Evaluation of Proposals for New Rules for Energy Storage

Gaelectric Energy StorageT&SC Modification Working Group

23rd October 2012

Our Objectives

• Long-term: a method for registering storage technologies in the SEM that allows them to recover their short-run costs and compete equitably within the market schedule

• Today: – Shortlisting possible mechanisms, all requiring evolution of the

SEM T&SC– Evaluating them against the TOR criteria– Ideally identifying one for initial review by ABB

Review of Last Workshop• Reviewed existing options within the context of the SEM HLD:

• Recovery of short run costs, and a design that insofar as possible• Minimises cost of constraints

• Minimises cost of production in dispatch

• Allows for transparent BCOP compliance

• Market revenues independent of SO dispatch

• From the last workshop, other high-level points were noteworthy• Minimisation impact on market systems; unnecessary proliferation of rules

• Storage in T&SC should be more than separable fuel production and a generator

• Several options could challenge the principles of central commitment

• Should not discriminate relative to existing pumped storage rules

• Agreed that existing structures needed change, to proceed with the development of further options

The Options• “Full Price Making Storage” – an evolution of existing pumped storage

rules with submitted prices and constraint payments

• “Availability Feasible Storage Unit” – akin to a stand-alone interconnector unit only in that it locks down availabilities using changing half-hourly commercial offers throughout EA1, EA2 and WD1 for inclusion in ex post runs as Predictable Price Maker (settlement rules would be different)

• “Linked Energy Limited Generator” – operation of a Predictable Price Taker Negative Generator informs Energy Limit of separate Generator possible throughout the day

The Criteria• Offering & Scheduling

– Commercial Offer data– Technical Offer Data– Other data provision & sharing

• Energy Settlement• Calculation of Eligible Availability• Calculation of Capacity Payments

– When in generation mode– When in pumping mode

• Calculation of Constraint Payments and Charges• Calculation of Uninstructed Imbalance Payments and Charges• Credit & Settlement• Inclusion in the MSP software and uplift• Treatment of Energy Storage Units when under test

Assumptions about All Three Options

• All revenues are not dependent on system operator dispatch, or nominated offer from storage operator

• If we discuss an energy limit, it is a market-based energy limit

• In the Indicative and Initial Pricing:– Price Making Storage: Energy Target at end of Optimisation Time Horizon

– Availability Feasible Storage Unit: Energy based on the flows arising from MSQ scheduling

– Linked Energy Limited Generator: Energy based on the flows arising from MSQ scheduling of the two different units

More Detail: Full Price Making Storage

• “Full Price Making Storage”

• As pumped storage, but– Price quantity pairs submitted for the trading day, across the full range

of pumping and generation, including no load• Consideration of start-up

– Storage scheduling also takes into account cost to generate– Dispatch signals sent to market, constraint payments, make whole

payments, uninstructed imbalances, etc.– Consideration of offer price for capacity payment

• Capacity payment otherwise handled equivalently, which is energy limited availability to generate, less demand MSQ (see next slide)

Capacity Payment for Storage

• We propose that for any option considered, that this eligible availability calculation (or its financial equivalent) is utilised

Availability

Time (one Trading Day)

Gen

Pump

MSQ

MSQ

Eligible Generator Availability

Eligible Availability (earns CPM)

More Detail: Availability Feasible Storage Unit

• “Availability Feasible Storage Unit”– Shares some characteristics with individual Interconnector Unit, but sufficiently different not

to take the IU as starting point

• Traded by– Price quantity pairs (negative for storage) submitted half-hourly, no load, and with technical

offer data• Note that start-up costs again may be an undue complication here

– Adjusted by participant for EA1, EA2, WD under BCOP to secure storage and generation availability

• Secured storage becomes demand availability in Schedule (see later for eligible availabilty)• Secured generation becomes generator availability in Schedule (see later for eligible availabilty)• Will need to limit secured availability with some proxy for energy limit (see next slide)

– Market schedules availabilities as per normal– Submitted meter data, dispatch quantities, with constraint payments, make whole payments– Capacity payments against technical availabilities, and not secured availability, subject to

energy limit• As per pumped storage

More Detail: Why Secure Availability?

