Design of Pricing under Emergencies. Market Development and Analysis February 18, 2014

Transcription

1 Design of Pricing under gencies Market Development and Analysis February 18, 2014

2 Table of Contents Abstract... 3 Background... 4 Proposed Solutions... 6 Default Offer Price for gency Ranges... 6 Default Offer Price for the gency imum Range... 6 LMR Participation in Real Time Price Setting... 6 Price Floors and Ceilings... 7 Examples... 7 Pricing under imum Generation Events... 7 Default Offer Price for Generator within gency Range... 8 LMR Setting Price Example... 9 Default Offer Cost for LMR...10 Pricing under imum Generation Event...10 Default offer price for the emergency minimum range...11 Summary and Conclusion

3 Abstract This document summarizes recommended modifications to the current energy pricing logic applicable under emergencies. gencies impact a relatively small number of hours each year, yet it is imperative that price signals are adequate to reflect the severity of the situation. This document will explore how the current logic can be augmented to better comport with reliability objectives. Small examples are utilized throughout to illustrate improvements expected upon implementation of the proposed solutions. 3

4 Background At MISO, there exist different classifications within an emergency, each with different implications with respect to prices. gency operations procedures outline the precise steps that operators must take to alleviate emergency conditions. Real-Time Unit Dispatch System(UDS) is an automated calculation, so it is important to ensure that its dispatch and pricing solutions are consistent with reliability objectives, especially during emergencies. When real time capacity shortages or surpluses occur, MISO will first attempt to resolve the situation with non-emergency, market remedies. These might include declaring a imum Generation Alert, curtailing firm exports, scheduling external capacity resources into MISO, and/or confirming that all resources are operating at their economic maximum limits. If these measures fail to resolve the condition, the next steps are to commit emergency capacity and then to deploy the emergency range of online capacity. Currently, the emergency maximum range has averages approximately 2,800mw, while the capacity of offline emergency units averages about 2,900mw. gency commitments are made on a unit by unit basis to minimize production cost, but operators typically deploy emergency maximum ranges all at once, a practice that can inadvertently depress real time prices. At this stage, it is important to broadcast a price signal which reflects the severity of the situation. It must be a price high enough to incent generation to remain at their dispatch and to attract imports while discouraging exports. Failure to resolve the condition at this stage would result in curtailment of Load Management Resources (LMR) and/or gency Demand Response (EDR), followed by the deployment of spinning reserves, and then as a last resort, shedding firm load. No special offer requirements currently exist for capacity reserved for emergency commitment or capacity associated with emergency ranges (hereafter, referred to as emergency capacity ). Once an emergency is declared, UDS dispatches emergency capacity based upon economics, just as it does during non-emergency situations. Generators may be forced to operate above their normal range for extended periods, incurring significant additional costs, perhaps even shortening the asset s useful life. Any fixed costs associated with emergency range capacity must be reflected in the energy offer, even though generators cannot predict the duration of the emergency. Consequentially, emergency range offer prices may result in inefficient system prices, prices that reflect neither the capacity shortage nor the generator special operation range. 4

5 This disconnect between costs and pricing is worse during the more critical stage of LMR deployment. LMRs do not have the ability to submit energy offer prices. When LMR are deployed, a reduction in MISO load occurs which will be captured within MISO s State Estimator. The State Estimator solution is then used as an input into the Short Term Load Forecast. This data flow creates a lag between the time of the LMR deployment and the time it will be reflected in real time prices. The curtailment of load with no ability to set price also diminishes the desired (efficient) price formation process. MISO currently has 8,800mw of LMR at its disposal: 5,000mw of which is curtailable demand, 3,400mw of behind the meter generation, and 400mw that is cross-registered as EDR. Non-LMR EDR provides 900mw of additional capability. During emergency situations, large portions of this capability may need to be deployed quickly, without consideration of its impact on price formation. Under ELMP (Extended LMP), EDR will begin participate in setting price, but this still does not address the potential for price collapse caused by deployment of emergency capacity and LMR. MISO expects high probability of invoking gency Operating Procedures in real time due to projected reduction in operational reserve margin over the next 2 to 3 years. This requires MISO to be prepared not only from the standpoint of reliability, but also from the standpoint of real time price formation. During periods of true operational scarcity, the emphasis is to transition the system back into a secure state as quickly as possible. Operators may need to quickly deploy large MWh volumes of emergency capacity or LMR without consideration of the impact on price formation. However, if real time prices crash immediately following the deployment of emergency capacity or LMR, the price signal may inadvertently exacerbate the emergency. It is also questionable whether a depressed real time price is appropriate once emergency capacity or LMR have been deployed. Were it not for these extra-ordinary measures, RT prices would be much higher. For these reasons, MISO staff believes modifications to the automated UDS and ELMP price calculations are necessary to ensure RT price signals do not undermine reliability objectives. 5

