Installed Capacity (ICAP) Demand Curve. John W. Charlton - NYISO CPUC-CEOB-CAISO Installed Capacity Conference San Francisco, CA October 5, 2004

Size: px

Start display at page:

Download "Installed Capacity (ICAP) Demand Curve. John W. Charlton - NYISO CPUC-CEOB-CAISO Installed Capacity Conference San Francisco, CA October 5, 2004"

Nancy Hensley
7 years ago
Views:

1 SM Installed Capacity (ICAP) Demand Curve John W. Charlton - NYISO CPUC-CEOB-CAISO Installed Capacity Conference San Francisco, CA October 5, 2004

2 Is there a Need for an Installed Capacity Demand Curve such as the one implemented in New York ISO? 2

3 Electric Market Products in New York The New York Installed Capacity (ICAP) market is intended to promote Resource Adequacy and allow suppliers to recover a portion of their fixed (capital) costs. The New York Energy market allows a supplier to recover its variable costs and to compete for profits. The New York Ancillary Services market allows a supplier to recover lost opportunity costs when providing ancillary services. The total revenue from these markets is the true revenue stream of a supplier. 3

4 NY ICAP Market ICAP Requirements are set in advance for the upcoming Capability Year by the New York State Reliability Council (NYSRC). Each Load Serving Entity (LSE) is required to purchase its share of the total ICAP requirement. LSEs meet their ICAP requirements by: Self-Supply or Bilateral Transactions with Suppliers Capability Period Auctions (6-month strip) Monthly Auctions (for balance of Capability Period) Spot Market Auction (1-month) using a Demand Curve All supply is certified/checked out monthly 4

5 Northeast U.S. ICAP Markets The traditional Northeast ICAP markets have minimum fixed MW requirements for all LSEs for each reliability year The fixed resource requirement can lead to a volatile and unpredictable revenue stream Prices tend to reach low levels when the available resources exceed requirements by a small margin. When resources are barely adequate or short of requirements, prices approach maximum allowable, either deficiency or capped, prices. 5

6 NY Demand Curve The New York Department of Public Service first introduced the concept in May Numerous stakeholder meetings followed to work on and refine the Demand Curve concept. The basis for the Demand Curve is the revenue requirement to incent new entry ( cost of entry ) in the New York Control Area (NYCA) and the New York City (NYC) and the Long Island (LI) localities. FERC approval was received on May 20, 2003 and was implemented for the June 2003 ICAP Obligation Procurement Period and the subsequent months. 6

7 Demand Curve - NYISO Objectives Improve the traditional ICAP market. Increase system reliability by valuing additional ICAP above the NYCA and Locational Requirements. Reduce price volatility and send a more stable revenue signal for new resources Continue to ensure a competitive, fair, and nondiscriminatory market for capacity in the NYCA. 7

8 ICAP Demand Curve Deficiency Price / Cap (if any) Demand Curve Supply Curve (short) $/kw-interval Reference Point Supply Curve (long) "Zero-Crossing" Point $0 80% % of Minimum Requirement (includes minimum reserve margin) Additional Reserve Margin 100% 120% 8

9 Demand Curve Spot Market Auction Applied monthly in Spot Market Auction immediately prior to the target month. Replaces previous Deficiency Auctions. Uses a Demand Curve as a proxy for LSE Bids. The Demand Curves are based on the cost of new entry, with decreasing prices for ICAP above the NYCA or Locational Requirements. Conversely, the Demand Curve increases prices/value for ICAP when resources are short of the NYCA or Locational Requirements Resources have the opportunity to supply ICAP above the NYCA and/or Locational ICAP Requirements. Reduces stranded capacity. 9

10 Demand Curve Spot Market Auction (continued) All LSEs are entered in the Spot Market Auction. LSEs certify (monthly) the amount of ICAP they own prior to Spot Market Auction NYISO considers all previously certified ICAP and all unsold Resource offers. The Spot Market Auction will determine the amount of ICAP each LSE is allocated for the following Obligation Procurement Period (one month). The Spot Market Auction clears at the point where the ICAP supply curve crosses the Demand Curve. 10

11 Additional Demand Curve Elements Independent review every 3 years to determine Demand Curve variables (i.e., cost of entry and value of additional ICAP). First review is currently underway. NYISO has already proposed new Demand Curves for the 2005/2006, 2006/2007, and 2007/2008 capability years. Net Energy and Ancillary Services revenue is considered as an offset to annualized installation and fixed O&M costs. A Deficiency Charge set at 1.5 times the Spot Market Clearing Price for Resources that do not meet their obligations applied after-the-fact Forward obligations are settled at the Spot Market Clearing Price. 11

12 Summary The ICAP market is intended to promote Resource Adequacy and to allow suppliers to recover a portion of their fixed (capital) costs. The fixed resource requirement can lead to a highly volatile and unpredictable revenue stream. The Demand Curve approach offers an ICAP market that: Reduces price volatility and sends a more stable revenue signal for new resources. Increases reliability by valuing ICAP above the minimum requirements 12

NYISO Tariffs: MST Section 5 Control Area Services: Rights and Obligations. NYISO Tariffs. New York Independent System Operator, Inc.

NYISO Tariffs: MST Section 5 Control Area Services: Rights and Obligations. NYISO Tariffs. New York Independent System Operator, Inc. NYISO Tariffs New York Independent System Operator, Inc. NYISO Tariffs Document Generated On: 10/14/2011 Page 1 5.10 NYCA Minimum Installed Capacity Requirement The NYCA Minimum Installed Capacity Requirement