spp.org 1 workshop aug 24 - final.pdf · incremental heat rate (mmbtu/mwh) 10 no-load heat...

SPP.org 11

MOPC Workshop Series on

Future Markets: Session I

August 24, 2010

SPP.org 2

Agenda

Introduction

The Day Ahead Market

Reliability Unit Commitment (RUC)

The Real-Time Balancing Market

Financial Schedules

Virtual Transactions

Co-optimization

Scarcity Pricing

SPP.org 3

Objectives

Describe high level overview of the relationships between the DA

Market, RUC, and RTBM.

Define Demand Bids and Resource Offers in the Day-Ahead Market

Provide examples for Demand Bids and Resource Offers cleared in

the DA Market.

Define virtual transactions and financial schedules

Explain examples for virtuals transactions and financial schedules.

Define co-optimization of Energy and Operating Reserves

Understand example of a co-optimized, least-cost solution.

Define scarcity pricing of Operating Reserves

Identify examples of scarcity pricing in the Future Market design

SPP.org 4

INTRODUCTION

SPP.org 5

Future Markets Motivation

• Increase Market Participant savings by moving from self-

commitment to centralized unit commitment

• Create a Day-Ahead Market so members can get price

assurance capability prior to real-time

• Market-based Operating Reserves to support the

Consolidated Balancing Authority (CBA)

SPP.org 6

Future Market Products

Energy

Operating Reserve

Regulation

o Regulation Up

o Regulation Down

Spinning

Supplemental

SPP.org 7

SPP Regulation Reserve Definition

Regulation Deployment

The utilization of Regulation-Up and Regulation-Down through Automatic

Generation Control (“AGC”) equipment to automatically and continuously

adjust Resource output to balance the SPP Balancing Authority Area in

accordance with NERC control performance criteria.

Regulation-Down

Resource capacity that is available for the purpose of providing Regulation

Deployment between zero Regulation Deployment and the down direction.

Regulation-Up

Resource capacity held in reserve for the purpose of providing Regulation

Deployment between zero Regulation Deployment and the up direction.

SPP.org 8

SPP Spinning Reserve Definition

“The portion of Contingency Reserve consisting of

Resources synchronized to the system and fully available to

serve load within the Contingency Reserve Deployment

Period following a contingency event.”

SPP defines contingency deployment period as 10 minute

interval

SPP.org 9

SPP Supplemental Reserve Definition

“The portion of Operating Reserve consisting of on-line or

off-line Resources capable of being synchronized to the

system that is fully available to serve load within the

Contingency Reserve Deployment Period following a

contingency event.”

SPP defines contingency deployment period as 10 minute

interval

SPP.org 10

Future Energy and Operating Reserve Market Functions

Day -Ahead Market

(DA Market)

Real -Time Balancing

Market(RTBM)

Reliability Unit Commitment

(RUC)

DA Market & Net RTBM Settlements

DA Market Offers (Energy and Operating Reserve), Bids, Operating Reserve

Requirements

DA Market Commitment, Cleared Energy and Operating

Reserve (MW and Price) (hourly)

Resource and Load

Meter Data

Dispatch Instruction, cleared Operating Reserve

(MW) (5 minute)

DA Market Commitment

RUC Commitment

EMS

RTBM Offers, Load Forecast, Operating

Reserve Requirements

TCR Markets




(MW and Price) (5 minute)

Day -Ahead Market

(DA Market)

Real -Time Balancing

Market(RTBM)

Reliability Unit Commitment

(RUC)

DA Market & Net RTBM Settlements

DA Market Offers (Energy and Operating Bids, Operating Reserve

Requirements

DA Market Commitment, Cleared Energy and Operating

Reserve (MW and Price) (hourly)

Resource and Load

Meter Data


(MW) (5 minute)

rCommitm

RUC Commitment

EMS



TCR Markets



Dispatch

Operating R(MW and Price)

(5 minute)

SPP.org 11

Example Conventions

To stay consistent with SPP Settlements, all the examples

throughout the presentation that involve settlement

calculations follow the convention below:

l)(Withdrawa Actual

)(Injection Actual (RT)Amount Actual Settlement

l)(Withdrawa Award

)(Injection Award (DA)Amount Cleared Settlement

SPP

SPP

SPP.org 12

THE DAY-AHEAD MARKET

(DA Market)

SPP.org 13

Understanding The Day Ahead Market

The Day Ahead Market provides Market Participants with

the ability to submit offers to sell Energy, Regulation-Up,

Regulation-Down, Spinning Reserve and Supplemental

Reserve and/or to submit bids to purchase Energy

SPP goal is to create a financially-binding day-ahead schedule for Energy and Operating Reserves

SPP will use a “Security-Constrained Unit Commitment” software to derive the day-ahead schedule, based on resource offers and bids submitted by Market Participant at 11 am on the day prior to Operating Day

SPP.org 14

Understanding The Day Ahead Market

Generation committed through the Day-Ahead Market is

selected by SPP in a way that results in the lowest total

production cost to serve bid in load and to meet Operating

Reserve requirements in the Day-Ahead Market.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Me

ga

wa

tts Generation cleared in DA Market

Bid in Load and Operating Reserves

cleared in DA Market

Hour

Self Committed Resources

(Day Ahead Input)

SPP.org 15

Highlights

Market Participants submit Offers and Bids by 11:00 am

previous day to Operating Day

Suppliers submit MW quantity and price offers for each hour of Operating Day including any Operating Reserve Offers

Loads submit MW requirement bids for each hour of Operating Day including any price sensitive load bids

