20131118 virtual spread bid workshop presentation
DESCRIPTION
MISo Virtual Spread BidsTRANSCRIPT
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Virtual Spread BidProposal
Stakeholder Workshop
November 18, 2013
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Topics for Todays Workshop Virtual Spread Bid
Product Specifications Potomac Economics Comments Value Assessment
Real Time Price Risk Price Formation Pricing Flexibility
Market Design DA SCUC and SCED Engines Settlements
Potential for Virtual Spread Bids at MISO Monitoring Analytics Comments Open Discussion and Next Steps
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Virtual Spread Bid Product Specifications
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Virtual Spread Bid Proposal - Background
IMM 2012 State of the Market Report:To the extent that the matched transactions are attempting to arbitrage congestion-related price differences, a virtual product to allow participants to do this price sensitively would be more effective and efficient. MISO should explore the feasibility of such a product and consider what costs should be allocated to developing such a product.
Motion passed at July 2012 MSC:We recommend that MISO Staff and the Independent Market Monitor (IMM) perform an impact study on the addition of a Real-Time Congestion Hedge product (RTCH)
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Virtual Spread Bid - Product SpecificationsWhat is the Virtual Spread Bid Proposal?
In DA Market, a Virtual Spread Bid offer would consist of source/sink pair, offer price, and offer mw
Virtual Spread Bid would clear when Sink DALMP - Source DALMP Offer Price
Cleared Virtual Spread Bid is paid (or pays)[ Source DALMP - Sink DALMP - Source RTLMP + Sink RTLMP ] * MW
MP purchases flow & losses in DA, then sells them back in RT
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Virtual Spread Bid Similar Products
Within the DA market SCED Engine, a virtual spread bid would clear like an Up-to-TUC schedule Up-to-TUC schedules require that either a sink or source
cpnode must be an interface node. Not true for Virtual Spread Bids
Up-to-TUC schedules must be accompanied by physical schedule and transmission service Not true for Virtual Spread Bids
Up-to-TUC schedules can be imports, exports, or wheels Virtual Spread Bids would be more analogous to wheel-
through transactions, since their net injection would be 0mw
6SCED: Security Constrained Economic DispatchUp-to-TUC: Up-to-Transmission Usage Charge Physical Schedule
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Virtual Spread Bid Similar Products
After DA market clearing, a virtual spread bid would settle like a virtual supply (at source node) with an offsetting virtual demand (at sink node) Virtual Supply / Demand pair may clear only one side
Virtual Spread Bids must clear both sides at same mw level Virtual Bids clear based upon offer price and LMP at
single node Virtual Spread Bids would clear based upon LMP
differences between two nodes
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Potomac Economics Comments
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Virtual Spread BidValue Assessment
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Virtual Spread Bid Value Assessment
Four Key Benefits of Virtual Spread Bids Proposal
1. Real Time Price Risk: Permits real time hedging for flow, between a source and sink node
2. Price Formation: Virtual Spread Bids facilitate more efficient clearing for flow-based virtual bid strategies
3. DA/RT Price Convergence: Virtual Spread bids incent better price convergence
4. Pricing Flexibility: Virtual Spread Bids can be used to settle DA scheduled volumes based upon RT LMP
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Virtual Spread Bid Value Assessment
How significant is Real Time Price Risk?
The following charts were developed to illustrate historical RT/DA price differences, along with settlement implications
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Real Time Price Risk
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$0/MWh$5/MWh
$10/MWh$15/MWh$20/MWh$25/MWh$30/MWh$35/MWh$40/MWh$45/MWh
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Average DA LMP Average RT LMP
On average, RT LMPs track DA LMPs
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Real Time Price Risk
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$0/mwh$5/mwh
$10/mwh$15/mwh$20/mwh$25/mwh$30/mwh$35/mwh$40/mwh$45/mwh$50/mwh$55/mwh$60/mwh
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Avg RT LMP Standard Deviation Avg DA LMP Standard Deviation
However, averaged LMPs mask the fact that RT LMPs are about twice as volatile as DA LMP
Calculated monthly standard deviation of each pnode, then averagedall monthly cpnode standard deviations into a single MISOwide avg
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What is Magnitude of Dollars settled with RT LMP?
