Market Renewal Discussion with the Ontario Waterpower Association - - PowerPoint PPT Presentation

Market Renewal Discussion with the Ontario Waterpower Association

February 26, 2018

• This presentation and the information contained herein is provided

for information and discussion purposes only. This presentation does not constitute, nor should it be construed to constitute, legal advice or a guarantee, representation or warranty on behalf of the

• IESO. In the event of any conflict or inconsistency between the

information contained in this presentation and the Market Rules, the Market Manuals, any IESO contract or any applicable legislation or regulation, the provisions of the Market Rules, Market Manuals, contract, legislation or regulation, as applicable, govern.

Disclaimer

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Today’s discussion will include:

• Recap of Market Renewal
• Focused discussion on cascade hydro participation in a day-ahead

market

• Update on work related to non-emitting resources

Overview

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• Market Renewal is an ambitious set of initiatives which

will amount to a fundamental redesign of Ontario’s electricity markets and prepare us for future change

• Although our current design has served Ontario well,

the demands of a modern grid are evolving rapidly

• Reforms are required today in order for the IESO to

continue to manage the grid reliably and cost effectively

• IESO vision is a market with transparent prices for the

services needed to meet system needs

Market Renewal

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Mission and Guiding Principles

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Mission

MRP

Scoping Market Renewal

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An ENERGY workstream A CAPACITY workstream

• Single Schedule Market
• Day Ahead Market
• Real Time Unit

Commitment

• Incremental Capacity

Auction

• More Frequent Intertie Scheduling and other Operability/Flexibility projects

will be explored as part of a broader conversation on the Future of Ontario’s Electricity Market

• The IESO will also continue to explore near-term market enhancement

projects that are consistent with MRP

Single Schedule Market

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Replace Ontario’s two schedule system with a single schedule market that better aligns price with dispatch

Reduced complexity unlocks

• ther design

changes Improved price signals increase efficiency of dispatch and investments Reduced complexity unlocks

• ther design

changes investments Improved price signals increase efficiency of dispatch and investments Together, these outcomes will reduce the production cost of electricity

Day-Ahead Market

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• A new market allowing suppliers/consumers to lock into

guaranteed prices for supply/consumption a day ahead of when it is required What is changing?

• Efficient way of improving operational certainty for system
• perators as real-time approaches
• Improves financial certainty for dispatchable resources
• Establishes a hedge against price volatility in the real-time

market caused by changes in supply and demand What are the benefits?

Incremental Capacity Auction

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Incremental

• Will secure

resources to meet system adequacy needs that are not met by contract or rate regulation

• Contracted and

regulated capacity will not be eligible to participate

• Will secure

resources to meet system adequacy needs that are not met by contract or rate regulation

• Contracted and

regulated capacity will not be eligible to participate Capacity

• Will procure a single

uniform capacity product

• Other products and

services will be incentivized via

• ther revenue

streams

• Will procure a single

uniform capacity product

• Other products and

services will be incentivized via

• ther revenue

streams Auction

• A stable long-term

mechanism that will secure capacity in a technology agnostic manner from diverse resource types

• Fundamental

change in risk allocation from contract paradigm

• A stable long-term

mechanism that will secure capacity in a technology agnostic manner from diverse resource types

• Fundamental

change in risk allocation from contract paradigm

• New market design will require new approaches to participating in the

IESO administered markets

• OWA members will need to understand key changes and can explore new
• pportunities

Key Considerations for OWA Members

Areas of Interest for OWA Members

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Location Marginal Pricing (LMP)

• Nodal pricing for MP

suppliers; price variations across ON

• Non-MP supplier

pricing determined by OEB

Contract Amendments

• Amendments

required but IESO not aiming to extract value from contracts

• All resource types will

participate in competitive auction

• Auction timelines,
• bligations, and

capacity qualification

• f interest to

OWA

DAM

• Obligations and

implications for energy limited resources of interest to OWA

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QUESTIONS & COMMENTS

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DAY-AHEAD MARKET

CASCADE HYDRO PARTICIPATION

• Cascade hydro systems have ponding capabilities and complex

intertemporal relationships governing their output that can be difficult to model

• The existing Day Ahead Commitment Process (DACP) design

recognized this problem and addressed it by allowing cascade resources to resubmit their offers after the first run of DACP in

• rder to correct any infeasible schedules prior a second and final

run of DACP.

