Capacity Market Technical Design Stakeholder Update Session · Capacity Market Technical Design...

Capacity Market Technical Design Stakeholder Update Session Straw Alberta Market (SAM 3.0)

Dec. 11, 2017 Public

Session outline

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Time Agenda Item

1:30 – 1:35 p.m. Welcome and session overview: Matt Gray, AESO

1:35 – 1:40 p.m. Opening remarks: Miranda Keating Erickson, AESO

1:40 – 2:40 p.m.

Review of SAM 3.0 (Q&A to follow each presenter)

- Adequacy & Demand Curve Determination: Marcy Cochlan, TransAlta

- Eligibility: Janene Taylor, TransCanada

- Market Mechanics: Kris Aksomitis, Power Advisory, on behalf of Cogen Working Group

2:40 – 2:55 p.m. Break

2:55 – 3:45 p.m.

Review of SAM 3.0 (continued)

- Procurement and Hedging: Richard Penn, IPCAA

- Energy & Ancillary Services: Matt Davis, ATCO

3:45 – 4 p.m. Next steps for market design and engagement: Kevin Dawson, AESO

Public

Development of the comprehensive market design (CMD)

• SAM 3.0 working group (WG) recommendations will be considered in the development of the CMD by the AESO

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SAM 2.0 SAM 3.0 AESO CMD

• A starting point on key design elements for collaborative discussions

• WG initial examination of design questions

• Industry feedback used as input into SAM 3.0

• SAM 3.0 contains WG provisional recommendations

May 2017

SAM 1.0

June – Aug. 2017 Sept. – Dec. 2017

• First draft of CMD to be shared with consolidated working groups

Jan 2018

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Development of provisional recommendations Exploration of a key design element (KDE)

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Introduction of KDE

• KDE and related questions introduced for examination by WG members

• Poll of WG members conducted to establish directional alignment, initial WG member positions and interest

Examination of KDE

• Information and analysis about KDE presented to/by WG members

• Members review and discuss alternatives for designing KDE

• When majority of WG members believe sufficient examination has occurred, draft recommendation presented for review and voting by WG members

Recommendation for KDE

• Vote conducted and result documented

• Affirming and dissenting votes recorded, along with reasons for dissent

• Recommendations and context of WG discussions that produced them reported in SAM 3.0

Public

• SAM 3.0 WG provisional recommendations are understood as advice and will be considered by AESO in developing the draft comprehensive market design

Resource adequacy requirement How much capacity needs to be procured?

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SAM 3.0 provisional recommendations

• The capacity market will have an annual reliability requirement and delivery period instead of a seasonal requirement.

• A set of demand curve principles, which provide guidance on balancing resource adequacy, cost and volatility in the demand curve, were developed with the WG.

• A set of methodology and inputs for resource adequacy modelling have been reviewed and approach accepted by the workgroup; Continued transparency requested in the ongoing consultation process.

Working Group: Adequacy & Demand Curve Determination

SAM 3.0 discussion context

• Three candidate curves were produced for the working group. • General alignment on:

– Gross-CONE calculation approach. – Simple-cycle technology best fits the reference technology criteria. – EAS revenues for net-CONE calculation developed with a forecast approach.

Eligibility Who can provide capacity?

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• Demand resource participation: demand response resources and price responsive load should be eligible to participate in the capacity market.

• Resources available over interties should be eligible to participate. • Storage resources should be eligible to participate.

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Working Group: Eligibility & Capacity Value Determination


• Work group requires more information to determine how energy efficiency resources can participate.

Eligibility How much can they provide?

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• Minimum resource size: Resources 1 MW and greater should be eligible to participate in the capacity market.

• Aggregation: Resources should be able to aggregate when participating in the capacity market.

• Unforced capacity (UCAP): UCAP should be used to represent capacity when determining capacity values.

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• AESO should be the UCAP calculating agent, but will require additional information to do so.

Performance assessments How do we know that capacity has been provided?

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• No recommendation.



• WG reached directional alignment that additional performance testing periods be considered to mitigate the concerns associated with performance measurement occurring only during EEA events.

• A majority of WG members agreed: – There is a need for a penalty framework. – Increasing the number of performance measurement events will recognize

the uniqueness of the Alberta market and make penalties more manageable. – Non-EEA event performance should be measured on resource availability

(where “availability” means that the resource is available for energy market dispatch).

Procurement timing and frequency How will the capacity market operate? When and how often will capacity be purchased?

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• Auction type: The auction should be a single-round, sealed-bid auction. • Forward period: The auction should be held three years prior to the obligation

period. • Rebalancing auctions: There should be two rebalancing auctions.

Public

Working Group: Market Mechanics

Term How long will the capacity delivery period be?

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• The obligation period will be one year (non-seasonal).



• Obligation period: WG was largely split between a one-year term and a seven-year term for new resources.

• Asset substitution: WG agreed asset substitution is an important method for resources to manage risk; Supported a flexibility approach to ex ante asset substitution.

Term How should out-of-market power and out-of-market payments be managed?