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0%
3%
6%
9%
12%
15%
18%
$0 Billion
$1 Billion
$2 Billion
$3 Billion
$4 Billion
$5 Billion
$6 Billion
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DA Generation, Load, NSI DA VirtualRT Generation, Load, NSI RT Virtuals% Dollars settled with RT LMP % Dollars settled with RT LMP, physical only
~12% of all dollars are settled using RT LMP~8% of all dollars on physical assets settled with RT LMP
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Real Time RSG DDC Distribution Risk
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$0.00/mwh
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$2.50/mwh
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Avg MISO_DDC_RATE
RT RSG DDC Rate averages $0.80/mwh
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Real Time Price Risk
Conclusions Approximately 8% of settlement dollars tied to physical
assets are settled with RT LMP RT LMP are twice as volatile as DA LMP
Market Participants can use FTRs to hedge DA LMP risk, no comparable product exist to hedge RT LMP risk
RT LMP volatility is augmented by volatility in RT RSG Day Ahead Deviation Rate (DDC)
Generators can insulate themselves from these risks through make whole payments, other market participants rely on hedging instruments
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Price Formation
2012 State of the Market Report: Nearly 20 percent of virtual volumes in 2012 were matched price insensitive transactions. a virtual product to allow participants to do this price sensitively would be more effective and efficient.
Ideally, such virtual offers should reflect market participants beliefs about what the flow is worth Instead, market participants employing this strategy must effectively
self-schedule flow without regard to prices Self scheduling flow creates unnecessarily high source-sink spreads
Economic clearing could provide better DA price formation
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Price FormationMany changes between DA and RT markets coalesce to have a combined impact on RT/DA price divergence
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Category Avg MW Comment
RT Loss - DA Loss -80
RT Load - DA Load 80 STLF - BTM - RT Loss - DA Fix Bids - DA Price Sens Bids
RT NSI - DA NSI -310 RT NSI - DA NSI (does not include EAR)
UDS Delta 130 RT Operator adjustment
RAC Commitments 350 RT Energy on RAC Commitments
RTMR Commitments 490 RT Energy on RT Must Run Commitments
DA Noshow 1150 DA Schedules on Units not online in RT
RT Derate on DA Sched 190 Max [ DA Schedule - RT Ecomax , 0 ] (nonwind)
RT Uprate on DA Sched 70 Max [ RT Ecomin - DA Schedule, 0 ] (nonwind)
RT Wind - DA Wind 250 RT Wind - DA Wind
Units off Dispatch in RT -180 RT Schedule - DA Schedule (nonwind)
Net Virtual Demand -620 Virtual Supply - Virtual Demand
Virt Demand 3700
Virt Supply 3080
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Price Formation
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$2/mwh
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$6/mwh
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Avg ( Maximum (DA LMP - RT LMP , 0 ))
Avg ( Maximum (RT LMP - DA LMP , 0 ))
Average of absolute values of RT / DA LMP differences is ~ $5/mwh
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Pricing FlexibilityHow could a virtual spread bids allow market participants to pay or be paid RT prices for their DA schedules?
By creating a virtual spread bid sourcing at your load nodes and sinking at your generator nodes, in theory it is possible to settle DA scheduled generation and load with RT LMP
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Generator VSB Comment
DA Generation Schedule 100 mw 100 mw VSB sink at Generator node
DA LMP at Gen & VSB Sink
RT LMP at Gen & VSB Sink RT LMP only used in VSB settlement
DA Fixed Bid 100 mw 100 mw VSB source at Loadzone node
DA LMP at Load & VSB Source
RT LMP at Load & VSB Source RT LMP only used in VSB settlement
Generation & VSB Source Settlement $2,000 -$1,000 DA Gen * DALMP -- [Source DA LMP - Sink DA LMP] * VSB Sched
Load & VSB Sink Settlement -$3,000 -$1,000 DA Load * DALMP -- [Sink RT LMP - Source RT LMP] * VSB Sched
Net Credit (Charge) -$1,000 -$2,000 Total Charge with Spread Bid is $3,000
DA mw volumes priced w/ RT LMP -$3,000 DA Gen * RT LMP - DA Load * RT LMP
$30/mwh
$40/mwh
$20/mwh
$10/mwh
Example assumes that DA Schedules = RT Billable Meter
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Value Assessment - Summary
Market participants should bid what they would pay for flow, instead of being forced to self schedule it
Difficult to say whether Virtual Bids help or harm DA/RT price convergence Virtual products appear to soften what might have otherwise been