Includes offers / bids for virtual supply and virtual load

Security Constrained Unit Commitment (SCUC) scheduling

software co-optimizes Energy and Operating Reserves for

least cost solution

SPP.org 16

Highlights

Locational Marginal Prices (LMPs) and Operating Reserve

Market Clearing Prices (MCPs) posted by 4:00 PM previous

day to Operating Day

Cleared Energy supply paid at Settlement Location LMP

Cleared Energy demand charged at Settlement Location LMP

Cleared Operating Reserves paid at the Reserve Zone MCPs

SPP guarantees revenue sufficiency of committed resource

Offers

Supply-Demand deviations settled in Real-Time Market

SPP.org 17

Cleared Energy &

OR Offers

Cleared Energy

Bids: Virtuals &

Demand

Cleared Import,

Export &

Interchange

Transactions

RTBM Resource

Offers

DA Resource

Commit

Schedules

SPP Operating

Reserve

Requirements

RTBM Resource

Offers

DA Resource

Commit

Schedules

SPP Operating

Reserve

Requirements

[SCUC]

RTBM Resource

Offers

DA Resource

Commit

Schedules

DA Confirmed

Import, Export &

Interchange

Transactions

Resource

Outage

Notifications

SPP Operating

Reserve

Requirements

SPP Forecasts

(Load & Wind)

DA Market

Demand Bids

DA Market

Resource Offers:

Energy and OR

DA Market

Import, Export &

Interchange

Transactions

Resource

Outage

Notifications

SPP Operating

Reserve

Requirements

Virtual Energy

Offers and Bids

SPP.org 18

DA Market Timeline

- SPP Publishes Load and Wind Forecast

- SPP publishes Operating Reserve requirements

- Submit DA Demand Bids, Unit Offers (Energy & OR), Virtual bids & offers and physical transactions to SPP

- SPP runs SCUC in the day-ahead mode

- Submit revised offers and/or self schedules for units that were not selected in DA run

- SPP runs SCUC in RUC mode

- SPP reports DA RUC results to affected market participants

0600 19001100 1600 1700 2000

Day Prior to Operating Day

SPP.org 19

What Data Will Market Participants Need to

Submit to SPP for Resources?

3-Part Energy Offers

Energy Offer Curve

($/MWh as a function of

MW)

Startup Offers ($/Start for

hot, warm, and cold

starts)

No-Load Offers ($/hr)

Operating Reserve Offers

Regulation Up ($/MW)

Regulation Down ($/MW)

Spin ($/MW)

Supplemental ($/MW)

SPP.org 20


Submit to SPP for Resources?

Operating Parameters and

Limits

Ramp rates

Hourly min and max operation

limits

Hourly min and max emergency

limits

Min and max run time,

Min down time

Etc.

Commit Status

Market

Reliability

Self

Outage

Energy Dispatch Status

Market

VER

Not Qualified

OR Dispatch Status

Market

Fixed

Not Qualified

SPP.org 21

Start-Up Offer

No-Load Offer

Energy Offer

The cost for operating a

synchronized Resource at

zero (0) MW output.

The cost that a Market Participant

incurs in starting up a generating unit

A set of price/quantity

pairs that represents the

offer to provide Energy

from a Resource

Energy 3-Part Offer

SPP.org 22

Energy 3-Part Offer Example

Resource Type 120 MW Gas Unit

Fuel Gas

Fuel Cost ($/MMBTU) 7

Incremental Heat Rate (MMBTU/MWh) 10

No-Load Heat (MMBTU/Hr) 100

Startup Fuel Requirement (MMBTU) Hot=1000;Warm=2000;Cold=2500

Min Econ. Capacity Limit (MW) 25

Max Econ. Capacity Limit (MW) 120

Consider the following Market Participant Resource:

Assuming the Market Participant decides to offer this

Resource at cost, formulate its 3-part offer

SPP.org 23

Energy 3-Part Offer Example

Resource Type 120 MW Gas Unit

Fuel Gas

Fuel Cost ($/MMBTU) 7

Incremental Heat Rate (MMBTU/MWh) 10

No-Load Heat (MMBTU/Hr) 100

Startup Fuel Requirement (MMBTU) Hot=1000;Warm=2000;Cold=2500

Min Econ. Capacity Limit (MW) 25

Max Econ. Capacity Limit (MW) 120

Consider the following Market Participant Resource:

Hot Warm Cold

7,000 14,000 17,500

MW $/MWh

25 70

120 70

700

Startup Offer ($) No Load Offer ($/h) Incremental Offer

SPP.org 24


An Operating Reserve Offer is an offer to supply Reserve

Product capacity

Impact:

Financial

o Market Participants receive payment for cleared Offers

Reliability

o Additional capacity offered into the DA Market allows SPP to

cover all of its Operating Reserve Requirements

SPP.org 25


Submit to SPP for Loads?

Fixed Demand Bids

Market Participants specify a MW quantity, load location, and hours

and become price takers. The bid will be cleared regardless of the

price at the load settlement location.

Price-Sensitive Demand Bids

Market Participants specify a MW quantity/price pairs, load location,

and hours. A price sensitive demand bid is a bid to buy generation

as the price decreases.

SPP.org 26

|Example 1|

Day Ahead Market: Incremental Energy Offer

• MP1 submits the DA Incremental Offer Curve below for

resource Gen1 for hour 1100. Assuming Gen1 is online and

that DA Market LMP clears at $40/MWh, determine Gen1’s

expected:

•DA Energy award

•DA Energy credit / charge

DA Energy Award = 65 MWh

MW $/MWh

25 10

50 25

75 50

120 60

Gen1 DA Energy Offer Curve

MP1

Gen1 Load1

DA Energy Credit/Charge = - DA Award *

DA LMP = -65 x 40 = -$2600 (credit)

SPP.org 27

|Example 2|

Day Ahead Market: Price Sensitive Demand Bid

• Assume MP1 submits the DA Price Sensitive Demand Bid

Curve below for resource Load1 for hour 1100. If DA Market

LMP clears at $40/MW, determine Load1’s expected:

