long term adequacy recommendation march 5, 2007 colleen fairhead gordon nadeau
TRANSCRIPT
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Long Term AdequacyRecommendationMarch 5, 2007
Colleen Fairhead
Gordon Nadeau
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Background
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DRAFT FOR DISCUSSION
What is LTA Initiative?
• On June 6, 2005 the Alberta Department of Energy (DOE) released a Wholesale Market Policy
• AESO began discussion with stakeholders on LTA in November 2005
• open invitation
• meeting information posted to website
• active participation by DOE
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DRAFT FOR DISCUSSION
Requirements of Policy Paper
• Metrics: The entire suite of LTA related information items, including historical data, forecasts and leading and lagging indicators that the AESO will regularly capture, calculate and report upon
• Thresholds: Specific points/quantum with respect to one or more metrics when if breached or forecast to be breached, the AESO may choose to implement one or more Threshold Actions
• Threshold Actions: The “out of market” measures the AESO may choose to implement to remedy an actual or impending LTA shortfall
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DRAFT FOR DISCUSSION
Principles
• The combination of Metrics, Thresholds, Threshold Actions and Enhancements will:
• work together harmoniously
• create awareness of long term adequacy in Alberta
• maintain the integrity of Alberta’s energy-only market
• The combination of Metrics, Enhancements, Thresholds, and Threshold Actions will not:
• be a self-fulfilling prophecy. For example, the generation developer community will not wait until the LTA Solution is executed before building generation
• create perverse incentives such that there are windfalls or substantial capital leaves Alberta or plant retirements are unduly advanced.
• be a price management tool.
• Stakeholders will not be “surprised” when and if any portions of the Action Plan are executed. Stakeholders will not be “surprised” at how the Action Plan is executed.
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DRAFT FOR DISCUSSION
What is LTA in an Energy Only Market?
• EUA states that “the need for and investment in generation of electricity are guided by competitive market forces”
• In energy only market, the market determines the right level of reserves
• Traditionally regulated markets set reserve margin targets
• Some markets implement capacity markets to encourage investment, due to significant bid mitigation and transmission constraints
• What happens if that level is not enough?
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DRAFT FOR DISCUSSION
Bridge A Temporary Adequacy Gap
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DRAFT FOR DISCUSSION
Locational Resource Adequacy
• LTA does not address threshold or threshold actions if adequacy is an issue on a regional basis
• Regional issue suggests the problem is transmission adequacy, not generation adequacy
• Regional issues are currently dealt with through Operating Policies and Procedures
• LTA recommendations do not directly apply, however similar tools may be considered
• Transmission status will continue to be reported, and likely be referenced in adequacy reports
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DRAFT FOR DISCUSSION
Market Modifications
• Early in process, stakeholders expressed a desire to address “market modifications”
• Market Modifications: Any changes to the market that the AESO can implement on a permanent basis to improve LTA and decrease the probability of a Threshold being breached
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Recommendations
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Metrics
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DRAFT FOR DISCUSSION
Rationale for Metrics
• Suite of metrics chosen because:
• They cover the key elements which directly or indirectly measure adequacy
• Are relatively simple to understand and will promote understanding of the market
• To the extent possible, are based on publicly available and verifiable information
• Provides an outlook on adequacy
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DRAFT FOR DISCUSSION
Metrics Reporting
• AESO would publish a quarterly report providing a snapshot of all metrics
• Some metrics may be published separately and updated on an ongoing basis
• Publication timing would be developed through the ISO rule process
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DRAFT FOR DISCUSSION
Metrics
• New Generation Status and Retirements
• Reserve Margin
• Supply Cushion
• Two Year Probability of Supply Adequacy Shortfall
• Loss of Load Probability (LOLP) and Expected Unserved Energy (EUE)
• Generation Investment Signposts
• Contribution to Fixed Costs of Notional Gas Fired Peaking Unit
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DRAFT FOR DISCUSSION
New Generation Status and Retirements
• Near term outlook for generation capacity in Alberta
• Information drawn from wide variety of publicly available sources; AESO confidential information would not be disclosed
• Information provided on four general categories:
• Active Construction: generation projects under construction or otherwise committed to completion
• Approved: projects that have secured regulatory or other approvals and permits required to proceed
• Announced: projects in the early study stage or have a limited level of investment