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• No recommendation.



Market power • Mitigation should be enforced ex ante. • Resource suppliers that are not pivotal should not have any mitigation

applied to their capacity market offers. • Working group considered three approaches for pivotal supplier mitigation.

Out-of-market payments • Working group agreed offer mitigation for resources that receive out-of-

market payments should be applied on an ex ante basis; there was no agreement on definition of an out-of-market payment.

Obligation to procure Who will buy the capacity? Includes question of cogen treatment/self-supply

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SAM 3.0 provisional recommendations • AESO should hold the obligation to procure capacity on behalf of load. • AESO should operate an organized market, with a centralized auction

mechanism and standard product definition, where all capacity is exchanged through a centralized auction with a simple, transparent price.

Working Group: Procurement & Hedging


• This aligns with Alberta Energy policy statement (September),


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SAM 3.0 provisional recommendations • Cost should be allocated to self-supply net load according to the cost allocation

method developed. • Self-suppliers will not be assessed a load obligation, provided the cost

allocation methodology addresses potential fairness issues that may result from self-suppliers failing to adequately self-supply during performance events.


SAM 3.0 discussion context • A load obligation is a requirement placed on load to not consume beyond a

certain level, otherwise be subject to curtailment, penalties, or additional costs.


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• Physical bilateral procurement of capacity is not permitted. – However, a site may choose to self-supply capacity provided they meet the

following certain requirements.


SAM 3.0 discussion context • ‘Physical bilateral procurement of capacity’ is not to be confused with a

‘contract-for-differences’ (CfD) for capacity, but rather a contractual arrangement between a load and a specific capacity resource, utilizing the transmission or distribution system for physical delivery of all or a portion of the load’s capacity needs.

• Majority of the WG felt the UCAP for self-supply sites should ideally be determined based on effective load carrying capability. – Concerns with the complexity and lack of transparency with the effective load

carrying capability approach. – Further exploration of this option is required and should investigate whether a

simpler process could proxy for full-blown effective load carrying capability modelling.

Capacity market settlement How will capacity providers be paid?

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• The capacity market should facilitate Capacity Market net settlement instructions (NSI) within design of the market.


SAM 3.0 discussion context • Some items within the topic of settlement (e.g., settlement, billing, credit) were

not scheduled for the SAM 3.0 development cycle.

Inter-operability implications How will the capacity market impact the EAS markets?

• Overall deliverable is a roadmap for market rules, including timing for implementation of components.

• Adoption of phased approach to ensure proper alignment and functioning of CM and EAS markets:

Phase I • Identified changes to EAS with introduction of capacity market. • Assumed no change in supply mix and current system conditions.

Phase II

• Considered how market products, rules, etc. need to change due to expected impact of net demand variability (NDV).

• Considered if further market efficiencies should be introduced and when (e.g., SCUC, BDAM, EAS co-optimization, settlement interval changes).

SAM 3.0 summarizes:

• WG voting on all Phase I “conclusions” reached as part of SAM 2.0.

• WG voting of all KDE based on Phase II assumptions. 15 Public

Working Group: Energy & Ancillary Services


16 Public

SAM 3.0 provisional recommendations based on Phase I assumptions

• Can continue unit self-commitment. • AESO will not approve outages; status quo for information will continue. • All committed supply capacity must offer physical availability, similar to rules today

on offering maximum capability (MC) subject to an acceptable operating reason (AOR); This includes loads that may be committed on the supply side of the capacity market; All non-committed supply capacity must ‘offer’ visibility of resources.

• No changes to AS products, markets, operations at this point.


SAM 3.0 discussion context • All Phase I conclusions were accepted during voting, with exception of vote on

outage planning and distinction for ‘must offer’ for non-committed capacity resources.

• Outage vote was premised on assumption that approved outages was not an exemption for a performance period; Non-committed capacity resources must show visibility, but perhaps without a price.


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SAM 3.0 provisional recommendations based on Phase II assumptions

Unit Commitment and Dispatch • Self-commitment can continue to work. • Status quo will continue for outage submissions and be used for information

only; AESO will not approve outages. • Intertie scheduling and dispatch options will be considered separately.



• Based on results of NDV study, there is likely increased supply surplus events and therefore possibly more unit cycling; However, at this time it was concluded that a self-commitment model could continue; Options related to SCUC may be considered as part of the roadmap.

• Intertie options required more detailed discussion, the vote was therefore deferred; WG members are to submit input to AESO.


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SAM 3.0 provisional recommendations based on Phase II assumptions

Pricing • WG accepted an overall pricing package including the following elements (further

research on details will be completed for the consolidated proposal). • Ex ante hourly process will be used to evaluate market power. Pivotal

supplier/conduct and impact screens will be further evaluated. • Companies that fail ex ante mitigation screen on an hourly basis will have their

offers mitigated to a soft cap based on multiples of short-run marginal cost by fuel type, asset type or market cap.



• WG was able to advance conclusions on this KDE based on modelling conducted; However, more work is required to finalize detailed proposal.