•DA Energy award

•DA Energy credit / charge


MW $/MWh

25 80

50 55

75 30

100 25

Load1 DA Energy Bid Curve

MP1

Gen1 Load1

DA Energy Credit/Charge = DA Award * DA

LMP = 65 x 40 = $2,600 (charge)

SPP.org 28

|Example 3|

Day Ahead Market: Operating Reserve Offer

Gen 1Oper. Cap. Max(MW): 120Spin Cap. Max (MW): 15

• MP1 submits a $5/MW DA Spin Offer for resource Gen1 for

1100. Assume Spin clears the DA Market at a 12 $/MW MCP

and that Gen1 cleared 65 MW of Energy. Determine Gen1’s

expected:

•DA Spin award

•DA Spin credit/charge

DA Spin Award = Min [15, 120 – 65] = 15 MW

DA Spin Credit/Charge = - DA Award * DA

MCP = - 15 x 12 = -$180 (credit)

MP1

Gen1 Load1

Max Spin

Cap.(MW)

$/MW

15 5

Gen1 DA Spin Offer

SPP.org 29

Understanding Make Whole Payments

SPP Market offers the

Make-Whole Payment

guarantee: all units that

are started by the RTO

receive enough DA

revenues to cover their 3-

part offers (Energy, No-

Load, and Startup Offers)

and Operating Reserve

Offers

Energy Offer

No-Load Offer

Startup Offer

Market

Revenues

Make-Whole

Payment

OR Reserve

Offer

SPP.org 30

|Example 4|

Day Ahead Market: Understanding Make Whole Payments

Assume that:

• Gen1 is initially on-line

• SPP Commits Gen1 unit for all 24 hours

• DA LMP = 40 $/MWh for all 24 hours

• DA Schedule = 65 MWh for all 24 hours

Let’s determine:

a. DA Revenues

b. DA Costs

c. DA Make-whole Payment

MP1

Gen1 Load1

MW $/MWh

25 10

50 25

75 50

120 60


Gen 1Oper. Cap. Max(MW): 120Startup Offer ($/start) 17,500

No-Load ($/hr) 700

SPP.org 31

Assume that:

• Gen1 is initially on-line

• ISO Commits Gen1 unit (cold start) for all 24 hours



Answers:

DA Revenues = DA LMP x DA Energy Award x 24

(40 x 65 ) x 24 = $62,400

DA Costs = (DA Energy Cost + DA No-Load Cost) x 24

= (1,175 + 700) x 24 =$45,000

DA Make-Whole Payment = Min{0;DA Rev-DA Cost)

= $0

MP1

Gen1 Load1

MW $/MWh

25 10

50 25

75 50

120 60



No-Load ($/hr) 700

|Example 4|

Day Ahead Market: Understanding Make-Whole Payments

SPP.org 32

Assume that:

• Gen1 is initially off-line

• SPP Commits Gen1 unit (cold start) for all 24

hours



Let’s determine:

a. DA Revenues

b. DA Costs

c. DA Make-Whole Payment

MP1

Gen1 Load1

MW $/MWh

25 10

50 25

75 50

120 60



No-Load ($/hr) 700

|Example 5|


SPP.org 33

Assume that:

• Gen1 is initially off-line

• SPP Commits Gen1 unit (cold start) for all 24

hours



Answers:

DA Revenues = DA LMP x Energy Award x 24

(40 x 65 ) x 24 = $62,400

DA Costs = (Energy Cost + No-Load Cost) x 24

+ Startup Cost

= (1,175 + 700)x24 + 17,500 = $62,500

DA Make-Whole Payment = Min{0;DA Rev-DA Cost)

= -$100 (credit)

MP1

Gen1 Load1

MW $/MWh

25 10

50 25

75 50

120 60



No-Load ($/hr) 700

|Example 5|


SPP.org 34

RELIABILITY UNIT COMMITMENT

(RUC)

SPP.org 35

Understanding RUC

RUC is required to ensure reliable operating plan during the

operating day

Day-Ahead RUC performed following Day-Ahead Market clearing

Intra-Day RUC performed throughout the operating day as needed,

at least every 4 hours

RUC process ensures that Market physical commitment produces

adequate capacity to meet SPP Load Forecast and Operating

Reserve requirements in real-time

Uses SCUC algorithm to commit / de-commit additional resources

as needed

SPP.org 36

Understanding RUC

Hour

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Me

ga

wa

tts

Generation

cleared in DA

Market

Bid in Load and Operating

Reserve cleared in DA

Market

Self Committed Resources

Generation committed

in RUC

Generation

de-committed

in RUC

SPP Load Forecast and Operating

Reserve Requirements (RUC Input)

SPP.org 37

Highlights

Reliability Unit Commitment (RUC) ensures enough capacity, in addition

to Operating Reserve capacity, is committed to reliably serve the SPP

forecasted load for the next operating day

All Market Participants need to submit offers for all their registered

resources that are not on a planned, forced or otherwise approved

outage (Real-Time Balancing Market Resource Offers)

RUC will take into consideration the cleared resource commitment

schedules from the DA Market or previous RUC clearing process

(dependent upon market timeline)

Same as in the Day-Ahead Market, Resources committed by the RUC

processes are subject to make-whole payments given that they meet

the eligibility criteria

SPP.org 38

Highlights

A Security Constrained Unit Commitment (SCUC) program

is used in order to commit (decommit) and dispatch

committed resources based on submitted 3-Part Energy

Offers and Operating Reserve Offers in order to meet SPP

Load Forecast and Operating Reserve Requirements,

respecting transmission system operating constraints

RUC clearing is performed for Energy and Operating

Reserve products on a least cost, co-optimized basis

accounting for Resource marginal impacts on the

transmission network (marginal system losses and

congestion)