• Why secure availability at all?– Mechanism to ensure the plants energy limits are obeyed– Otherwise, plant could be scheduled to generate all day long

• “Availability Feasible Storage Unit” energy limit can be obeyed as:– an adjustment to the secured availability outputs of EA1, EA2 and WD– within the MSP scheduler itself

• This moves this option towards “Full Price Maker Storage” anyway, rendering the need to secure availability moot

• Offers would move with anticipation of demand pricing• Participant would be managing the availability of the machine throughout

the day based on accuracy of those offers, may be overly restrictive

More Detail: Linked Energy Limited Generator

• “Linked Energy Limited Generator”

• Traded by– Nominated quantity of negative Predictable Price Taker Generator Unit sets storage

throughout the day.• Still subject to central dispatch as opposed to autonomous unit, but overall yielding a lower risk of having

revenues dependent on system operator dispatch

• Constraint payments for negative Predictable Price Taker Generator Unit

– Energy limit of energy limited generator unit must be consistent with submitted profile in offer and limitations of storage

• Energy limit updated if System Operator moves schedule of Predictable Price Taker Generator Unit

• Would need BCOP understanding on adjustment of COD from EA1 through WD

– Capacity payments for energy limited generator as per normal• Predictable Price Taker generator unit would pay for scheduled MSQ

– Metered generation, dispatch quantities, submitted separately

Evaluate SchedulingFull Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Scheduled storage

By MSP software in all runs

Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility

By nominated quantity

No participant control Participant influence on availability

High participant influence on schedule

Scheduled generation

By MSP software in all runs

Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility

By MSP software in all runs, but our nomination becomes MSQ for demand, informing market energy limit

No participant control Participant influence on availability

Participant control on Energy Limit only

Evaluate EA and Capacity PaymentFull Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Storage eligible availability

As for pumped storage Based on schedule MSQ

Based on schedule MSQ

Generation eligible availability

As for pumped storage Based on technical availability, limited by ex-post energy limit

Based on technical availability, limited by ex-post energy limit

Note: market based energy limit

Note: market based energy limit

Evaluate COD and TODFull Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

COD As for pumped storage, with addition with PQ pairs, no load, start up

Positive and negative PQ pairs, no load

Nominated quantity for Negative Predictable Price Taker and COD if dispatched off schedule

Standard Energy Limited Generator with Limit referenced to Nominated Quantities

Easy BCOP, start up needs consideration

More difficult BCOP, start up needs consideration

More difficult BCOP

TOD As for pumped storage Representative of the generator capabilities

Representative of the generator capabilities

Evaluate Constraint Payments and ChargesFull Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Constraint payment

As per normal As per normal As per normal, noting negative Generator

Treatment of start up costs needs consideration, depending on COD

Treatment of start up costs needs consideration, depending on COD

Imperfections Charges

Not relevant Not relevant Not relevant

Evaluate Uninstructed Imbalances and Charges

Full Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Uninstructed imbalances

As per Predictable Price Taker Generator rules

As per normal As per normal

Care required around offer price for demand

Separate for each unit

Imperfections Charges

Not relevant Not relevant Not relevant

Evaluate Pricing and UpliftFull Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Pricing Need review of MSP capabilities

As per Predictable Price Maker Generator Unit

As per Predictable Price Maker Generator Unit

Separate for each unit

Uplift As per normal As per normal, if start up can be defined

As per normal

But dependent on the structure of the offer

Treatment of start up costs

Evaluate Credit Cover, Settlement, Under Test

Full Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Credit Cover As per pumped storage As per Interconnector Unit

Credit cover managed with settlement reallocations

Separate for each unit, not proposed to amalgamate

Settlement No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

Under Test As per pumped storage As per interconnector unit

As per individual units

Combined Evaluation (Gaelectric Initial View)Full Price Maker Storage

Availability Feasible Storage Unit

Linked Energy Limited Generator

Competition&

Implementatio

n

Scheduled storage By MSP software in all runs Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility

By nominated quantity

Scheduled generation By MSP software in all runs Availability secured through COD/TOD, limited algebraically post EA1, EA2, WD for technical energy limit feasibility

By MSP software in all runs, but our nomination becomes MSQ for demand, informing market energy limit

Storage E. availability As for pumped storage Based on schedule MSQ Based on schedule MSQ

Generation E. availability

As for pumped storage Based on technical availability, limited by ex-post energy limit (TBD)

Based on technical availability, limited by ex-post energy limit (TBD)