• Further work is required to finalize level at which screens would be applied, whether some assets would fit the ‘no look’ category, whether an impact assessment was required, and level/form for the soft cap.


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SAM 3.0 provisional recommendations based on Phase II scope

Pricing (continued) • Scarcity and shortage pricing mechanisms will be examined as part of bid

mitigation model; No change to price cap is proposed; Negative pricing requires further examination.



• WG agreed that scarcity, shortage pricing mechanisms and negative pricing require further exploration as part of price fidelity in a bid mitigation model (and are related to levels of mitigation); WG had differing views as to which design change best achieved goals related to price stability objectives (including tradeoffs between changing the price cap and introducing shortage pricing).


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SAM 3.0 provisional recommendations based on Phase II scope Ancillary services • Based on the expected impacts due to increased variable generation and fleet

changes, rule changes and price signals for flexibility can address the issue; AESO will provide details on these choices as part of consolidated proposal.

• WG was split on need and timing for a ramp product as part of these market changes, and concluded that further analysis was required.

• A must-offer for ancillary services is not required consistent with the conclusion that the current AS market (sequential model) will continue.


SAM 3.0 discussion context • WG wanted to review the proposed rule/price signal package and test whether they

were sufficient to ensure price signals for flexibility; Some thought it was of value to develop a ramp product even if it is implemented later.

• Should the co-optimized EAS model be part of the roadmap, a must-offer (an alternative bid structure) would be required.

• All of this will be evaluated as part of roadmap discussions.


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SAM 3.0 provisional recommendations based on Phase II scope Efficiency • A 15-minute settlement interval will be explored (aligned with current dispatch

based on hourly offers) to provide incentives for flexible resources. • Given results of other efficiency provisional recommendations and need to

provide further details prior to a vote on financial binding day-ahead market (BDAM), WG agreed to defer vote of the BDAM for discussions as part of roadmap.



• The settlement proposal on the table at present is a 15-minute settlement model within an hourly dispatch market.

• A financial day-ahead market will be considered in context of the other recommendations once completed and considered as part of roadmap.

Illustrative EAS market roadmap

• The draft roadmap will be part of the consolidated design

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Design Element

Phase I Provisional Recommendations

Phase II Provisional

Recommendations

EAS Roadmap

(2021) (Date) (Trigger) (Off the Table)

• The draft roadmap will consider how changes required will be implemented, and when, based on the following (preliminary) categories:

1. For implementation with the 2021 capacity market delivery.

2. Required but delayed to a date-specific implementation.

3. To be evaluated as part of an identified trigger need.

4. Not required based on current information available. To be removed from project scope.

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SAM 3.0 and comprehensive market design scope

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SAM 3.0

Credit

Reporting

Offer format

TX constraints

Buyer side market power

Detailed UCAP calculations

Rebalancing auction mechanism

New resource qualification milestones

Settlement and billing

Further implementation detail on areas covered in SAM 3.0

+ = Comprehensive Market Design

CMD working groups – session outline

General session (all members of consolidated WG)

• CMD Review – General overview

– Concentrate on areas impacting total revenue, operability or risk between markets

• E.g., market mitigation, performance penalties

• Confirm focus areas for Design, EAS and Technical working groups

• Q&A

24 Public


Capacity market design • CMD review

– Entire document

– Penalty mechanism

– Mitigation

– Term

– Auction timelines and delivery cycle

– Auction mechanics

– Qualification requirements

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Energy and ancillary services • EAS modelling

– Pricing • Mitigation proposal comparison • Shortage pricing – impact of different price levels given fixed number of

shortage hours

– AS: Evaluation of co-optimization – Unit Commitment: Impact of different fleets (testing robustness of

conclusion with high coal to gas portfolio)

• CMD review – Entire document – EAS: Intertie offer and dispatch offers; Ramp product – Must offer visibility

• Roadmap: Four categories

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Technical • Resource adequacy modelling

– Review feedback on load forecast – Modeling inputs (outage information, intertie) – Modeling output

• UCAP – Principle to calculation – Data needs/issues/process – Draft calculation methodology for conventional thermal resources,

intertie

• Net-CONE – Review scope of work: gross-CONE and net-CONE – Seek feedback on financing assumptions, EAS methodology

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Timeline

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Session wrap-up and key near-term dates

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Dec. 15 Stakeholder feedback on SAM 3.0 due

Dec. 20 AESO posts feedback ‘as received’ on aeso.ca

Jan. 12 AESO response to feedback posted

Jan. 26 Draft comprehensive design published on aeso.ca

Feb. 12–16 Working group review sessions

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Thank you

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The information contained in this document is for information purposes only, and the AESO is not responsible for any errors or omissions. Further, the AESO makes no warranties or representations as to the accuracy, completeness or fitness for any particular purpose with respect to the information

contained herein, whether express or implied. Consequently, any reliance placed on the information contained herein is at the reader’s sole risk.

Capacity Market Technical Design Stakeholder Update Session · Capacity Market Technical Design...

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