more severe DA/RT LMP differences Virtual Spread Bids would improve price formation
Reduce the need for high source / sink spreads Provide additional volume on illiquid commercial price Traditional Virtual Bids already play an important role in DA price
formation 63% of virtual bids are 2mw or less; 92% are 5mw or less
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Virtual Spread Bid Market Design and Settlement
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Market Design - Day AheadPrimary purpose of the Day Ahead Market is to pre-position the system for RT conditions
On a mwh basis 98% of RT generation is dispatched from DA scheduled units 95% of RT capacity is dispatched from DA scheduled units 100% of Load is scheduled in the DA market 80% of NSI is scheduled in the DA market 92% of all energy is priced based upon DA LMP
DA market has large downstream impacts on both reliability and settlements
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Market Design - Day Ahead SCUC
1. DA SCUC engine ignores Up-to-TUC transactions with internal sinks and sources
2. DA SCUC losses modeled as function of fixed demand bids and factor, ie losses = (FixedBid MW) * (100/76)
3. Flow associated with Virtual Spread Bids is modeled in DA SCUC, so it does impact unit commitment MISO would probably have to change pre-processing
logic associated with (1) for virtual spread bid proposal Even large cleared virtual spread bid volumes would not
result in any DA SCUC capacity commitments, but could influence commitments to manage congestion
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In DA SCED, Virtual Spread Bids would impact both DA flows and modeled losses Modeled Losses = (Net Injections*LossSenFactor) LossOffset Modeled Flow = (Net Injections * GenShiftFactor) Clearing of Virtual Spread Bids would be constrained by branch
and flowgate limits.
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DA Flow : 100mw * ( Injection GSF Withdrawal GSF)
100mw Injection+ 100mw * LSF
100mw Withdrawal+ 100mw * LSF
Market Design - Day Ahead SCED
SINK SOURCE
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Market Design - Settlements Settlement of Virtual Spread Bids is still under review One option would be to settle Virtual Spread Bids as though
they were a virtual supply/demand pair Table below reports dollars settled under RSG charge types
since Sep-12, as well as virtual exposure to charge types
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Mkt Distribution Million $ %Virtual Supply
Virtual Demand
Virtual Spread
DA Non-Voltage & Local Reliability 15 14% NO YES NODA Voltage & Local Reliability 13 13% NO NO NORT Voltage & Local Reliability 1 1% NO NO NORT Constraint Mgmt Charge 3 3% YES YES YESRT Deviation & Headroom Charge 69 66% YES YES NORT RT Second Pass 3 3% NO NO NO
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Market Design - Settlements
Virtual Spread Bid would provide equalized RSG treatment for associated injections and withdrawals RT RSG DDC charge averages $0.80/mwh Currently, a portion of RT RSG DDC is allocated to net
virtual supply by MP, by hour If virtual spread bids were settled as though they were a
virtual supply / virtual demand pair, they would avoid exposure to RT RSG DDC
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Uneconomic Virtual Spread Bid RT Congestion
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In RT market, absence of Virtual Spread Bid removes flow from source to sink
Virtual Spread Bid loses money because of unprofitable RT congestion spread
LMP Source Sink $0.00 Source DALMP - Sink DALMP
Day Ahead $30 $30 ($30.00) Sink RTLMP - Source RTLMP
Real Time $60 $30 ($30.00) Gross $/mwh Profit
VSB MW 10 mw ($0.20) Admin Charge
VSB Price $50 ($30.20) Net $/mwh Profit (Loss)
10 mw Cleared Virtual Spread Bid
($302.00) Net Dollar Profit (Loss)
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Economic Virtual Spread Bid RT Congestion
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In RT market, absence of Virtual Spread Bid removes flow from source to sink
Virtual Spread Bid makes money because of profitable RT congestion spread
LMP Source Sink $0.00 Source DALMP - Sink DALMP
Day Ahead $30 $30 $30.00 Sink RTLMP - Source RTLMP
Real Time $30 $60 $30.00 Gross $/mwh Profit
VSB MW 10 mw ($0.20) Admin Charge
VSB Price $50 $29.80 Net $/mwh Profit (Loss)
10 mw Cleared Virtual Spread Bid
$298.00 Net Dollar Profit (Loss)
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Economic Virtual Spread Bid DA Congestion
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In RT market, absence of Virtual Spread Bid removes flow from source to sink
Virtual Spread Bid makes money because of profitable DA congestion spread
LMP Source Sink $30.00 Source DALMP - Sink DALMP
Day Ahead $60 $30 $0.00 Sink RTLMP - Source RTLMP