SPP.org 39

Resource

Commit /

De-commit

Schedules

Resource

Dispatch and

AGC

Notifications

Fixed Interchange

Transaction

Curtailment

Notification

RTBM Resource

Offers

DA Resource

Commit

Schedules

SPP Operating

Reserve

Requirements

RTBM Resource

Offers

DA Resource

Commit

Schedules

SPP Operating

Reserve

Requirements

[SCUC]

RTBM Resource

Offers

DA Resource

Commit

Schedules

DA Confirmed

Import, Export &

Interchange

Transactions

Resource

Outage

Notifications

SPP Operating

Reserve

Requirements

SPP Forecasts

(Load & Wind)

DA Confirmed

Import, Export &

Interchange

Transactions

RTBM Resource

Offers

DA Resource

Commit

Schedules

Resource

Outage

Notifications

SPP Operating

Reserve

Requirements

SPP Forecasts

(Load & Wind)

SPP.org 40

Day-Ahead RUC vs. Intra-Day RUC

Both RUC processes share the same purpose: ensure a

reliable operating plan during the operating day

Both processes use similar input data:

Day-Ahead RUC uses outputs from Day-Ahead Market

clearing process and the SPP available forecasts in the

Day-Ahead period.

Intra-day RUC uses outputs from the Day-Ahead

Market, Day-Ahead RUC and previously run Intra-day

RUC processes within the operating day

Intra-day RUC uses more up to date forecast data and

state estimator data closer to the operating hour

SPP.org 41

Day-Ahead RUC Timeline


- SPP reports DA RUC results to affected Market Participants

- Submit revised offers and/or self schedules for units that were not selected in DA run

1900 2000

Day Prior to Operating Day

1700

SPP.org 42

Intra-Day RUC Timeline

0800Operating Day

04000000 1200 1600 2000 2400


- SPP reports RUC results to affected Market Participants

- Submit revised offers and/or self schedules for units that were not selected in previous DA, DA RUC, Intra-Day RUC

Intra-Day RUC

Process =

Intra-Day RUC

Process

Intra-Day RUC

Process

Intra-Day RUC

Process

Intra-Day RUC

Process

Intra-Day RUC

Process

Intra-Day RUC

Process

SPP.org 43

THE REAL-TIME BALANCING MARKET

(RTBM)

SPP.org 44

Understanding the Real-Time Balancing Market

The Real-Time Balancing

Market (RTBM) serves as the

mechanism through which SPP

balances real-time load and

generation.

Resources are selected to be

increased (incremented) or

decreased (decremented) in

order to maintain system

balance

Generation Load

SPP.org 45

Highlights

Uses Security Constrained Economic Dispatch (SCED) to

ensure results are physically feasible.

Operates on a continuous 5-minute basis; calculates

Dispatch Instructions for Energy and clears Operating

Reserve by resource.

Energy and Operating Reserve are co-optimized.

Settlements are based on the difference between the

results of the RTBM process and the DA Market clearing.

Charges are imposed on Market Participants for failure to

deploy Energy and Operating Reserve as instructed.

SPP.org 46

Highlights

1-part offer: Energy Offer Curve


Regulation-up and Regulation-down

Spinning Reserve and Supplemental Reserves

Accommodates participation of supply and demand external

to SPP

Imports, exports and through transactions and external

resources

SPP.org 47

|Example 6|

Real-Time Balancing Market Energy Offer Curve

• MP1 clears DA as shown in Example 1 and then submits the

following Incremental Offer Curve for Resource Gen1 for hour

1100 in Real-Time. Assuming Gen1 is online and that RT

Market LMP is $40/MWh, Gen1’s dispatch instruction is

60MW for each interval of the hour.

•What will be settlement for this scenario?

RT Energy Actual= 60MWh

MW $/MWh

25 10

50 25

75 60

120 65

Gen1 RT Energy Offer Curve

MP1

Gen1 Load1

RT Energy Settlement = (RT Actual -DA Award)

x RT LMP = (-60 + 65) x 40 = $200.00 (charge)

SPP.org 48

• MP1 clears DA as shown in Example 1. Assuming Gen1 is

metered at 70 MWh at hour 1100 and that RT Market LMP

clears at $40/MWh, determine Gen1’s:

•RT Energy award

•RT Energy settlement

RT Energy Award = 70MWh

MW $/MWh

25 10

50 25

75 50

120 60

Gen1 RT Energy Offer Curve

MP1

Gen1 Load1

RT Energy Settlement = (RT Actual -DA Award)

x RT LMP = (-70+65) x 40 = -$200 (credit)

|Example 7|

Real Time Balancing Market Incremental Energy Offer

SPP.org 49

FINANCIAL SCHEDULES

SPP.org 50

Understanding Financial Schedules

Bilateral Transactions that transfer financial responsibility within the

SPP Market Footprint

Energy

Operating Reserve

May be entered up to 4 days after Operating Day

SPP.org 51


Energy Financial Schedules

Must specify

o Settlement Location

o MW amount

o Buyer

o Seller

o Pricing (Day-Ahead or Real-Time Balancing Market)

o Seller and Buyer confirmation of the transaction

SPP.org 52


Operating Reserve Financial Schedules

Must specify

o Reserve Zone

o Operating Reserve Product

o MW amount

o Buyer

o Seller

o Pricing

o Seller and Buyer confirmation of the transaction

SPP.org 53

MP1 MP2

Gen1 Load2

|Example 8|

Understanding Financial Schedules: Energy Bilateral

DA Market Clearing (Supply)

Energy Award(MW): 100

DA LMP ($/MWH): 40

DA Market Clearing (Load)

Energy Award (MW): 100

DA LMP ($/MWH): 50

Assume DA Market clears as shown above. MP2 purchases 100 MW from MP1 @ 45 $/MWH

by entering into a bilateral transaction. The parties agree to submit an 100 MW Financial

