1

Evolving Markets and Potential for the Future

Greg Brinkman

National Renewable Energy Laboratory

May 4, 2017

ENHANCED REVENUE AND MARKET STRUCTURES

2

Background

• In 1980s and before, one company owned transmission, generation, and distribution, and was responsible for keeping lights on – Generators provided many services: Inertia, governor response, frequency

regulation, spinning and non-spin reserve, reactive power/voltage support, capacity, energy, load-following, flexibility, etc.

– Almost all generators provided almost all of these services

• Today there are more markets – Lines between “market” and

“non-market” are blurred

– Services must still be provided, but providers (usually generators) are sometimes not paid for these services, or only for cost of service

– FERC and system operators are working to improve transparency

----------------TIMES ARE CHANGING----------------

3

Background

• In 1980s and before, one company owned transmission, generation, and distribution, and was responsible for keeping lights on – Generators provided many services: Inertia, governor response, frequency

regulation, spinning and non-spin reserve, reactive power/voltage support, capacity, energy, load-following, flexibility, etc.

– Almost all generators provided almost all of these services

----------------TIMES ARE CHANGING----------------

(non-hydro)

Lazard (2016) levelized cost of: • Wind: $32-62/MWh • PV: $46-56/MWh • Gas CC: $48-78/MWh

(All unsubsidized)

4

Why does it matter if these services aren’t compensated?

1. It’s not fair

2. It could cause real problems (and higher-cost electricity)

5

Example: Declining frequency response in the East

• Generators do not get paid to provide governor frequency response – System operators are beginning to find

ways to mandate or provide some incentive (e.g., must have governor to play in regulation market)

• Generators can make more money in the market if they do not provide frequency response – Operate at max capacity

– Reduced wear and tear (maybe)

• Some generators are blocking or reducing governor function

Ingleson and Allen (2010), IEEE

• Shows size of disturbance required to produce 1 mHz reduction in frequency

Slow frequency recovery to a very large event in the EI

FERC, NERC, ISOs working

to improve this

6

Key questions relevant to hydropower

• Hydro provides value to the grid in: – Services for which markets are common today

• Energy, capacity, frequency regulation (AGC), spinning (and non-spinning) reserves

• How can hydropower resources be better optimized to play in these (evolving) markets?

– How can constraints be adjusted to meet water/river/reservoir requirements while allowing more ability for electricity market revenue?

• Renewable / low carbon “markets”

– How does hydropower reduce carbon emissions?

– How can hydropower be used flexibly to help grid accommodate more renewables more efficiently?

– Services for which markets are not common today

• Inertia, governor response, reactive power/voltage support, load-following, flexibility, etc.

• How can these services be quantified?

• How can they be valued ($$$)?

• How can this turn into an actual revenue source?

• None of these questions are simple (all must be done transparently)

7

Types of relevant projects and examples

• New Markets – GMLC Metrics analysis (PNNL-led)

– GMLC Grid Valuation (ORNL-led)

– GMLC Markets work (NREL-led)

– Argonne exploration of markets

• Analysis of future grid planning scenarios (e.g., grid integration studies) – E.g., NARIS (NREL-led)

– Carbon impacts of hydropower, benefits of hydropower flexibility for accommodating renewables

• Optimizing grid operations and river systems together (mostly next session) in existing markets – RiverWare-PLEXOS (NREL)

– WM-PLEXOS (PNNL-led)

– WAPA (Argonne)

– EMCAS (Argonne)

• Other projects

Relationships with industry are very important for all of these studies

8

• Note that the unit commitment (UC) and economic dispatch (ED) problem used by energy markets is not well-suited to estimating prices for inertia, etc.

• Precedent – Ancillary services markets are a metric inserted into the UC/ED problem as a

constraint

– Capacity markets are a metric turned into a market outside the UC/ED

New Markets Section

9 9

Expected Outcomes

Enhance existing metrics to enable:

DOE to better set priorities on

modernization R&D

Congress to better monitor progress on

regional and national levels

Report on metrics definition and

approaches and baseline

Validation of metrics and approaches

with stakeholders and regional partners

Adoption of metrics by key partners Project Participants and Roles ANL – Security and synthesis lead, resilience contributor

BNL – Reliability contributor

LANL – Synthesis contributor

LBNL – Reliability lead

LLNL – Flexibility lead

NREL – Sustainability and stakeholder engagement lead,

flexibility contributor

ORNL – Affordability contributor

PNNL – Affordability lead and project manager

SNL – Resilience lead ---------------------------------------------------------------------------------------------

Working partners:

APPA, DHS, EIA, EPA, EPRI, FERC, NARUC, NERC, NRECA, ERCOT

Project Description The objective of the project is to assess the

feasibility and usefulness of metrics for

measuring change in the evolving electricity

infrastructure. The effort will develop

metrics and associated methods to assess

the power grid’s evolution with respect to

characteristics that are organized into the

following 6 categories: reliability,

resilience, flexibility, sustainability,

affordability, and security.

GMLC Metrics Analysis

10

Project Description Development of a valuation framework

that will allow electricity-sector stakeholders

to conduct, interpret, and compare valuation

studies of existing and emerging grid

services and technologies with high levels

of consistency, transparency,

repeatability, and extensibility.