Current Day Ahead Scheduling Process

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G1 G2 G3 4 hrs 2 hrs

Current DACP & Transitioning Issues

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All Resources Submit Offers (Quantities at Prices)

Initial Submission Window 06:00 – 10:00

Initial Resource Schedules Published

Initial Run of DACP 10:00 - 11:00

Cascade Hydro Revise and Resubmit Offers as Needed

Resubmission Window (11:00 – 12:00)

Final Resource Schedules Published

Final Run of DACP (12:00 - 13:00)

• While this is an appropriate solution for non-financially binding

DACP, retaining the resubmission window under a financially binding day-ahead market (DAM) would provide one group of participants the potential to improve their own financial positions but harm others’

All Resources Submit Offers DAM Submission Window 06:00 – 09:00 Resource Schedules and Prices Published DAM Execution 09:00 - 12:30

• With no resubmission window

available under a future DAM, cascade hydro resources may receive financially binding DAM schedules that are

• perationally infeasible
• This can create financial risk

because undelivered day- ahead schedules may have to be bought back at higher real- time prices

Problem Statement

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Two Settlement Mechanics

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Day Ahead

QDA x $DA

Real-Time (Balancing)

(QRT – QDA) x $RT

Real-time deviations from day-ahead obligations must be bought or sold back at real-time prices.

DAM Schedule Real-Time Output

• Responsibility for managing operational and financial risk lie with

the market participant – Participants are in the best position to most efficiently manage these risks – Typically managed through their offer curve submissions

• Ways in which system operators assist cascade resources and other

resource technologies in mitigating some of their operational and financial risk include: – Offer requirements (market rules) – Modelling generic offer parameters that participants can couple with their offer curves

Key Observations in Other Markets

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• Cascade resources typically manage their operating characteristics

through their offer curves – Offer desired quantities at lower prices and undesired quantities at higher prices, for example:

• These base strategies are used in other DAMs with cascade hydro

penetration similar to Ontario (i.e. New York and California)

Typical Offer Strategies

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G1 G2 G3 4 hrs 2 hrs

G1 for 4 hrs at low $ G2 + G3 for 4 hrs at high $ G1 for 2 hrs at high $ G2 for 2 hrs at low $ G3 for 2 hrs at high $ Dispatchable (Flexible) Strategy Illustration

• Offers strategies can also be used to exercise market power and the

DAM will include features designed to mitigate these behaviours:

• While these measures are necessary, they may further limit a

cascade resource’s ability to generate feasible DAM schedules through their offer curves

Dispatchable Strategy: Potential Barriers

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Behaviour Mitigation Physically withholding supply in

• rder to increase margins for other

remaining supply. Must Offer Requirements – the minimum quantity a resource must

• ffer into the DAM

Economically withholding supply by offering at very high prices when you’re one of the only resources available. Reference Levels – price caps that replaces the offer price of a resource when it is deemed to be economically withholding

• Assuming G1 only wants to clear 50 MW in the DAM to respect

downstream needs for G2 (anything more considered infeasible)

• Without mitigation, G1 could offer no more than 50 MW into DAM
• However with mitigation, G1 is at a greater risk of receiving an

infeasible schedule above 50 MW

Dispatchable Strategy: Potential Barriers

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Desired Schedule

30 200 50 100 G1 offer prices ($) G1 capability (MW)

Barrier 2: Reference level (price cap) of $120 G1 may be scheduled to an infeasible schedule of 100 MW if clearing prices exceed the reference level Barrier 1: Must offer requirement of at least 80 MW G1 offers 1st 50 MW low and next 50 MW high

Market power mitigation design may limit the extent to which offer curves can be used to respect operating characteristics for cascade resources

• Cascade resources can also couple additional parameters with their
• ffer curves to minimize the risk of an infeasible DAM schedule:

– Daily Energy Limits (do not schedule > X MWh per day) – Forbidden Regions (do not schedule between X MW and Y MW)

• The NordPool (Norway) DAM has a much larger penetration of

hydro (~95%) and provides participants with the ability to link offer curves between resources