Schedule that is settled at MP1 Settlement Location. Determine MP1 and MP2 DA impacts if:

a) One of the Market Participants fails to confirm the above financial schedule with SPP

b) Both Market Participants confirm the financial schedule with SPP

SPP.org 54

|Example 8|


a) Financial Schedule not confirmed by Market Participants with SPP

MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

MP1 SPP Settlement

DA Market Settlement = - DA Award x DA LMP = 100 x 40 = -$4,000 (credit)

MP1 Books (this bilateral transaction occurs outside SPP)

MP1 gets paid by MP2 an amount equal to $4,500 (=100 x 45)

In total, the impact on MP1 is a total credit of $8,500 since the Financial Schedule was not

confirmed with SPP

SPP.org 55

|Example 8|


a) Financial Schedule not confirmed by Market Participants with SPP

MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

MP2 SPP Settlement

DA Market Settlement = DA Award x DA LMP = 100 x 50= $5,000 (charge)


MP2 pays MP1 an amount equal to $4,500 (= 100 x 45)

In total, the impact on MP2 is a total charge of $9,500 since the Financial Schedule was not

confirmed with SPP

SPP.org 56

|Example 8|


MP1 SPP Settlement

Gen1 DA Settlement = -DA Award x DA LMP = -100 x 40 = -$4,000 (credit)

DA Financial Schedule Settlement = Fin Sched x DA LMP = 100 x 40 = $4,000 (charge)

DA Net Settlement =- 4,000 + 4,000 = $0


MP1 gets paid by MP2 an amount equal to $4,500 (=100 x 45)

In total, the impact on MP1 is a total credit of $4,500 since the Financial Schedule was

confirmed with SPP

b) Financial Schedule confirmed by Market Participants to SPP

MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

SPP.org 57

|Example 8|


MP2 SPP Settlement

Load2 DA Settlement = DA Award x DA LMP = 100 x 50 = $5,000 (charge)

DA Financial Schedule Settlement = -Fin Sched x DA LMP = -100 x 40 = $4,000 (credit)

DA Net Settlement = 5,000 – 4,000 = $1,000 (charge)


MP2 pays MP1 an amount equal to $4,500 ( = 100 x 45)

In total, the impact on MP2 is a total charge of $5,500 since the Financial Schedule was

confirmed with SPP


MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

SPP.org 58

MP1 MP2

Gen1 Load2

|Example 9|




DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

Assume DA Market clears as shown above. MP2 purchases 100 MW from MP1 @ 45 $/MWH

by entering into a bilateral transaction. The parties agree to submit an 100 MW Financial

Schedule that is settled at MP2 Settlement Location.

Determine MP1 and MP2 DA impacts if both Market Participants confirm the financial

schedule with SPP

SPP.org 59

|Example 9|


MP1 SPP Settlement

Gen1 DA Settlement = -DA Award x DA LMP = -100 x 40 = -$4,000 (credit)

DA Financial Schedule Settlement = Fin Sched x DA LMP =100 x 50 = $5,000 (charge)

DA Net Settlement = - 4,000 + 5,000= $1,000 (charge)


MP1 gets paid by MP2 an amount equal to $4,500 ( = 100 x 45)

In total, the impact on MP1 is a total credit of $3500 since the Financial Schedule was

confirmed with SPP


MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

SPP.org 60

|Example 9|


MP2 SPP Settlement

Load 2 DA Settlement = DA Award x DA LMP = 100 x 50 = $5,000 (charge)

DA Financial Schedule Settlement = - Fin Sched x DA LMP = 100 x 50 = -$5,000 (credit)

DA Net Settlement = 5,000 – 5,000 = $0


MP2 pays MP1 an amount equal to $4,500 ( = 100 x 45)

In total, the impact on MP2 is a total charge of $4500 since the Financial Schedule was

confirmed with SPP


MP1 MP2

Gen1 Load2



DA LMP ($/MWH): 40



DA LMP ($/MWH): 50

SPP.org 61

VIRTUAL TRANSACTIONS

SPP.org 62

Understanding Virtual Transactions

What is a Virtual Transaction?

Virtual Energy Bids and Offers allow any Market Participant to bid or

offer at any Settlement Location in the SPP Day-Ahead Market.

If a virtual transaction is cleared, the Market Participant will settle

the Bid or Offer at the difference between the Day-Ahead Market

LMP and the Real-Time Balancing Market (RTBM) LMP for the full

amount of the Day-Ahead award.

The net effect of Virtual Energy Bids and Offers is to cause the Day-

Ahead LMP and RTBM LMP to converge.

o If there is a location that is expected to be more expensive in the DA

Market than in the RTBM, participants may be incented to submit

Virtual Energy Offers until, over time, the two markets equalize in price.

SPP.org 63

Understanding Virtual Transactions: Settlement

Virtual Offer

Offer Quantity (MW) into DA Market at an Offer Price ($/MWh)

If DA LMP > Offer Price, Offer is cleared in Day-Ahead for Offer Quantity

If cleared, Market Participant must buy back Energy awarded from SPP at the Real-

Time price

If DA LMP > RT LMP Market Participant realizes a profit

If DA LMP < RT LMP Market Participant incurs losses

Virtual Bid

Bid Quantity (MW) into DA Market at Bid Price ($/MWh)

If DA LMP < Bid Price, bid is cleared in day-ahead for Bid Quantity

If cleared, Market Participant must sell back Energy awarded to SPP at the Real-

Time price

If DA LMP < RT LMP Market Participant realizes a profit

If DA LMP > RT LMP Market Participant incurs losses

SPP.org 64

|Example 10|

Understanding Virtual Transactions: Virtual Offer

• MP1 submits a Virtual Energy Offer Curve for hour 1100 in

Day-Ahead. Assuming the DA LMP clears at $40/MWh and

the RT LMP clears at $35/MWh, determine the virtual’s:

