module 1 screening analysis methodology
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Module 1: Screening analysis, Methodology o = + + - PowerPoint PPT Presentation

O UT - OF - MERIT G ENERATION OF R EGULATED C OAL P LANTS IN O RGANIZED E NERGY M ARKETS Joseph Daniel, Senior Energy Analyst Union of Concerned Scientists Module 1: Screening analysis, Methodology o = + +


  1. O UT - OF - MERIT G ENERATION OF R EGULATED C OAL P LANTS IN O RGANIZED E NERGY M ARKETS Joseph Daniel, Senior Energy Analyst – Union of Concerned Scientists

  2. Module 1: Screening analysis, Methodology o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 𝑛 βˆ’ 𝐷 𝑗 π‘ž o 𝐸𝑇 𝑗 = 𝐷 𝑗 o Where o Where ( expressed in $/MWh) o 𝐸𝑇 𝑗 : Dark Spread, the profit margin per unit o 𝐷 π‘ž : marginal cost of production output in a given hour o 𝐷 𝑔 : fuel cost 𝑛 : cost of market purchase in that hour, o 𝐷 𝑗 o 𝐷 𝑀 : variable O&M costs defined as the LMP o 𝐷 𝑓 : emissions costs π‘ž : π‘žπ‘ π‘π‘’π‘£π‘‘π‘—π‘’π‘π‘œ 𝑑𝑝𝑑𝑒 π‘—π‘œ π‘’β„Žπ‘π‘’ β„Žπ‘π‘£π‘  o 𝐷 𝑗 o Expected CF = # hours 𝐸𝑇 𝑗 > 0 / # hours (8,760) 𝑕 𝐻 𝑗 o Actual CF = Capacity Γ— 8,760

  3. Module 1: Screening analysis, Results for 2017 MISO PJM 100% 100% β€’ Vertical axis is actual value: 80% 80% β€’ Horizontal axis is expected 60% 60% value: 40% β€’ Would expect outcomes to fall 40% on or near diagonal line (y=x) 20% 20% β€’ Predominantly rate regulated 0% 0% 0% 20% 40% 60% 80% 100% coal plants that operate 0% 20% 40% 60% 80% 100% above expected value ERCOT SPP 100% 100% 80% 80% Merchant Generators 60% 60% 40% 40% Rate Regulated 20% 20% (incl. municipality and coops) 0% 0% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100%

  4. Module 2: Cash Flow Analysis, Methodology o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 𝑛 βˆ’ 𝐷 𝑗 π‘ž o 𝐸𝑇 𝑗 = 𝐷 𝑗 o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 o 𝐷 π‘ž = 𝐷 𝑔 + 𝐷 𝑀 + 𝐷 𝑓 o Where o Where ( expressed in $/MWh) o Where ( expressed in $/MWh) o Where ( expressed in $/MWh) o 𝐸𝑇 𝑗 : The profit margin per unit output in a o Where ( expressed in $/MWh) o 𝐷 π‘ž : marginal cost of production o 𝐷 π‘ž : marginal cost of production o Where ( expressed in $/MWh) given hour, β€œDarkest Spread” (more robust o 𝐷 π‘ž : marginal cost of production o 𝐷 π‘ž : marginal cost of production than Dark Spread) o 𝐷 𝑔 : fuel cost o 𝐷 𝑔 : fuel cost o 𝐷 π‘ž : marginal cost of production o 𝐷 𝑔 : fuel cost 𝑛 : cost of market purchase in that hour, o 𝐷 𝑔 : fuel cost o 𝐷 𝑗 o 𝐷 𝑀 : variable O&M costs o 𝐷 𝑀 : variable O&M costs o 𝐷 𝑔 : fuel cost o 𝐷 𝑀 : variable O&M costs defined as the LMP o 𝐷 𝑀 : variable O&M costs o 𝐷 𝑓 : emissions costs o 𝐷 𝑓 : emissions costs o 𝐷 𝑀 : variable O&M costs π‘ž : π‘žπ‘ π‘π‘’π‘£π‘‘π‘—π‘’π‘π‘œ 𝑑𝑝𝑑𝑒 π‘—π‘œ π‘’β„Žπ‘π‘’ β„Žπ‘π‘£π‘  o 𝐷 𝑓 : emissions costs o 𝐷 𝑗 o 𝐷 𝑓 : emissions costs π‘œ 𝑕 Γ— 𝑕 Γ— π‘œ π‘œ = 𝐻 𝑗 π‘œ = 𝐻 𝑗 𝐻 𝑏 𝐻 𝑏 o 𝐷 𝑓 : emissions costs o 𝐻 𝑗 o 𝐻 𝑗 𝑕 Γ— π‘œ π‘œ = 𝐻 𝑗 𝐻 𝑏 𝑕 𝑕 o 𝐻 𝑗 𝐻 𝑏 𝑕 Γ— π‘œ 𝐻 𝑏 π‘œ = 𝐻 𝑗 𝐻 𝑏 𝑕 o 𝐻 𝑗 𝑕 Γ— π‘œ 𝐻 𝑏 π‘œ = 𝐻 𝑗 8760 𝐻 𝑗 π‘œ Γ— 𝐸𝑇 𝑗 𝐻 𝑏 𝑕 o 𝐻 𝑗 o 𝛾 𝑏 = Οƒ 𝑗=1 𝐻 𝑏 o Where 𝑕 o Where 𝐻 𝑏 o Where o Where o Where π‘œ : π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 π‘œ : π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 o 𝐻 𝑗 o Where π‘œ : π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 o 𝛾 𝑏 represent the annual economic margin in π‘œ : π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 𝑕 : 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 𝑕 : 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 o 𝐻 𝑗 π‘œ : π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 𝑕 : 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 total dollars o 𝐻 𝑗 𝑕 : 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 π‘œ : π‘π‘œπ‘œπ‘£π‘π‘š π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘œ : π‘π‘œπ‘œπ‘£π‘π‘š π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏 o 𝐻 𝑏 𝑕 : 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ π‘—π‘œ β„Žπ‘π‘£π‘  𝑗 o 𝐻 𝑗 π‘œ : π‘π‘œπ‘œπ‘£π‘π‘š π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏 π‘œ : π‘π‘œπ‘œπ‘£π‘π‘š π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ 𝑕 : π‘π‘œπ‘œπ‘£π‘π‘š 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ 𝑕 : π‘π‘œπ‘œπ‘£π‘π‘š 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏 o 𝐻 𝑏 o 𝐻 𝑏 π‘œ : π‘π‘œπ‘œπ‘£π‘π‘š π‘œπ‘“π‘’ π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ 𝑕 : π‘π‘œπ‘œπ‘£π‘π‘š 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏 o 𝐻 𝑏 𝑕 assumed for units not reporting 𝐻 𝑏 π‘œ = 𝐻 𝑗 𝑕 : π‘π‘œπ‘œπ‘£π‘π‘š 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏 π‘œ o 𝐻 𝑗 𝑕 : π‘π‘œπ‘œπ‘£π‘π‘š 𝑕𝑠𝑝𝑑𝑑 π‘•π‘“π‘œπ‘“π‘ π‘π‘’π‘—π‘π‘œ o 𝐻 𝑏