Dispatchable (Flexible) Strategy

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G1 G2 G3 4 hrs 2 hrs

G1 offer must first be economic for G2 and G3 offers to be considered

• Linked offer capabilities are available to all participants (i.e.

technology neutral) – Gas resources can also use this feature to link their gas and steam unit dependencies

• Linked offers can be more easily accommodated because their day

ahead market engine is less complex – Less processing time needed because they do not account for the same level of transmission constraints that North American markets are required to account for in determining day ahead market schedules

The NordPool Market

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• Cascade resources could alternatively choose to self-schedule their

resources in the DAM in order (non-dispatchable strategy) – Submit fixed quantities irrespective of price, for example:

• This strategy is used by cascade hydro in the PJM market, however

their hydro penetration is < 5%

Alternative Offer Strategies

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G1 G2 G3 4 hrs 2 hrs

Self Scheduled (Inflexible) Strategy Illustration G1 for 4 hrs at X MW G2 + G3 for 4 hrs at 0 MW G1 for 2 hrs at 0 MW G2 for 2 hrs at X MW G2 for 2 hrs at 0 MW

• Self scheduling strategies also create risk for both the market

participant and the IESO – Market participant becomes a price taker, which still leaves them financially exposed because they have no ability to respond to lower prices that may not cover marginal costs – IESO loses the flexibility that dispatchable resource can provide in managing forecast uncertainty and providing standby energy (operating reserve) – Market outcomes are more costly because they are less efficient

• The market design should not incentivize cascade resources to

participate as self-schedulers

Self Schedule (Inflexible) Strategy

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Aiming for a Flexible Offer Strategy

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• IESO will be working with stakeholders to implement a solution

that allows cascade resources to participate in the day-ahead market within an acceptable level of risk.

• Potential solutions include but are not limited to:

– Striking a balance between Must Offer Requirements and Reference Levels for Mitigation – Retaining the ability for Daily Energy Limits and Forbidden Regions to be submitted and optimized by the DAM engine – Introducing additional features such as linked offers

• Break Out Group 1 (Non Market Participants)

– Address questions about the problem statement and potential issues – Discuss how non-market participants may be impacted by the potential barriers and solutions

• Break Out Group 2 (Market Participants)

– Address questions about the problem statement and potential issues – Discuss offer strategies that may introduce additional barriers – Discuss offer strategies that may offer potential solutions – Discuss the pros and cons of potential solutions

Break Out Sessions & Discussion

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NON-EMITTING RESOURCE UPDATE

• To provide an update on work related to non-

emitting resources

• Discussion will include:

– Non-emitting Resource Subcommittee (NERSC) – Upcoming Technical Conference – Non-emitting resource Request for Information

Purpose

Non-Emitting Resource Subcommittee

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• The subcommittee will ensure the characteristics of non-emitting

resources are reflected in Market Renewal and the future market

• The committee will develop a report for Q3/4 2018 that explores:

1. Participation: barriers to participation for non-emitting resources in the proposed Market Renewal design 2. Market Efficiencies: impact of higher levels of non-emitting resources with very low to zero marginal costs 3. Commercial Mechanisms: the potential for incentive mechanisms to value environmental attributes

• The group has finalized a scope of work, established a work plan, and is

working through Focus Area 1: Participation

• For OWA members participating in the NERSC, what feedback do you

have on process to date?

• Next NERSC meeting will be a technical conference, with unique

format

• A venue for stakeholders to:

– Provide information on technical capabilities, key barriers, and the value that their resource can provide – Engage in dialogue with the IESO on these topics – Consider learnings from other jurisdictions on these topics

• Builds on key takeaways from NERSC work to date
• Brings discussion to a broader audience
• Enables fulsome responses to the RFI

Technical Conference

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How does the Technical Conference fit in?

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Pre-conference

Brainstorming at the NERSC of barriers and potential solutions in Ontario

Technical Conference

Focused discussions on barriers and learnings from external jurisdictions

Post conference

Detailed responses to the RFI Additional Research for IESO Outcomes for the NERSC 1. Help complete Participation phase of the work plan 2. Set the stage for the Market Efficiencies phase 3. Provide input for Market Renewal and potential future market evolution

The conference will have a formal registration process which will be communicated to stakeholders shortly

Technical Conference: Logistics

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When will it take place?

