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PHYSICAL FINANCIAL RISK BASED RESOURCE ANALYSIS BRIDGING PHYSICAL & FINANCIAL Crossing the Chasm Weather Load Renewables Spot prices Asset operations Forwards Options Forecasts Investment Options Risk Premium

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Page 1: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

PHYSICAL FINANCIAL

RISK BASED RESOURCE ANALYSIS

BRIDGING PHYSICAL & FINANCIAL

Crossing the Chasm

• Weather

• Load

• Renewables

• Spot prices

• Asset operations

• Forwards

• Options

• Forecasts

• Investment Options

• Risk Premium

Page 2: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Monetizing the Value of Flexible Generation in Competitive Power Markets

PowerGen Natural Gas 2015Columbus, OH

Presented by:Gary Dorris, PhD

August 19, 2015

Page 3: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

3 ascend analytics

Ascend Analytics – Overview

• Short, Intermediate, & Long-Tem: portfolio analytics and asset optimization

• Founded in 2002, continuing steady growth, currently with over 30 employees

• Offices in Boulder CO, Oakland CA, and Bozeman MT

Small Sample of Ascend’s Software Customers

Page 4: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

4 ascend analytics

Decision Analysis Through Time

~6 years to 30+ yearsToday

Decision Analysis Timeframe – One Model Through Time

Operational Strategy(PowerSimm OPS)

1 month to ~5 years10 days

Long-term Valuation(PowerSimm Planner)

• Asset valuation

• Resource planning

• Cost versus risk tradeoff resource analysis

• Assessment of renewable energy technologies

• Portfolio management

• Renewable asset management

• Retail pricing

• Energy purchases and sales

• CFaR, GMaR, EaR

• Optimal short-term dispatch

• Short-term load & price forecasting

• Realized gains and losses

• Decision support for trading

Intermediate Analytics(PowerSimm Portfolio Manager)

Page 5: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Flexible Resource

Day-Ahead and Real-Time Operating Example

5 ascend analytics

• Flexible generator maximizes profits relative to RT prices

Real-time price > Strike price run generation

Real-time price < Strike price buy generation from market to meet day-ahead offer when Real-time price

Day-Ahead and Real-time markets

0

50

100

150

200

250

300

-1 4 9 14 19 24

$/M

Wh

Hour

Energy Prices of MISO Arkansas Hub on 05/01/2014

Day-Ahead

Real-Time

Generation Strike Price

Shut down period

Run period

Page 6: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

6 ascend analytics

Realizing the Value of Flexible Generation

• Traditional generator valuation:

Supplier of energy in either the Day-ahead (DA) or Real-time (RT) market

May add on an additional adder for ancillary revenue

Analysis is done on an hourly basis

• Valuing flexible resources in this manner considerably undervalues the asset

• Correctly valuing flexible generation assets:

In a resource planning setting, in order to correctly value flexible assets methods are needed to co-optimize between energy and ancillaries on a sub-hourly time-scale

In a market setting, flexible generation needs to have the ability to capture sharp swings in real-time prices through joint optimization of energy and ancillary services for both DA and RT markets

Page 7: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

7 ascend analytics

Flexible generation participating in wholesale power markets

Three scenarios for flexible generation to participate in wholesale energy and ancillary markets:

1. Sell energy into the DA and RT energy markets

2. Sell regulation into the DA and RT markets

3. Sell regulation and energy into the DA and RT markets

Page 8: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

8 ascend analytics

NYISO Day-ahead and Real-time Energy Prices

• Load pocket on Long Island:

Day-ahead:

• Average Price: $100/MWh

• Volatility: 65%

Real-time:

• Average Price: $115/MWh

• Volatility: 220%

Page 9: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Flexible Resource

Operations to Energy & Ancillary Prices (1)

9 ascend analytics

• Energy and regulation 5 min real-time prices are volatile

• Flexible resources extract value from price volatility

Shut-down when prices low

Start-up when prices high

• Objective: Jointly optimize energy

and ancillary service value

s.t. operating constraints

• Strategy: Realize full extrinsic value

in the real-time market.

