market Methodology Conceptual Overview of Methodology PJM UCAP UCAP= ICAP* (1-EFORd) NYISO UCAP UCAP= DMNC* (1-EFORd) MISO UCAP UCAP= GVTC*(1-XEFORd) Implementation (with capacity basis for controllable facilities) Market Methodology Conceptual Overview of Methodology G Br De-rating Factor De-rated Capacity = Connection Capacity X De-rating Factor Ireland De-rating Factor Marginal category de-rating factor Implementation (with capacity basis for controllable facilities) Market Methodology Conceptual Overview of Methodology ISO-NE ICAP Seasonal Claimed Capability Methodologies are From the PJM,NYISO, MISO market manuals. Definition for terms on this slide are found in Appendix 2 3
Example: UCAP Calculation for a Thermal Resource Example: Gas Combined Cycle with a nameplate capacity of 500 MW Seasonal Net Dependable (ICAP) accounts for the impact of ambient weather conditions (Summer) on unit performance Unforced Capacity (UCAP) is the ICAP value of the unit reduced by its recent actual forced outage rate during system demand periods (EFORd) Generator will able to offer 396 UCAP MW into the capacity auction Nameplate capacity rating = 500 MW Nameplate capacity modified for seasonal ambient limitations (ICAP). Example: If ambient temprature reduction is 10 % of the nameplate capacity. Ex. ICAP = 500 MW * 90% = 450 MW UCAP= ICAP * (1-EFORd) Forced outage rate = 12% UCAP = ICAP * (1- forced outage rate) Ex. If UCAP = 450 MW * (1-0.12) = 396 MW 4
Example: Impact of Differing Outage Rates on UCAP Calculation Units with the same nameplate capacity and ambient temperature impacts can have differing UCAP values due to different forced outage rates. Under an ICAP methodology, a unit with a higher forced outage rate will not be differentiated from one with a lower rate. As such, the same ICAP does not necessarily equate to the same contribution to system reliability. Nameplate capacity rating = 500 MW Nameplate capacity modified for seasonal ambient limitations (ICAP). Example: If ambient temperature reduction is 10 % of the nameplate capacity. Ex. ICAP = 500 MW * 90% = 450 MW Nameplate capacity rating = 500 MW Nameplate capacity modified for seasonal ambient limitations (ICAP). Example: If ambient temperature reduction is 10 % of the nameplate capacity. Ex. ICAP = 500 MW * 90% = 450 MW UCAP= ICAP * (1-EFORd) Forced outage rate = 12% UCAP = ICAP * (1- forced outage rate) Ex. If UCAP = 450 MW * (1-0.12) = 396 MW UCAP=ICAP * (1- EFORd) Outage rate = 30% UCAP = ICAP * (1- forced outage rate) Ex. if UCAP = 450 MW * (1-0.3) = 315 MW 5
ICAP Methodology Implications By not accounting for outage rates, the ICAP methodology could result in a phenomenon known as adverse selection whereby resources with lower performance and reliability clear the capacity market since such characteristics would enable resources to have lower capacity costs (by saving on plant maintenance). These lower performing but cheaper resources may displace other potential suppliers with better performing resources that would do more to ensure system reliability. ICAP methodology would put more emphasis on performance measurement & penalty mechanisms to incent higher preforming units and ensure acceptable reliability. Nameplate capacity modified for seasonal ambient limitations (ICAP). Outage Rate Outage Rate Outage Rate Outage Rate UCAP MW available for auction UCAP MW available for auction UCAP MW available for auction UCAP MW available for auction 6
Implication: ICAP vs. UCAP Since ICAP does not account for failure probabilities for individual generators penalties for non-performance might need to be significantly larger to result in the same level of system reliability. ICAP Methodology Higher penalties for Non- Performance UCAP Methodology Moderate penalties for Non- Performance 7
UCAP Methodology Considerations UCAP methodology may create stronger alignment between capacity payments and resource performance. Solid performance during periods of system demand would result in a higher UCAP eligibility for subsequent auctions. The UCAP methodology: Provides greater assurance of reliability Reduces risk of paying a premium for under performing resources Allows direct comparison of the reliability value across a wide variety of resources Provides better alignment with a Pay-for- Performance approach Allows the clearing price to be established based on resources that have performed well in the past and increases the value of performing MWs. Bolsters auction price signals for new build when needed Provides resource owners the relevant lost opportunity data necessary when making investment decisions to improve generator performance. Slide content is based on materials presented by Dominion in addressing ISO-NE s Performance Incentives/ Markets Committee Meeting/ May, 2013 8