6 Proposed Solutions Default Offer Price for gency Ranges MISO proposes to model a default offer cost for generation capacity above the economic maximum limit as well as for emergency commitments. During emergency events when MISO deploys this capacity, a default offer cost will be used in the real time dispatch and pricing process. MISO proposes to calculate the default offer cost as sum of 1. MEC (Marginal Energy Component) in the interval immediately prior to the declaration of the max gen event, and 2. Generator s offer cost for the applicable capacity block. Default Offer Price for the gency imum Range MISO proposes to model a default offer cost for generation capacity below the economic minimum limit. During emergency events when MISO deploys this capacity, a default offer cost will be used in the real time dispatch and pricing process. MISO proposes to calculate the default offer cost as 1. imum of (MEC in the interval immediately prior to the declaration of the min gen event, 0), minus 2. Generator s offer cost for the applicable capacity block. LMR Participation in Real Time Price Setting MISO proposes to model default offer cost for LMR. During emergency events when MISO deploys LMR, a default offer cost will be used in the real time dispatch and pricing process. MISO proposes to calculate the default offer cost as 1. MEC in the interval immediately prior to the declaration of the min gen event, and 2. LMR s offer cost for the applicable capacity block. Default offer costs for emergency commitments and emergency ranges are proposed for both real time dispatch and ex post pricing engines. This will improve consistency between dispatch and pricing solutions. Earlier proposals were to apply these changes only to the ELMP 6

7 engine, but it was decided that economic capacity should also have priority in the dispatch engine. Implementation of the LMR price-setting in UDS dispatch would not change current dispatch results due to the block loaded feature. Price Floors and Ceilings There are reasonable arguments both for and against the use of price floors or ceilings during emergencies. As emergencies progress and operators resort to increasingly desperate measures, a price floor could be used to override the marginal cost pricing and ensure LMPs increase if the situation worsens. MISO does not support this option for several reasons. First, if an emergency is declared and LMRs are deployed, the minimum run time of the LMR may exceed the duration of the emergency. It is also possible that legitimate capacity scarcity will not exist in every 5 minute interval following the emergency declaration. There is no reason to force prices during the whole emergency range above/below a certain range. The use of administratively-set price floors or ceilings also has adverse settlements implications and is generally discouraged in economics literature. By comparison, the proposed default offer method implicitly adds a price floor/ceiling to offer prices, while still allowing prices to change based on moment-to-moment system operations. When emergency capacity or LMR are not setting price, prices will be set by normal economic capacity which more accurately reflects actual system operation costs. Examples Pricing under imum Generation Events Assume the following system, consisting of 3 generators and a single demand. All three generators have 2 block offer prices, with the first block cover the range between the economic min and economic max limits, while the second price block cover the range between the economic max and emergency max limits. Units B and C are fast start units whose startup and no-load cost will participate in setting ELMP. 7

8 Generator Start -Up No- Load Run Time Ramp Rate Incremental Energy Offer ($) ($/Hr) (MW) (MW) (MW) (MW) (Hr) (MW/ ($/ ($/ (MW) (MW) min) MWh) MWh) A B C Hour Demand (MW) As demonstrated in above table, in hours 6 and 7, the combined economic capacity of all generation is unable to satisfy the demand requirement. Dispatch and pricing results under the current design would be: Generator Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 Hour 6 Hour 7 Hour 8 Gen A (MW) Gen B (MW) Gen C (MW) LMP ($/MWh) ELMP ($/MWh) Hour Demand (MW) Assume a max generation event occurs in hours 6 and 7, but neither the LMP nor the ELMP reflects the capacity shortage situation under the current design. Under ELMP, the generation B will set price for hour 6 and generator C will set price for hour 7. The emergency range of generator A will not set price due to its lower offer cost. And the prices under emergency hours are lower than hours before even though the load is increasing and there is a capacity shortage. Default Offer Price for Generator within gency Range Default prices for emergency range capacity would be calculated using the energy price in interval immediately prior to the maximum generation event, plus the applicable offer price. In the example below, the interval immediately prior to the maximum generation event is hour 5, and the ELMP MEC is $72/MWh. The new default offer prices for three generators will be as follows: 8