Shut down period

Run period

Page 10: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Evaluation of Market Price Signals for Flexibility

10 ascend analytics

ISO’s have a Day-Ahead and Real-time markets

Energy

• Day-Ahead hourly market prices

• Real-time prices settled 5 minute to 1 hour intervals (depending on ISO)

Ancillaries

• Regulation Capacity and Cycle Fee or Regulation Up and Regulation Down

• 10 minute spin and non-spin

Day-Ahead Example of 10 MW Generator Bid Energy @ Minimum Load

Generation Strike Price $40/MWH Start-up Cost = $0/MWh

Minimum Load of Gen 4 MW Ramp-time = 10 MW/min from start

Price of Energy $30/MWh

Price of Regulation $20/MWh

Margin Energy ($30/MWh-$40/MWh) *4 MW = ($40)

Margin Ancillaries $20/MWh*6MW = $120

Total Margin = $ 80

Page 11: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Value of Flexibility by ISO

11 ascend analytics

• The regional supply composition and

market structure are key determinants to

the value of flexible generation

• Value can be distilled into a couple of

critical factors:

Regulation prices > $12/MWh

High volatility in real-time prices

(>110%)

Trend of volatility and regulation

prices

• Future fundamentals (changes in supply)

play a critical role

SPP

• 47% reserve margins

• Coal and wind generation

lowest energy prices in

country

• High ancillary prices and real-

time price volatility

opportunity for fast flex-

ramp resources

CAISO has lowest ancillary service

prices in US by 50% and lowest price

volatility

• Substantial hydro storage and

interconnection ties to hydro

storage

• Lowest ancillary service prices

in US by 50% and lowest price

volatility with decreasing trend

Page 12: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

SPP

12 ascend analytics

Massive planned wind capacity expansion in SPP

8,000+ MW of wind

Large geographical distribution

Flat coal based supply stack with limited flexibility to

respond to large entry of wind

Volatile wind, inflexible supply high ancillary

prices and volatile real-time prices

Excess capacity and coal economic

retirement of coal because of wind additions

Page 13: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

SPP Energy and Ancillary Prices

13 ascend analytics

0%

200%

400%

600%

800%

1000%

1200%

1400%

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Spin Supplementary RegDown RegUP

Price Standard Deviation

0%

50%

100%

150%

200%

250%

300%

350%

400%

$0

$5

$10

$15

$20

$25

$30

$35

$40

Price Price Volatility Volatility

Zone 2 On-peak Zone 2 Off-Peak Zone 2 On-peak Zone 2 Off-Peak

Day-ahead Real-time

SPP energy market observations:

Day-ahead prices higher than Real-time prices

Real-time price volatility > 300%

Substantial opportunity for fast flex-ramp

generation with wind resource additions

SPP ancillary market observations:

Regulation prices > $14/MWh

Spin and Supplementary ancillaries

significantly more volatile than Regulation

Regulation benefits from relatively stable, high

prices

Page 14: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

SPP Market Prices

14 ascend analytics

330% Volatility in Real-Time Prices

-200

0

200

400

600

800

1000

1200

1400

1600

-1 4 9 14 19 24

$/M

Wh

Hour

Energy Prices of SPP on 05/01/2014

Day-Ahead Real-Time

Page 15: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Importance of Sub-Hourly Time Step

15 ascend analytics

• Sub-hourly resource modeling can yield substantially different resource

selection CT’s with high start-up costs tend to perform less well than ICU’s

Fast ramp characteristics of ICUs and batteries become more valuable

Example Sub-hourly Analysis of ICU vs CT’s

2014 Resource Plan NorthWestern Energy South Dakota

0

10

20

30

40

50

60

70

80

90

100

Wartsila 50SG GE 7FA

$/kW

-yr

Day-Ahead Energy Real-Time Energy Ancillary Services

Page 16: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Evaluation of Market Signals for Flexibility

16 ascend analytics

A-

CA-

B+B+A-

B

B+

Key:A = outstanding potentialB = Strong potentialC = Limited potential

A-

Page 17: Crossing the Chasm - WordPress.com · Crossing the Chasm • Weather • Load • Renewables • Spot prices • Asset operations • Forwards ... Energy Prices of MISO Arkansas Hub

Contact Information

17 ascend analytics

Gary Dorris, Ph.D.

[email protected]

Boulder, CO 80302

(303) 415 0311

Other Offices:

Bozeman, Montana

Oakland, California