•DA Energy award

•Net Energy Settlement of the Virtual financial position

MW $/MWh

5 25

10 35

15 45

MP1 DA Virtual Offer Curve

MP1

Gen1 Load1

DA Energy Award = 12.5 MWh

Net Energy Settlement = - DA Award x (DA LMP

– RT LMP) = -12.5 x (40-35) = - $62.5 (credit)

SPP.org 65

|Example 11|

Understanding Virtual Transactions: Virtual Offer

• MP1 submits a Virtual Energy Offer Curve for hour 1100 in

Day-Ahead. Assuming the DA LMP clears at $40/MWh and

the RT LMP clears at $45/MWh, determine the virtual’s:

•DA Energy award


MW $/MWh

5 25

10 35

15 45

MP1 DA Virtual Offer Curve

MP1

Gen1 Load1

DA Energy Award = 12.5 MWh

Net Energy Settlement = - DA Award x (DA LMP

– RT LMP) = -12.5 x (40-45) = $62.5 (charge)

SPP.org 66

|Example 12|

Understanding Virtual Transactions: Virtual Bid

• MP1 submits a Virtual Energy Bid Curve for hour 1100 in

Day-Ahead. Assuming that the DA LMP clears at $40/MWh

and the RT LMP clears at $35/MWh, determine the virtual’s:

•DA Energy award


MW $/MWh

5 45

10 20

15 5

MP1 DA Virtual Bid Curve

MP1

Gen1 Load1


Net Energy Settlement = DA Award x (DA LMP –

RT LMP) = 6 x (40-35) = $30 (charge)

SPP.org 67

|Example 13|

Understanding Virtual Transactions: Virtual Bid

• MP1 submits a Virtual Energy Bid Curve for hour 1100 in

Day-Ahead. Assuming that the DA LMP clears at $40/MWh

and the RT LMP clears at $45/MWh, determine the virtual’s:

•DA Energy award


MW $/MWh

5 45

10 20

15 5

MP1 DA Virtual Bid Curve

MP1

Gen1 Load1


Net Energy Settlement = DA Award x (DA LMP –

RT LMP) = 6 x (40-45) = - $30 (credit)

SPP.org 68

CO-OPTIMIZATION

SPP.org 69

Understanding Co-optimization

Why co-optimize?

There is a strong interaction between the supply of Energy

and the provision of Operating Reserve

Energy and Operating Reserve compete for same resource

capacity

Co-optimization evaluates the lost opportunity costs trade-offs

when allocating products (Energy, Operating Reserve)

SPP.org 70


When clearing the market (Day-Ahead and Real-Time), SPP must

determine an operating schedule that:

Minimizes the SPP total production costs, based on Offers and

Bids of Market Participants and ,

Maximizes Market Participants benefits for all the market products

that they have submitted Bids and Offers on,

Ensures that all reliability and transmission constraints are met.

The market clearing optimization engine proposed by SPP is a co-

optimization engine, which takes Bids and Offers of all market products

(Energy, Spinning Reserve, Regulation-Up, Regulation-Down,

Supplemental Reserve) for all Market Participants and simultaneously

determine the market products allocation amongst Market Participants

that achieves the above mentioned objectives.

SPP.org 71


Does co-optimization produce a schedule that minimizes the total

production cost for SPP?

Does co-optimization produce a schedule that maximizes operating

profits for Market Participants?

Can we explain Operating Reserve prices calculated by the

optimization engine?

SPP.org 72

MP2

Gen 1

Econ. Oper. Cap. Min (MW): 50

Econ. Oper. Cap. Max (MW): 120

Energy Offer Cost ($/MWH): 8

Spin Cap. Max (MW): 15

Spin Offer Cost ($/MW): 2

Load 1

Energy Forecast (MW): 100

End User Rate ($/MWH): 40

Spin Requirement (MW): 10

Gen 2






Load 2




Understanding Co-optimization: Examples

Consider 2 Market Participants MP1 and MP2 as above, each with generation resources

and load to serve with a reliability requirement in the form of Spinning Reserve.

How can these Market Participants benefit most from SPP future market operations?

Balancing Authority 1 Balancing Authority 2

MP1

SPP.org 73

MP2

Gen 1






Load 1



Gen 2






Load 2



Understanding Co-optimization: Examples

In SPP future market operations, there will be only one Consolidated Balancing Authority,

responsible for establishing reliability requirements throughout SPP network footprint.

In the following case studies, we assume that:

Both Market Participants belong to the same Reserve Zone and offer their

generation at cost,

The network has no congestion and no losses.

Reserve Zone


Consolidated Balancing Authority

MP1

SPP.org 74

MP2

Gen 1






Load 1



Gen 2






Load 2



Let’s determine:

Each Market Participant awards (Energy and Spin), operational cost and LMP,

The Reserve Zone Spin MCP,

SPP total production cost,

Each Market Participant profit margin.

Reserve Zone


MP1

|Example 14|

Understanding Co-optimization: Non-Co-optimized case

Market Participants self-schedule their participation in the market (100 MW Energy and 10 MW Spin

each)

SPP.org 75

MP2

Gen 1






Load 1



Gen 2






Load 2



Let’s determine:





Reserve Zone


MP1

|Example 14|



each)

SPP.org 76

MP2

Gen 1


Spin Award (MW): 10

Load 1


Gen 2


Spin Award (MW): 10

Load 2


|Example 14|


MP1 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 100 800

Spin 10 20

Total - 820

MP2 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 100 1,000

Spin 10 30

Total - 1,030

LMP = 8 $/MWH LMP = 8 $/MWH

Total System Operational Cost = $ 1,850

Spin Market Clearing Price = 2 $/MW

Reserve Zone



each)

MP10 MW >>

SPP.org 77

MP2

Gen 1


Spin Award (MW): 10

Load 1


Gen 2


Spin Award (MW): 10

Load 2



Explaining LMPs: Why is LMP = 8 $/MWH at MP1’s price node?