Real Time $30 $30 $30.00 Gross $/mwh Profit
VSB MW 10 mw ($0.20) Admin Charge
VSB Price $50 $29.80 Net $/mwh Profit (Loss)
10 mw Cleared Virtual Spread Bid
$298.00 Net Dollar Profit (Loss)
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Uneconomic Virtual Spread Bid DA Congestion
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In RT market, absence of Virtual Spread Bid removes flow from source to sink
Virtual Spread Bid loses money because of unprofitable DA congestion spread
LMP Source Sink ($30.00) Source DALMP - Sink DALMP
Day Ahead $30 $60 $0.00 Sink RTLMP - Source RTLMP
Real Time $30 $30 ($30.00) Gross $/mwh Profit
VSB MW 10 mw ($0.20) Admin Charge
VSB Price $50 ($30.20) Net $/mwh Profit (Loss)
10 mw Cleared Virtual Spread Bid
($302.00) Net Dollar Profit (Loss)
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Virtual Spread Bid Potential at MISO
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Virtual Spread Bid Potential at MISO
If Virtual Spread Bids were implemented at MISO, one key question is how many MWh of VSB would clear in MISOs DA market?
To address this question, we will look at UTC volumes in the PJM DA market, as well as VSB volumes implied by historical MISO virtual bids.
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PJM Up-to-Congestion Product (UTC) PJM version of virtual spread bid is called an Up-to-
Congestion bid or UTC bid UTC bids are not modeled in PJMs DA SCUC engine
but are modeled in SCED engine PJM runs Probe model with UTCs to evaluate commitment
Not subject to Operating Reserve charges. Proposed FTR Forfeiture Rule would restrict the ability
of FTR holders to clear UTC bids in the DA market. After 11/1/12, requirement that either sink or source be
an interface node was removed Price capped to +/-$50, Bid count Limit of 3000UTC product is very similar to proposed virtual spread bid
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Average PJM DA Load vs Average Cleared UTC
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0 mw10,000 mw20,000 mw30,000 mw40,000 mw50,000 mw60,000 mw70,000 mw80,000 mw90,000 mw
100,000 mw110,000 mw
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UTC Import UTC Export UTC WheelUTC Internal DA Demand
By June 2013, average PJM DA load was 90gw while average cleared UTC was 60gw.
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Virtual Spread Bid Potential at MISO For each market participant and each hour, we calculated
minimum [cleared virtual supply,cleared virtual demand] then summed it up for all MISO Can be interpreted as an implied virtual spread bid ceiling
For each market participant and each hour, we totaled instances were total cleared virtual supply=virtual demand, then summed it up for all MISO Can be interpreted as an implied virtual spread bid floor Both calculations assume market participants are using a flow-
based strategy, instead standalone strategies tied to specific nodes
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Implied VSB volumes based upon Cleared Virtuals
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-5,000 mw
-4,000 mw
-3,000 mw
-2,000 mw
-1,000 mw
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2,000 mw
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Implied VSB Ceiling Implied VSB FloorAverage Virtual Supply Average Virtual Demand
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Summary
MISO estimates between 500-1500mw of cleared virtuals are already using virtual spread bid strategy Comparable to the IMMs estimate of price insensitive matched
virtual transactions, which appears to be ~500mw If Virtual Spread Bids only cannibalize these existing Virtual
Bids, then should not result in any sweeping changes to market clearing or RSG allocation
More work is needed to determine if any fundamental differences between MISO and PJM market designs would prevent high VSB volumes from clearing at MISO
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Monitoring Analytics Comments
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Open Discussion And Next Steps
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Virtual Spread Bids - Open Questions
If the Virtual Spread Bids were implemented Would virtual spread bids lead to a better Day Ahead pre-
positioning for Real Time? Would any changes to the DA SCUC or SCED engines be
required? Should we consider capping the amount of virtual spread bids? Should we consider modeling more than one VSB offer segment?
How should RSG be allocated to Virtual Spread Bids? Should we consider using a per transaction fee?
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Please send questions or comments to
Ryan [email protected]
Dhiman [email protected]
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