• Retirements: units being demolished or otherwise committed to retirement; potential retirements associated with expiring PPA contracts
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DRAFT FOR DISCUSSION
Reserve Margin
• Historical and forecast outlook for AIL and AIES reserve margins
• Defined as: (Installed Generation Capacity – Peak Demand) x 100 Peak Demand
• Data Sources:
• Peak demand from AESO published load forecasts
• Existing generation from CSD report
• New capacity from Active Construction projects in New Generation metric
• Other scenarios, as development progresses
• Installed capacity will also address:
• Wind and hydro derates
• Cogeneration available capacity to meet peak
• Intertie capacity
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DRAFT FOR DISCUSSION
Supply Cushion
• Two year forecast of AIES available daily generation capacity and peak demand
• Defined as: (Total Daily Supply – Estimated forced outages) – Daily peak demand
where Total Daily Supply incorporates available energy excluding wind; available energy incorporates reported planned outages and estimated forced outages; forced outages are based on generator history
• Data Sources:
• Daily peak demand from AESO published load forecasts
• Existing generation from CSD report
• New capacity from active construction projects in New Generation metric
• Two years of reported planned outages (a new AESO market requirement)
• Total Daily Supply addresses:
• Hydro derates on monthly / seasonal average basis
• Cogeneration available capacity to meet daily peak
• Available wind and import ATC would also be provided for context
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DRAFT FOR DISCUSSION
2 Year Probability of Supply Adequacy Shortfall
• Two year probabilistic assessment of an AIES supply shortfall
• Supply shortfall expressed in terms of:
• Expected number of hours of involuntary curtailments,
• Expected total MWh’s not served, and/or
• Expected number of events of involuntary curtailment
• Data Sources:
• Hourly demand from AESO published load forecasts
• Existing generation from CSD report
• New capacity from committed projects in New Generation metric
• Two years of reported planned outages (a new AESO market requirement)
• The probabilistic model will have a distribution of outcomes addressing:
• Intermittent or energy limited production (wind and hydro)
• Generation outages and derates
• Available import ATC would be estimated within the model
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DRAFT FOR DISCUSSION
Loss of Load Probability (LOLP) and Expected Unserved Energy (EUE)
• Long term probabilistic assessment of an AIES supply shortfall
• Supply shortfall expressed in terms of:
• Probability of involuntary curtailments expressed in total hours,
• Expected total amount of unserved load in MWh’s
• Data Sources:
• Hourly demand from AESO published load forecasts
• Existing generation from CSD report
• New capacity from New Generation metric plus estimated cost of new generation
• Two years of reported planned outages (a new AESO market requirement)
• Estimated price responsive load (AESO estimate)
• Forward fuel prices (published source to be determined)
• The probabilistic model will require:
• The calculation of hourly pool prices (not expected to be published)
• An assessment of the cost of entry for all potential types of new generation
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DRAFT FOR DISCUSSION
Generation Signposts
• Short term forecast which compares several generation investment indicators specifically:
• Reserve margin
• Forward electricity and natural gas prices
• Levelized cost in $/MWh of new generation (coal-fired, gas-fired, wind)
• Data Sources:
• Reserve margin metric
• Energy prices from publicly available sources (brokers, NGX)
• Levelized cost components reported and easily calculated; data sources to be determined but non-confidential information used
• The metric will seek to identify general inconsistencies between the need for new generation, forward prices and the cost to build new generation
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DRAFT FOR DISCUSSION
Contribution to Fixed Costs of Notional Gas Fired Peaking Unit
• Historical investment indicator which shows the contribution to fixed capital a new gas-fired peaker could have received over the previous three years.
• Data Sources:
• Hourly electricity prices (AESO)
• Daily natural gas prices (NGX)
• The metric is not a forecast, only a rough investment indicator which provides an opportunity to compare the capital cost of a new unit to fixed cost contribution that might have been received.
• It does not attempt to access the impact that adding a new unit might have had on pool price.
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Threshold
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DRAFT FOR DISCUSSION
Threshold
• 2 year Probability of Supply Adequacy Shortfall (2yrPSAS)
• Value has to be determined after metric is developed and historical information is evaluated
• Will be used to determine when Threshold Action should – and should not – be implemented
• Expect threshold level to proceed through normal rule consultation processes
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Threshold Actions
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DRAFT FOR DISCUSSION
Objective
• Effective – must directly address an impending adequacy issue
• Market stability and certainty – assess the impact, however understanding that it will be hard to predict
• Cost – all actions will have a cost. Actual cost will be difficult to predict.