GMLC Grid Valuation Framework

Project Objectives Produce a framework—not another new

model: a systematic approach to

conducting, and interpreting valuation to:

Ask the right questions and produce

credible answers

Increase transparency in modeling

assumptions and methods used in

evaluating grid technologies and services

Identify value beyond monetary savings

and costs (sustainability, reliability, etc)

Simple Complexity Involved

Coarse Purpose:ScreeningDatarequired:Low

Purpose:Multi-regionevaluationof technologiesandservicesDatarequired:Geographicor technologyhigh

Accuracy

Purpose:SingleProjectdeveloperDatarequired:Highforproject,low forrestofgrid

Purpose:Rate-setting,majorproject constructiondecisionDatarequired:HighPrecise

Project Participants and Roles ORNL – Project manager

PNNL – Review state of valuation

ANL – Taxonomy and glossary

NREL – Case studies

LBNL – Review and taxonomy support

SNL – Framework development support

LANL – Framework development support

NARUC – Stakeholder Advisory Group support

Affordability Sustainability

Resilience Reliability Flexibility Security

Economic Impact

11

GMLC Markets Analysis

Bi-level expansion model

Wholesale electricity markets exist to schedule and

dispatch generating units, given demand and the

transmission network configuration, at minimum

cost to the system.

The goal of this project is to create a multi-

timescale market and reliability modeling

framework, encompassing both the planning

(decades) and operational time frames (seconds),

to assess reliability and revenue sufficiency

challenges and solutions under a wide range of

market design options and revenue sources. Key

research questions include:

How do essential reliability service needs

evolve with different system fleets?

As the system evolves, how well does the

system meet needs?

What are the options to meet those needs?

12

Extensive Analysis of Electricity Market Designs

• Review of current and proposed market designs

• What are the new fundamental challenges and promising solutions to create better incentives and improved market design?

• How to achieve capacity adequacy and revenue sufficiency in the long-run?

• How to ensure and incentivize flexibility in short-run operations?

13

Power Market Analysis with Agent-Based Models

• Argonne developed Electricity Market Complex Adaptive System (EMCAS)

• EMCAS utilizes agent-based modeling to simulate the behavior of market participants in restructured power markets (e.g., various bidding strategies in day-ahead and hour-ahead markets)

• Agents have learning and adaptation capabilities

• Includes VALORAGUA (Value of Water) model to optimize hydropower and pumped-storage (PSH) plant and reservoir operations

• EMCAS has been licensed to companies in 14 countries

14

Future Grid Scenario Planning

15

NARIS: North American Renewable Integration Study

• Partnership between US DOE, NRCan (Canada), and SENER (Mexico) – Work led by NREL

• Analyze pathways to modernize the power systems in the US, Mexico, and Canada through efficient infrastructure planning and system operations

• Extensive stakeholder technical review

• Study potential interconnection of Canada, Mexico, and US power systems, from planning through operation and balancing at 5-minute resolution

PLEXOS (operations) ReEDS (generation and transmission planning)

dGen

(distributed

generation

market

model)

16

NARIS: North American Renewable Integration Study

• Partnership between US DOE, NRCan (Canada), and SENER (Mexico) – Work led by NREL

• Analyze pathways to modernize the power systems in the US, Mexico, and Canada through efficient infrastructure planning and system operations

• Extensive stakeholder technical review

• Study potential interconnection of Canada, Mexico, and US power systems, from planning through operation and balancing at 5-minute resolution

PLEXOS (operations) ReEDS (generation and transmission planning)

dGen

(distributed

generation

market

model)

Benefits of hydro

flexibility will be studied in

the context of these

scenarios

17

Optimizing hydro in current market framework (more in panel #2)

18

Developed Numerous Power Marketing EIS

• Colorado River Storage Projects - Glen Canyon - Flaming Gorge - Blue Mesa - Morrow Point - Crystal

• Collbran Project - Upper Molina - Lower Molina

• Rio Grande Project - Elephant Butte

• Seedskadee Project - Fontanelle

• Dolores Project - McPhee Dam - Towaoc Canal

• Provo Project - Deer Creek

How Do Power Marketing

Contracts and Glen Canyon

Operating Constraints

Impact Western’s

Customers?

19

Flexibility and Energy Imbalance Market (EIM)

• Energy imbalance (EI) – deviations of actual values from scheduled values

• Deviations increase with higher variable renewables

• Operational flexibility (e.g., fast ramping) helps balance deviations

Current Practice CAISO EIM

Single BA Multiple BAs

Federal Resources

and Purchase

Optimize Participating

Resources Dispatch

Footprint

Balancing

Hourly Hourly, 15 min, 5 min Time Step

Settlement Financial or

Energy Payback

Locational Marginal Price

(LMP) & Neutrality Accounts

Resolving EI

20

Financial Risk Software Evaluates Market Impacts on Hydropower

Fin

ancia

l B

enefit

($)

Fin

ancia

l B

enefit

($)

Hydropower System Energy Production

• Software forecasts financial probability distributions as basin hydrology and water depletions change over time

• Thousands of hydropower model optimization runs are preformed in parallel for a range of hydrological and market conditions

• Financial costs and benefits are evaluated for each run

• Risks are evaluated monthly and annually over several years

• Key forcing variables that impact financial outcomes are identified and summarized

21

• Greg Brinkman

• gregory.brinkman@nrel.gov

• 303.384.7390

Thank you