Answer: if we increase the load at MP1’s price node by 1 MW, that increase would be most

economically met by:

- increasing Gen 1’s energy schedule by 1 MW → production cost impact = (101-100) x 8 = $ 8


|Example 14|


Reserve Zone



each)

MP10 MW >>

SPP.org 78

MP2

Gen 1


Spin Award (MW): 10

Load 1


Gen 2


Spin Award (MW): 10

Load 2




|Example 14|


Reserve Zone



each)

MP10 MW >>

Explaining MCPs : Why is Spin Clearing Price = 2 $/MW?

Answer: if we increase the Spinning Reserve system requirement by 1 MW, that need would be most


- increasing Gen 1’s Spinning Reserve schedule by 1 MW → production cost impact = (11-10) x 2 = $ 2

SPP.org 79

MP2

Gen 1


Spin Award (MW): 10

Load 1


Gen 2


Spin Award (MW): 10

Load 2



Operating Profit

Revenues ($) Costs ($) Net Profit ($)

Generation MP1: 820.00 820.00 0.00

Charges ($) Revenues ($) Net Profit ($)

Demand MP1: 820.00 4,000.00 3,180.00

Operating Profit


Generation MP2: 820.00 1,030.00 -210.00


Demand MP2: 820.00 4,500.00 3,680.00

MP1 Profit = $ 3,180 MP2 Profit = $ 3,470


|Example 14|


Reserve Zone



each)

MP10 MW >>

SPP.org 80

MP2

Gen 1






Load 1



Gen 2






Load 2



Let’s determine:





Reserve Zone



MP1

|Example 15|

Understanding Co-optimization: Co-optimized case

Market Participants offer their true economic limits and let SPP co-optimize the market

SPP.org 81

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2


MP1 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 115 920

Spin 5 10

Total - 930

MP2 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 85 850

Spin 15 45

Total - 895


Total System Operational Cost = $ 1,825

15 MW >>


(vs. $ 1,850 in Example 14)

|Example 15|



Reserve Zone


MP1

SPP.org 82

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



15 MW >>

Explaining LMPs : Why is LMP = 10 $/MWH at MP1’s price node?



- increasing Gen 2’s energy schedule by 1 MW → production cost impact = (86-85) x10 = $ 10


|Example 15|


Reserve Zone



MP1

SPP.org 83

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



15 MW >>

Explaining LMPs : Why is LMP = 10 $/MWH at MP1’s price node?



- increasing Gen 2’s energy schedule by 1 MW → production cost impact = (86-85) x10 = $ 10


|Example 15|


Reserve Zone



MP1

SPP.org 84

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



15 MW >>

Explaining MCPs: Why is Spin Clearing Price = 4 $/MW?

Answer: if we increase the Spinning Reserve system requirement by 1 MW, that need would be most


- decreasing Gen 1’s energy schedule by 1 MW → production cost impact = (114 – 115) x 8 = - $ 8

- increasing Gen 2’s energy schedule by 1 MW → production cost impact = (86-85) x 10 = $ 10

- increasing Gen 1’s Spinning Reserve schedule by 1 MW → production cost impact = (6-5) x 2 = $ 2


|Example 15|


Reserve Zone



MP1

SPP.org 85

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



Operating Profit


Generation MP1: 1,170.00 930.00 240.00


Demand MP1: 1,040.00 4,000.00 2,960.00

Operating Profit


Generation MP2: 910.00 895.00 15.00


Demand MP2: 1,040.00 4,500.00 3,460.00

MP1 Profit = $ 3,200 MP2 Profit = $ 3,475

15 MW >>

(vs. $ 3,180 in Example 14) (vs. $ 3,470 in Example 14)


|Example 15|


Reserve Zone



MP1

SPP.org 86

MP1 MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



15 MW >>

Explaining Profit Maximization: Is MP2 Profit maximized?

Answer: Yes, since MP2 is being awarded as much spinning reserve (its most profitable product) first

followed by energy next (less profitable product).

Offer

($/MW)

Market Price

($/MW)

Profit Margin

($/MW)

Energy: 10 10 10 – 10 = 0

Spin: 3 4 4 – 3 = 1


|Example 15|


Reserve Zone



SPP.org 87

MP2

Gen 1


Spin Award (MW): 5

Load 1


Gen 2


Spin Award (MW): 15

Load 2



15 MW >>

Explaining Profit Maximization: Is MP1 Profit maximized?

Answer: Yes, since MP1 is being awarded as much energy first, followed by Spinning Reserve. Note

that both products are equally profitable for this Market Participant.

Offer

($/MW)

Market Price

($/MW)

Profit Margin

($/MW)

Energy: 8 10 10 – 8 = 2

Spin: 2 4 4 – 2 = 2


|Example 15|


Reserve Zone



MP1

SPP.org 88

Understanding Co-optimization: Conclusion

Does co-optimization produce a schedule that minimizes the total

production cost for SPP?

Answer: YES

Does co-optimization produce a schedule that maximizes

operating profits for Market Participants?

Answer: YES

No Co-

optimization

With Co-

optimization

System Cost ($): 1,850 1,825

No Co-

optimization

With Co-

optimization

MP1 Profit ($): 3,180 3,200

MP2 Profit ($): 3,470 3,475

Total MPs Profits ($): 6,650 6,675

SPP.org 89

Can we explain Operating Reserve prices calculated by the

optimization engine?

