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OPSI Panel: LMP Pricing Improvements

OPSI Panel: LMP Pricing Improvements. Direct Energy, LLC Scarp (David Scarpignato) 443-824-3114. LMP vs. Uplift. Why? : Competition in the hope of: Market Efficiency Transparency Transfer generation risks to private investors rather than ratepayers

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OPSI Panel: LMP Pricing Improvements

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  1. OPSI Panel:LMP Pricing Improvements Direct Energy, LLC Scarp (David Scarpignato) 443-824-3114

  2. LMP vs. Uplift • Why? : Competition in the hope of: • Market Efficiency • Transparency • Transfer generation risks to private investors rather than ratepayers • Need for Competitive Retail Provider if Wholesale Deregulated • Compete for cheapest Supply rather than cronyism or self-dealing • Sophisticated risk hedging strategies to deal with volatility and cash flow • Uplift Hinders Markets and Competition at Retail Level • Competitive retail providers depend on competitive wholesale markets • Competitive retail providers are harmed by out-of-market (Uplift) • Uplift is unhedgeable and harms the competitive LSE business model • Severe out-of-market costs could eliminate retail competitors

  3. Out-of-Market/LMP Costs on Extreme Days • “Free Market” price formation (LMP) seems to fall apart under "Extreme" days • Interchange Volatility • Need to know what interchange will be to dispatch correctly • 8,000 MW unexpected interchange plummeted PJM prices (polar vortex) and created uplift • Wrong internal commitments (DR and generation) if anticipate incorrect interchange • Need to encourage forward interchange scheduling on Extreme days • Limit real-time interchange transactions since internal commitment decisions already made

  4. Generation Failures on Extreme Days • Creates need for excess commitments • Need to capture out-of market excess commitments • Price through carrying excess reserves • Reserves are joint-optimized with LMP • Send market signal to those causing need for excess commitment (generators that fail to start) • About 32,000 MW of generators failed on January 7th (22% of resources) • Charging load fails to signal generators to perform better • Excess Reserves (Commitments) should be charged to deviations

  5. Solutions to Reactive Uplift • Units brought on for (voltage support) are paid as uplift • Need to build transmission to fix chronic operational issues regarding voltage. • A $50,000 capacitor bank makes more sense than paying a generator $1,000,000 a in uplift • Single generator with market power to solve reactive problem areas is poor construct

  6. MVA Rather Than MW Based LMP • Paying of units for constrained economic dispatch, REGARDLESS of constraint belongs in LMP • LMP is supposed to be a “constrained economic dispatch” and not “THERMALLY constrained economic dispatch” • Need to include reactive (MVAR) in addition to real power (MW) as part of LMP • When unit brought on for reactive (voltage support) it is currently paid as uplift • Do Constrained Economic Dispatch using MVA instead of MW. • Computing power is greater today • EMS systems are advanced and can even do optimized MVAR flow • Cost-capping for resourceconcentration associated with reactive issues - in additions to today's based on thermal

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