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ISO PUBLIC – © 2016 CAISO ISO PUBLIC – © 2016 CAISO
WSPP – Optimizing Carbon Market Mechanisms in the
Western Interconnect
Warren Katzenstein
Lead Engineering Specialist
California ISO
March 3, 2016
ISO PUBLIC – © 2016 CAISO
Overview
• How CAISO electricity markets consider GHG costs
– Within California
– Energy Imbalance Market (EIM)
– Regional integration into day-ahead market
– Clean Power Plan (CPP) implications
• Regional integration benefits
– Benefits to renewable generation
– Impacts on coal generation
– Benefits of PacifiCorp’s full participation in day-ahead market as
participating transmission owner
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ISO PUBLIC – © 2016 CAISO
GHG costs in the CAISO market within California
• Generation & imports must submit GHG allowances
• Generators & importers integrate costs into energy bids
• Locational marginal prices reflect GHG allowance costs
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ISO PUBLIC – © 2016 CAISO
GHG costs in the EIM
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• EIM optimizes real-
time energy dispatch
throughout the West
based on energy bids
• Generation outside
CA incurs obligation
for CA GHG
allowances when
serving CA load,
otherwise it does not
ISO PUBLIC – © 2016 CAISO
EIM recognizes electricity generated and consumed
outside of California does not have obligation for
California GHG allowances
• Generators submit GHG cost separate from energy bid
– MW quantity and price
– Independent of energy bid MW range
• Generator can opt not to deliver to CA by bidding 0 MW
– Accommodates resources that:
• Want to avoid a GHG obligation to CA for business reasons
• Have regulatory obligations to serve their state’s native load
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ISO PUBLIC – © 2016 CAISO
How EIM accounts for California’s GHG costs
CAISO:
Energy = $35
GHG cost = N/A
LMP = $35
PacifiCorp:
Energy = $35
GHG cost = - $5
LMP = $30
• Both generators Fuel cost = $30/MWh
GHG cost = $5/MWh
• CA generator $35/MWh energy bid
Sets $35/MWh ISO LMP
Covers $5/MWh GHG cost
• PacifiCorp generator Imported to CA
Sets $30/MWh PAC LMP
Sets $5/MWh GHG price
ISO collects “extra” $5/MWh for
transfer to ISO from ISO load
Pays $5/MWh to generator for
its GHG costs
ISO PUBLIC – © 2016 CAISO
Similar approach will be developed for full integration
of PacifiCorp into day-ahead market
• Leverage EIM approach that determines which energy
supports flows into or within CA
– Create CA and non-CA zones within merged balancing areas to
track transfers for GHG compliance purposes
– Generation inside CA include GHG cost in energy bid
– Generation outside of CA has separate energy bid and GHG bid
– Load outside of CA zone does not pay the separate GHG cost
component
• Will apply to much more energy
– 95 percent of transactions are in day-ahead market
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ISO PUBLIC – © 2016 CAISO
Regional solutions to CPP would maximize market
efficiency
• Different GHG prices have to be grouped separately:
– State implements economy wide, mass based program
• Include in GHG zone with CA
– State implements a CPP mass based program
• Include in GHG zone of mass states
– State implement a CPP rate based program
• Include in GHG zone of rate states
• Each of these GHG zones would have a separate GHG
component of the energy LMP
– Could be complex and result in inefficiencies or anomalies
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ISO PUBLIC – © 2016 CAISO
Regional expansion will
lower GHG emissions by
better integrating
renewables
• Increased renewable output
lowers GHG emissions
• Regional expansion
increases liquidity among
transmission network
reducing renewable
curtailment
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ISO PUBLIC – © 2016 CAISO
Regional expansion
provides geographical
diversity that reduces
renewable production
variability
• Renewable output
over wide area not
correlated
• Reduces need for
fossil-fuel generation
for balancing
ISO PUBLIC – © 2016 CAISO
Regional expansion
reduces renewable
curtailments
because of over-
generation
• High mid-day solar
production in CA
may result in over-
generation
• Exporting to serve
load outside CA
avoids curtailment
Source: Energy and
Environmental Economics, Inc,
2015
ISO PUBLIC – © 2016 CAISO
Coal generation not likely to increase under regional
integration
• Base load coal generation is determined through long-
term contracting
– Coal is stable, predictable energy source
– Coal already runs at high capacity
– Renewable energy sales more greatly benefit from optimized
organized market
• Coal is not the economically-marginal generation
– Natural gas production is marginal
– Increase in renewable output means fossil-fuel production
decreases
• CPP emission limits, flat load, increasing renewable
production will pressure coal generation
• SB 350 modeling
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ISO PUBLIC – © 2016 CAISO
Increased benefits from full participation as a
participating transmission owner in the day-ahead
market
• Day-ahead is 95 percent of market
• Allows time to not commit or to position coal generation
to accommodate renewable production
• Integrated transmission planning process better
integrates renewable development
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ISO PUBLIC – © 2016 CAISO
Contact Information
Warren Katzenstein
Lead Engineering Specialist, Market Quality & Renewable
Integration
California ISO
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