9 Generator MW Default offer ($/MWh) Gen A Gen B Gen C In this example, since hour 6 and hour 7 are out of minimum run hours, no startup cost will be allocated to hours 6 or 7. And since generator no load cost in this example are assumed to be $0/hour, the default costs for units B and C are the same under both LMPs and ELMPs. Using these default offer prices for energy blocks above economic limit, the new dispatch and prices would be: Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 Hour 6 Hour 7 Hour 8 Gen A (MW) Gen B (MW) Gen C (MW) LMP ($/MWh) ELMP ($/MWh) With updated offer prices for emergency range, pricing engine will tend to dispatch economic capacity first since it relatively cheaper. In this example the price will be set by generator A s emergency range, which equals to $112/MWh. LMR Setting Price Example Assume the following system, consisting of 3 generators and a single demand: Generator Start- Up No- Load Run Time Ramp Rate Incremental Energy Offer ($) ($/Hr) (MW) (MW) (MW) (MW) (Hr) (MW/min) (MW) ($/MWh) A B C D (LMR) Hour Demand (MW) In hours 6 and 7, demand exceeds than the combined capacity of all three generators. An LMR is deployed to address the expected energy deficit. To demonstrate ELMP price formation, assume units B and C are fast start units. Also assume that the LMR s offer price is 9

10 relatively low, for instance $8/MWh (assume this includes all LMR cost such as shut down cost, curtailment etc.). Following deployment of the LMR, the economic dispatch and prices before consideration of the default offer and pricing floor are shown in following table: Dispatch Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 Hour 6 Hour 7 Hour 8 Gen A (MW) Gen B (MW) Gen C (MW) LMR D (MW) LMP ($/MWh) ELMP ($/MWh) Similar as in last example, prices in hours 6 and 7 under both LMP and ELMP will inadequately reflect actual system cost. Default Offer Cost for LMR Dispatch and LMPs will remain the same, since LMRs are block-loaded units that do not participate in the LMP price-setting process. The LMR s default price will be the sum of energy price immediately prior to the emergency ($72/MWh) and LMR s actual offer price ($8/MWh). With the participation of LMR default offer in price setting, the new ELMPs will be: Dispatch Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 Hour 6 Hour 7 Hour 8 ELMP ($/MWh) Pricing under imum Generation Event Sample system information: Generator Start- Up No- Load Run Time Ramp Rate Incremental Energy Offer ($) ($/Hr) (MW) (MW) (MW) (MW) (Hr) (MW/ ($/ ($/ (MW) (MW) min) MWh) MWh) A B Under this minimum generation event, ELMP will be same as LMP. Therefore there is no need to define fast start units. Demand information is given in table below: 10

11 Hour Demand (MW) Hour 5 will be minimum gen hours, since unit B has a 4 hour minimum run hour which prevented it from turning off in hour 5. In hour 6, unit B will be turned off because its operation will no longer be constrained due to the minimum run time. Actual Dispatch Gen Hour Dispatch Hour 1 Hour 2 Hour 3 Hour 4 Hour 5 Hour 6 Gen A (MW) Gen B (MW) ELMP ($/MWh) The price in hour 5 falls all the way to $0/MWh, which was set by generator A s emergency limit offer price. The price in hour 6 reverts to a relatively normal price level, $20/MWh. One important observation is that based upon hour 6 s price, unit B would rather stay online than make a $5/MWh profit. Default offer price for the emergency minimum range Based on proposed design, the default offer price for generator A will still be $0/MWh (MIN ($20/MWh, $0/MWh) - $0/MWh. Thus the ELMPs will remain the same. Summary and Conclusion MISO proposes to use a default offer price for capacity under emergency range and LMR to address emergency pricing issue. These changes are proposed primarily to reduce the likelihood of real time price movements that conflict with reliability objectives. An ancillary benefit will be greater participation of load in real time pricing. Pending the approval of the stakeholder community, MISO s plan is to implement these changes in both dispatch and pricing engines to facilitate greater consistency between pricing and dispatch solutions. 11