• April 5th
• 8:30 am – 4:30 pm

Where will it take place?

• Metro Toronto Convention Centre (MTCC)
• Modest fee to be charged

Who is expected to participate?

• Participants of the NERSC and other non emitting resources
• Potential respondents to the IESO’s non emitting resource RFI
• Government and other interested stakeholders
• Anticipating 150 attendees

1. Focus on stakeholder presentations and discussion

– Stakeholder presentations on resource value and key barriers – Facilitated discussion with IESO experts on barriers and potential solutions – External perspectives on stakeholder presentations – Questions from the audience

2. Learning from other jurisdictions

– Case studies on challenges and opportunities with integrating NERs in other jurisdictions

3. Tying it together

– How does the day fit into the bigger picture – How will we build on the information from the day

Technical Conference: Proposed Format

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• IESO will work with stakeholders to develop presentations and

discussion topics for the day

Technical Conference: Stakeholder Presentations

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1.5 hour panel discussions

Stakeholder Presentations Panel Discussion Audience Comments

• Have identified potential presenters

from hydro, wind, solar, storage, DR, and DER communities

• How can we get the most out of the

panel discussions and audience comments?

• Are there specific topics OWA members

would like included in the day?

The IESO is in the early stages of a two phased RFI, which aims to gather information on non emitting resources and broaden the IESO’s understanding of:

Request for Information (RFI)

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Technical Characteristics and Operating Capabilities

Of existing resources and potential projects (e.g., energy, capacity, and essential reliability services, regional or locational system benefits)

Potential Barriers and Mitigating Options

For participating in the IESO’s current and future markets, and ultimately, contributing to a reliable and efficient Ontario electricity system

Supports the Market Renewal Program (MRP) by gathering information on: – Current and future market opportunities and challenges – Technical characteristics of a resource or potential project – Products and services that can be provided Also focused on potential revenue streams under the MRP and other current IESO administered markets, including: – Incremental Capacity Auction – Energy markets (including the development of the single schedule market) – System flexibility and ancillary services

RFI Phase 1

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Phase I - Technical and Market Information

Requested information will likely include : – Financial and commercial considerations – Project development requirements and considerations – Indicative project capital and operating costs – Additional technical information, as may be required to fully understand a given project or technology

• Phase 1 responses will be used to further tailor Phase 2
• Phase 2 is expected to be launched in August/September 2018

RFI Phase 2

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Phase II – Project Costing and Information

Phase I Timeline and Submissions

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February 16 Draft Phase 1 RFI posted for stakeholders comment IESO responses to initial RFI feedback posted March 2 Written feedback due on draft Phase 1 RFI at engagement@ieso.ca March 19 Post final Phase 1 RFI May 2 Phase 1 RFI submission deadline May to August 2018 Evaluate Phase 1 responses and design draft Phase 2 RFI

• The draft Phase 1 RFI is available at:

http://www.ieso.ca/-/media/files/ieso/document-library/working-group/market- renewal/ner-rfi-20180216-presentation.pdf?la=en

• Once finalized, RFI submissions to be sent to engagement@ieso.ca by the submission

deadline (May 2, 2018).

RFI and Market Renewal

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• Phase 1 of the RFI will support the work of the non-emitting resource sub-

committee (NERSC)

Future Evolution RFI NERSC

• Phase 2 will inform the next steps that

follow from NERSC

• NERSC technical conference will help

respondents submit complete responses to phase 1 of the RFI

• Phase 1 RFI responses will inform research
• n barriers to participation and exploration
• f market efficiencies
• RFI can also support other IESO initiatives

(e.g., the LTEP implementation)

RFI and NERSC Timelines

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NERSC, RFI and the Big Picture

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Market Renewal Stakeholder Engagements High-Level Designs NERSC RFI Phase 1 RFI Phase 2

2018 2019

Detailed Design Future Evolution

HLD INTEGRATION

Other IESO- and Sector-Lead Initiatives

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QUESTIONS & COMMENTS

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THANK YOU!