Implementatio

n

COD As for pumped storage, with addition with PQ pairs, no load, start up

Positive and negative PQ pairs, no load, examination of start up costs

Nominated quantity for Negative Predictable Price Taker and COD if dispatched off schedule Standard Energy Limited Generator with Limit referenced to Nominated Quantities

TOD As for pumped storage Representative of the generator capabilities, without energy limit

Representative of the generator capabilities,

Constraint payment As per normal As per normal As per normal, noting negative Generator

Uninstructed imbalances As per Predictable Price Taker Generator rules

As per normal As per normal

Pricing Need review of MSP capabilities As per Predictable Price Maker Generator Unit

As per Predictable Price Maker Generator Unit and

Uplift As per normal As per normal, if start up can be defined

As per normal

Credit Cover As per pumped storage As per Interconnector Unit Credit cover managed with settlement reallocations

Settlement No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

No change, once Trading Payments, Capacity Payment, UI and Constraint payments calculated

Under Test As per pumped storage As per interconnector unit As per individual units

• The Availability Feasible Storage Unit and the Linked Energy Limited Generator both allow the Participant to have a degree of influence over the MSQ or Availability feeding into the MSQ software

• The Linked Energy Limited Generator is likely the simplest implementation

• The Full Price Maker Storage option has the largest uncertainty around the pricing, but otherwise fits best with the SEM High Level Design

• The Availability Feasible Storage Unit is also a relatively complex implementation, but best fits with potential future market design

Combined Evaluation (Gaelectric Initial View)

• Gaelectric proposes to support development of full Price Maker Storage Proposal

• Forward to ABB for Effort to Assess costings and timelines

Gaelectric Proposal

• What is the absolutely simplest scenario whereby storage with material SRMC can recover its costs?• Costs are SMP for storing

• Costs are material SRMC for running

• Let the market run, with storage efficiency > 1, equal to the energy-in, energy-out capability of the machine

• Storage submits an offer (start up, no-load, PQ pairs)

• What algebraic mechanism can be used to ensure storage covers its costs and earns appropriate inframarginal rent?

If the MSP Software Says No

• Any storage which produces more energy than it consumes due to the addition of a further fuel, will always be scheduled in the market

The Constraint Payment Storage

MSQ

Time (one Trading Day)

SMP = €20/MWh SMP = €20/MWh

Gen

Pump

1MWh

1.3MWh

Revenue = -€20 + €36 = €16; Market will schedule plant with flat SMP

• As the MSP software assumes the SRMC is zero, more IR will be earned than if we can explicitly include it in the schedule

• Take the three scenarios that can occur in a Trading Period• Dispatched but not in schedule• Dispatched and in schedule• Not dispatched but in schedule

If the MSP Software Says No

• As per all plant, it should recover its SRMC for periods where dispatch was greater than MSQ

• Pays nothing for demand

• Receives generation price

Dispatched, but not in Schedule

• As per all plant, it should earn the SMP and recover its costs• Pays SMP for storage• Receives SMP for generation

• Complication 1:• Not guaranteed to recover its SRMC

• So you either:• Work out if it did over all periods of simultaneous DQ and MSQ in the

Trading Day, and top-up as necessary (an altered make-whole mechanism)• Make a SRMC payment to the generator for it to recover its costs no matter

what the recovery of its SRMC (probably too generous)

Dispatched, and in Schedule

• Given: “As the MSP software assumes the SRMC is zero, more IR will be earned than if we can explicitly include it in the schedule”• It seems reasonable to look at periods of simultaneous DQ and MSQ

over a trading day, and work with the limited make whole mechanism where SRMC have not been recovered.

Make Whole or Paid Costs no Matter What

• As per all plant, it should pay back its offer

• Complication 2:• When paying back the offer, there is no guarantee that

inframarginal rent earned will cover the SRMC, as it was not included in the scheduler’s consideration

• So you may have to limit the returned payment during the period where there was greater MSQ than dispatch, to recover costs.

Not dispatched, and in Schedule

• Split the settlement of the plant into periods in the day where:

• There is dispatch greater than MSQ – pay the offer to the plant

• There is market schedule greater than dispatch – pay back the offer, subject to sufficient SMP being earned during that period

• There is matched market schedule and dispatch across the trading day• For matched quantities, determine if a make whole payment, calculated

over the Trading Day is necessary

What‘s the Proposal Then?