Example Calculation for a Variable Resource No jurisdiction applies nameplate capacity to variable resources Generally, UCAP = ICAP for variable resources For variable generation the UCAP is evaluated based on the generator's capacity credit (or) its actual historical generation during peak hours Example: PJM s ICAP accounts for wind s historical operating data during summer peak hours Example: Wind Farm with a nameplate capacity of 100 MW In PJM the outage rate (EFORd) of solar and wind resources is set to zero, since outage information is not collected. (ICAP=UCAP) Name plate capacity rating = 100 MW In PJM, the capacity rating for wind generators is their average capacity factor for hours ending 3:00 PM to 6:00 PM for the month of June, July and August In ISO-NE a summer capacity credit is used for wind generation that participate in the capacity auction. The average of median net output from 2:00 PM to 6:00 PM for June to September in previous five years In NYISO wind generation capacity credit is determined by their capacity factor between 2:00 PM and 6 PM during June, July and August Outage rate = 0% UCAP = ICAP * (1- forced outage rate) UCAP = 5 MW * (1-0) = 5 MW 9
Jurisdictional Review: Capacity Contribution Methodologies for Wind and Solar Survey of Renewable Capacity Counting Practices Capacity Market Jurisdictional Reviews Market Resource Rating Frequency Capacity Contribution Method Annual PK Hours Used Historical Data Difference by Location ISO-NE Wind, Solar Summer, Winter Median during peak 610 (summer) Avg 5 years by facility hours 486(winter) MISO Wind Annual Annual ELCC study, all hours 8760 Avg 10 years by class then facility adjust MISO Solar Summer Seasonal peak hours 276 Avg 3 years NYISO Wind, Solar Summer, Winter Capacity factor during 368 (summer) Current year by facility peak hours 360(winter) PJM Wind, Solar Summer Capacity factor during peak hours 368 Avg 3 years by facility Non Capacity Market Jurisdictional Reviews Market Resource Rating Frequency Capacity Contribution Method CAISO Wind, Solar Monthly Level reached 70% of monthly peak hours entso Wind, Solar Annual 50th percentile (normal), 10th (extreme) ERCOT Wind Summer, Winter Average during 20 highest load hours ERCOT Solar Summer, Winter 100 % until 200 MW then like wind IESO Wind, Solar Summer, Winter, Shoulder Capacity factor: top 5 monthly contiguous demand hours Annual PK Hours Used Historical Data Difference by Location 140-155 per month Avg 3 years By facility, class adjusted 35 per year around 14 year by country peak 20(summer) 20(winter) Avg 10 years Median 10 years two regions all same all same System Adequacy with Intermittent Resources: Capacity Value and Economic Distortions- Johns Hopkins University 10
Comparison of Options Relative to Relevant Criteria ICAP Methodology UCAP Methodology The capacity market should contribute to the reliable operation of the electricity grid, and implementation should be consistent with, and complementary to, existing measures aimed at ensuring reliability The risks of regulatory delay and need for redesign 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 11
Appendix 1 Example of potential methodology UCAP offered = ICAP * ( 1- EFORd) EFORd= Equivalent Demand Forced Outage Rate Example of potential methodology: The AESO determines the ICAP value for each supply resource using the latest results of a resource s Summer Seasonal capability The AESO then utilizes the EFORd value, equal to the resource s forced outage data for the past 3 years. Peaking Unit in Service A 48 hour forced outage on a peaking unit which only operates 5 hours per day. The outage overlapped only 10 hours of demand for the unit. The Demand Factor is used to estimate the peaking unit s demand hours, so only 10 of 48 hours count in EFORd 12
Appendix 2 Definitions EFORd- Demand Equivalent Forced Outage Rate (used in the calculation of unforced capacity rating of wholesale electrical generating plants) XEFORd- EFORd adjusted to exclude Outside Management Control (OMC) events is defined as XEFORd DMNC Dependable Maximum Net Capability GVTC Generation Verification Test Capacity 13
References Dictionary of Energy/Second Editions/ C.J. Cleveland, C. Morris PJM/Glossary System Adequacy with Intermittent Resources: Capacity Value and Economic Distortions- Johns Hopkins University- LOLEWG Presentation July 22, 2016, C. Bothwell, B.F.Hobbs FERC/ISO NEW England. And New England Power Pool- testimony of Matthew White on behalf of ISO New England INC. Dominion/ Addressing ISO-NE s Performance Incentives/ Markets Committee Meeting/ May 2013 MISO Seasonal Forced Outage Rate/ Capacity Accreditation Under Seasonal Construct Workshop Agenda Item 03a/ April 22 nd, 2016 14