Answer: YES

Operating Reserve Clearing Price = Lost Opportunity Cost +

Operating Reserve Offer Price for marginal unit (which

provides the next MW for the Operating Reserve product)

Decreasing Gen 1’s energy schedule by 1 MW:

production cost impact = (114 – 115) x 8 = - $ 8

Lost Opportunity Cost = 2 $

Marginal Unit Offer Price = 2 $Increasing Gen1’s Spinning Reserve schedule by 1 MW:

production cost impact = (6-5) x 2 = $ 2

Increasing Gen 2’s energy schedule by 1 MW:

production cost impact = (86 – 85) x 10 = $ 10

Co-optimized Scenario (Example 9): MCP for Spinning Reserve

+

Understanding Co-optimization: Conclusion

SPP.org 90

SCARCITY PRICING

SPP.org 91

Understanding Scarcity Pricing

Scarcity Pricing is a market mechanism that allows prices to

rise automatically when there is a shortage of supply in the

market

Prices set by scarcity pricing should reflect the level of

shortage in supply

Scarcity prices enhance market efficiency and reliability

o May stimulate demand response

o Draw supply from outside the SPP Balancing Authority

o Incentivizes generation availability during peak loads

o Promotes long-term contracting

SPP.org 92

Understanding Scarcity Pricing

SPP has implemented Scarcity Pricing in its Future Market

Protocols through a set of Demand Curves for Operating

Reserve

Demand Curves: Set pre-determined prices at different

levels of shortages for each of the reserve products:

o Operating Reserve

o Regulation – Up

o Regulation - Down

SPP.org 93

MP1 MP2

Gen 1






RegUp Cap. Max (MW): 4.5

RegUp Offer Cost ($/MW): 6

Load 1


End User Rate ($/MW) 40

Gen 2







RegUp Offer Cost (MW): 4

Load 2



Understanding Scarcity Pricing: Examples

In the following case studies, we assume that:

Both Market Participants belong to the same Reserve Zone and offer their

generation at cost as well as their true economic limits,

Reliability requirements are in the form of Regulation-Up and Spinning Reserve,

with demand curves set to $200/MW and $75/MW respectively,

The network has no congestion and no losses.

Reserve Zone

Spin Requirement (MW): -

Reg Up Requirement (MW): -


SPP.org 94

MP1 MP2

Gen 1








Gen 2








Let’s determine:

Each Market Participant awards (Energy, RegUp, Spin) and LMP,

Each Market Participant production cost,

The Reserve Zone RegUp and Spin MCPs,

SPP total production cost.

Reserve Zone


Reg Up Requirement (MW): 8


|Example 16|

Understanding Scarcity Pricing: no Operating Reserve shortage

Load 1



Load 2



SPP.org 95

MP2

Gen 1


RegUp Award (MW): 3.5

Spin Award (MW): 9.5

Load 1


Gen 2




Load 2



7 MW >>

RegUp Market Clearing Price = 8 $/MW


Reserve Zone


RegUp Requirement (MW): 8

MP1

MP1 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 107 856

RegUp 3.5 21

Spin 9.5 19

Total - 896

MP2 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 93 930

RegUp 4.5 18

Spin 10.5 31.5

Total - 979.5

|Example 16|


Total System Operational Cost = $ 1,875.5

SPP.org 96

MP2

Gen 1




Load 1


Gen 2




Load 2



7 MW >>



Reserve Zone



MP1

|Example 16|


Operating Profit


Generation MP1: 1,135.98 896.00 239.98


Demand MP1: 1,072.00 4,000.00 2,928.00

Operating Profit


Generation MP2: 1,008.00 979.50 28.50


Demand MP2: 1,072.00 4,500.00 3,428.00

MP1 Profit = $ 3,159.98 MP2 Profit = $ 3,448.50

SPP.org 97

MP1 MP2

Gen 1








Load 1


Gen 2








Load 2


Let’s determine:

Each Market Participant awards (Energy, RegUp, Spin) and LMP,

Each Market Participant production cost,

The Reserve Zone RegUp and Spin MCPs,

SPP total production cost.

Reserve Zone


Reg Up Requirement (MW): 12


|Example 17|

Understanding Scarcity Pricing: Operating Reserve shortage

SPP.org 98

MP2

Gen 1




Load 1


Gen 2




Load 2



6 MW >>



Reserve Zone



MP1

MP1 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 106 848

RegUp 4.5 27

Spin 9.5 19

Total - 894

MP2 Gen. Schedule

(MW)

Operational

Cost ($)

Energy 94 940

RegUp 4.5 18

Spin 10.5 31.5

Total - 989.5

|Example 17|


Total System Operational Cost = $ 1,883.5

RegUp Shortage = 3 MW

SPP.org 99

MP2

Gen 1




Load 1


Gen 2




Load 2



6 MW >>



Reserve Zone



MP1

|Example 17|


RegUp Shortage = 3 MW

Operating Profit


Generation MP1: 1,998.00 894.00 1,104.00


Demand MP1: 2,240.00 4,000.00 1,760.00

Operating Profit


Generation MP2: 1,882.00 989.50 892.50


Demand MP2: 2,240.00 4,500.00 2,260.00

MP1 Profit = $ 2,864.00 MP2 Profit = $ 3,152.50

SPP.org 100

Understanding Scarcity Pricing: Conclusion

Operating Reserve Shortage will have an impact on

Operating Reserve clearing prices

Even in case of Operating Reserve shortage, co-

optimization based SCED provides the most economical

system total operational cost

SPP.org 101

Objectives

Describe high level overview of the relationships between the DA

Market, RUC, and RTBM.

Define Demand Bids and Resource Offers in the Day-Ahead Market

Provide examples for Demand Bids and Resource Offers cleared in

the DA Market.

Define virtual transactions and financial schedules

Explain examples for virtuals transactions and financial schedules.

Define co-optimization of Energy and Operating Reserve

Understand example of a co-optimized, lease-cost solution.

Define scarcity pricing of Operating Reserve

Identify examples of scarcity pricing in the Future Market design

SPP.org

Debbie James

Manager, Market Design

[email protected]

Carrie Simpson

Senior Market Analyst, Market Design

[email protected]

mailto:[email protected]



spp.org 1 workshop aug 24 - final.pdf · incremental heat rate (mmbtu/mwh) 10 no-load heat...

Documents