  5. 𝛾 Results: Net, 3-years Rate Merchant Regulated Generators $20 $20 PJM Weighted Average Margin ($/MWh) 2015-2017 MISO $- $- $(20) $(20) The two β€œworst” units are merchant waste-coal $(40) $(40) cogeneration units in PJM and extend below graph. $(60) $(60) $20 $20 SPP ERCOT $- $- $(20) $(20) $(40) $(40) $(60) $(60) NOTE: Each bar represents one coal unit, width of bars are not proportional to size (capacity) of that unit. Ex: ERCOT had fewest units, so the width of the bars are greatest.

  6. 𝛾 Results: Gross, 3-years Rate Merchant Regulated Generators Cumulative monthly gross losses ($millions) 2015-2017 $- $- $(50) $(50) $(100) $(100) $(150) $(150) $(200) $(200) $(250) $(250) PJM MISO $(300) $(300) $(350) $(350) $(400) $(400) $- $- Millions $(50) $(50) $(100) $(100) $(150) $(150) $(200) $(200) SPP ERCOT $(250) $(250) $(300) $(300) $(350) $(350) $(400) $(400) NOTE: Each bar represents one coal unit, width of bars are not proportional to size (capacity) of that unit. Ex: ERCOT had fewest units, so the width of the bars are greatest.

  7. Results for 𝛾 (Monthly Granularity) Represents only the sum of all months where Beta was negative. Merchant Merchant PJM Regulated MISO Regulated Unregulated Unregulated 2015 2015 -$259 Million -$333 Million -$681 Million -$18 Million 2016 2016 -$86 Million -$335 Million -$566 Million -$13 Million 2017 2017 -$354 Million -$695 Million -$270 Million -$5 Million Total Total -$699 Million -$1,362 Million -$1,518 Million -$36 Million Merchant Merchant Regulated Regulated SPP ERCOT Unregulated Unregulated 2015 2015 -$258 Million -$21 Million -$36 Million $n/a 2016 2016 -$163 Million -$7 Million -$39 Million $n/a 2017 2017 -$443 Million -$15 Million -$79 Million $n/a Total Total -$865 Million -$43 Million -$154 Million $n/a Over $4.6 billion in market losses over three years NOTE: These numbers are gross, not net; values don’t account for impacts of merit order on LMP and new clearing price of replacement energy.

  8. Future Research Questions? β€’ Why are merchant units behaving this way? β€’ Are affiliate transactions distorting the market? β€’ Is guaranteed cost recovery distorting the market? β€’ How much of the out-of-merit dispatch can be excused by system constraints? β€’ What is the impact on LMP (and other generators)? β€’ Should regulators (PUCs) disallow costs associated with uneconomic dispatch?

  9. Conclusions β€’ Not isolated to SPP, all markets impacted β€’ Assumption of rational actors in organized markets with rate-regulated assets may be flawed β€’ Calls into question the extent of consumer benefits associated with markets β€’ LMP not a good proxy for avoided costs

  10. o Units excluded: o Not all EGU’s report hourly data, those units are omitted o Primarily impacts units less than 25MW o Only includes units are units whose primary fuel group is listed as coal o Includes waste coal, pet coke, lignite, bit., Definitions, and sub bit. o Units that have converted to dual fuel, or Caveats, co-fire biomass, or list coal as secondary or tertiary fuel are excluded Assumptions o Units that retired prior to June 2018 were excluded o Merchant owners don’t report fuel cost data to EIA, S&P data used as back fill o Units that joined RTO during study period only included costs and revenues after join date o Units that dispatch into multiple RTOs were analyzed only in β€œprimary” RTO

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