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DRAFT FOR DISCUSSION
Threshold Actions
• Load Shed Service
• Offer to curtail load
• Back-up Generation
• Existing generators, not built with intention of offering into the market
• Excess to onsite needs
• Emergency Portable Generation
• Temporary addition offered by stakeholder
• Considered complementary services that would compete on similar terms
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DRAFT FOR DISCUSSION
Threshold Action Options
• Other options considered (in report appendix)
• Some expected to have a significant financial cost that outweighs the perceived contribution to the LTA bridging solution
• Others require significant structural market changes
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DRAFT FOR DISCUSSION
Terms of Threshold Actions
• Terms of contract to be determined
• Only contracted when necessary
• Only called upon when in supply shortfall procedures
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DRAFT FOR DISCUSSION
Main Contract Features
• MW Amount
• Minimum Length of curtailment period/minimum run time
• Notice period prior to dispatch
• Compensation
• Penalties
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DRAFT FOR DISCUSSION
Rationale for Threshold Actions
• Expected can provide significant capacity at the time it is required, and relatively quickly
• Minimal impact on the market when they are procured and when they are dispatched
• Costs could be significant when procured (unsure of what offers will be), however overall cost should be much lower than most other options
• Timeliness of procurement – purchased only when necessary
• No long term capacity payments
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DRAFT FOR DISCUSSION
Who Pays?
• Load would pay for threshold actions
• Rationale: Alternative is that load would be curtailed (and pay through curtailment) or pay for load shed service to avoid curtailment
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DRAFT FOR DISCUSSION
Will it work?
• Precedent that reasonable capacity was offered through a similar program in 1998 – 2000
• About 600 MW of interest, although each month there was 112 to 190 MW offered
• DOE study referenced in 2005 market policy indicated that there could be about 600 MW of curtailable load available.
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Market Modifications
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DRAFT FOR DISCUSSION
Outage Reporting
• Report outages and expected retirements 24 months in advance
• Submitted on monthly basis
• Used as input into adequacy reports
• Continues to be confidential
• Increase accuracy of metrics
• Improve AESO planning ability
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DRAFT FOR DISCUSSION
Outage Reports
• AESO to report historical actual outage information
• Information generally available today, although not in a convenient format and may not be fully inclusive
• May provide historical information on outage forecast schedules
• Metrics can be replicated, albeit at a later date
• Enables evaluation of accuracy of forecasts
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DRAFT FOR DISCUSSION
Scope of Market Modifications
• Some interest to expand scope of project to include more modifications
• Price cap/floor
• Interties
• Demand Response
• Concerned that such discussions will extend outside scope of LTA
• Market Power
• Transmission Planning
• Interjurisdictional issues
• Mixed stakeholder views
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Additional Items Considered
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DRAFT FOR DISCUSSION
Threshold Actions Not Recommended Under LTA
• Adequacy Contracts
• Acquire Intertie Right of Way/Add Intertie Capacity
• Lowering Interval Meter Threshold
• Temporary Price Cap Increase
• Constrained on Payments to Generators
• Acquire Site for Portable Generation
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DRAFT FOR DISCUSSION
Market Modification Items Not Recommended Under LTA
• Permanent Increase to Price Cap
• Formal Outage Coordination
• Ancillary Service Expansion
• Education for Demand Side Response
• Force Wait Period for a Generating Unit to Return from Retirement
• Discipline for Price Offer Pairs
• Improvements to Distribution Rate Structure
• Load Purchases Long Term Capacity Options
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Next Steps
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DRAFT FOR DISCUSSION
Next Steps
• Submission Feedback – Thursday, March 8
• Progressing development of metrics
• Will initiate discussions with stakeholders within next month
• Rules process
• Will be initiated after recommendation is finalized
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DRAFT FOR DISCUSSION
Metrics Timeline
Feb Mar Apr May Jun Jul Aug Sep Oct Group I Metrics
Group II Metrics
Group III Metrics
Group I Metrics New Generation Status/Retirements
Reserve Margin Supply Cushion
2 Yr. PSAS
Group II Metrics Generation Signposts
Contribution to fixed costs of Notional Peaking Unit
Group III Metrics LOLP EUE
First Issue* Second Issue**
First Issue* Second Issue**
First Issue* Second Issue**
* Draft for public comment ** Final version with documentation
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DRAFT FOR DISCUSSION
Contact Information
Colleen Fairhead
(403) 539-2462
Gordon Nadeau
(403) 539-2568
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Discussion
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