July 11, 2012 | NEPOOL markets committee

1. July 11, 2012 | NEPOOL markets committee Jonathan Lowell Principal analyst | market development Improving the ISO’s Ability to Operate Reliably, Produce Efficient Outcomes, and Reduce Avoidable Curtailments of Wind Resources Wind Real-Time Dispatch

2. The Problem • The system faces more frequent localized congestion as wind penetration increases • Today, this congestion must be handled manually through curtailment instructions • To ensure reliability, system operators must take a conservative approach. Can’t risk operating “too close to the edge”. • Manual curtailments do not result in price separation • Wind resources and other Intermittent resources are “non-dispatchable” • Unit Dispatch Software (UDS) is unable to manage congestion by sending dispatch instructions • Creates local economic incentives to maximize output when reliability requires reduced output • LMPs are inconsistent with “dispatch” decisions to curtail zero-price resources

3. Wind RT Dispatch – Where Are We? • Past MC presentations (see appendix) have described the shortcomings of existing practice, and the ISO’s proposal to provide a “Do Not Exceed” dispatch instruction to dispatchable wind resources. • This background information has not changed, and has been discussed several times with the Committee • Not the focus for today, but happy to respond to questions • Today’s presentation will focus on the principles behind the DNE dispatch and how it will impact LMPs

4. DNE Dispatch • Dispatchable wind resources will receive a DNE dispatch instruction that reflects: • current and forecast wind conditions • wind plant economic offers and operating status • transmission operating limits and system conditions • offers and operating status of non-wind plants • Goals of the Wind DNE Dispatch • Ensure reliable operation • Improve utilization of transmission facilities and minimize curtailments • Create prices and incentives consistent with efficient market outcomes (lowest production cost) • Enhance operators ability to manage the system during rapidly changing weather conditions

5. DNE Dispatch Principles • A wind resource may operate freely between 0 MW and the DNE limit, as wind conditions allow • Must not exceed the DNE limit • ISO will use telemetry from the plant and the new wind short term forecast system to produce a high confidence “expected wind generation” for the next dispatch interval • If a plant’s expected generation > DNE limit: • The plant is being prevented from producing its full potential output • Under these conditions, the plant would be eligible to set price • If expected generation <= DNE limit, the plant is not constrained by the dispatch, and would not be eligible to set price

6. DNE Dispatch – Conceptual Examples Assume a 150 MW radial line with: • 100 MW wind plant offered at $0/MWH • 100 MW non-wind resource offered at $20/MWH • $35/MWH LMP where the line connects to the meshed grid • With no wind: • Exp wind = 0 MW, DNE = 50 MW • Non-wind DDP = 100 MW • LMP = $35 • With 50% wind • Exp wind = 50 MW, DNE = 50 MW • Non-wind DDP = 100 MW • LMP = $35/MWH • With 75% wind • Exp wind = 75 MW, DNE = 75 MW • Non-wind DDP = 75 MW • LMP = $20/MWH • With optimal wind: • Exp wind = 100 MW, DNE = 100 MW • Non-wind DDP = 50 MW • LMP = $20/MWH Note – to provide clarity in the illustration of DNE dispatch principles, examples ignore some of the more complex pricing constraints in the LMP calculator

7. DNE Dispatch – Conceptual Examples Assume a 100 MW radial line with: • 100 MW wind plant offered at $0/MWH • 100 MW non-wind resource offered at $20/MWH • $35/MWH LMP where the line connects to the meshed grid • With no wind: • Exp wind = 0 MW, DNE = 0 MW • Non-wind DDP = 100 MW • LMP = $35 • With 50% wind • Exp wind = 50 MW, DNE = 50 MW • Non-wind DDP = 50 MW • LMP = $20/MWH • With 75% wind • Exp wind = 75 MW, DNE = 75 MW • Non-wind DDP = 25 MW • LMP = $20/MWH • With optimal wind: • Exp wind = 100 MW, DNE = 100 MW • Non-wind DDP = 0 MW • LMP = $20/MWH Note – to provide clarity in the illustration of DNE dispatch principles, examples ignore some of the more complex pricing constraints in the LMP calculator

8. DNE Dispatch – Conceptual Examples Assume a 100 MW radial line with: • Two 60 MW wind plants offered at $0/MWH • 100 MW non-wind resource offered at $20/MWH • $35/MWH LMP where the line connects to the meshed grid • With no wind: • Exp wind = 0 MW, DNE = 0 MW • Non-wind DDP = 100 MW • LMP = $35 • With 50% wind • Exp wind = 60 MW, DNE = 60 MW • Non-wind DDP = 40 MW • LMP = $20/MWH • With 85% wind • Exp wind = 102 MW, DNE = 100 MW • Non-wind DDP = 0 MW • LMP = $0/MWH • With optimal wind: • Exp wind = 120 MW, DNE = 100 MW • Non-wind DDP = 0 MW • LMP = $0/MWH Note – to provide clarity in the illustration of DNE dispatch principles, examples ignore some of the more complex pricing constraints in the LMP calculator

9. DNE Dispatch – Operational Considerations • Transmission lines in remote locations where many wind plants are locating tend to be “skinny”, and line limits cannot be exceeded, even for short periods • Normal rating = Short Term Emergency Rating = Long Term Emergency Rating • Another Example (using assumptions from prior slide, with several additional assumptons): • Expected wind = actual wind = DNE limit = 0 MW • Non-wind resources are operating at the limit of the line = 100 MW • Non-wind plant ramps at 1 MW/min • Wind plants each ramp at 20 MW/min, or 40 MW/min total

10. DNE Dispatch – Operational Considerations • Along comes a proverbial “optimal wind” gust • Expected wind now = 120 MW • DNE cannot be increased until the non-wind plant has ramped down to “make room” on the line • Alternatively, the line can be derated to allow some room to begin wind up-ramps • The ISO is evaluating how best to incorporate these considerations in the DNE algorithm to ensure reliable operation at the lowest cost.

11. Anticipated Schedule • May MC meeting – conceptual overview • MR1 language available, but not discussed • June MC meeting – MR1 language presented • July MC meeting – request MC vote • August PC meeting (or later) - request PC approval

12. Appendix Wind RT Dispatch Presentation to the June 12, 2012 Markets Committee Meeting

13. The Problem • The system faces more frequent localized congestion as wind penetration increases • Today, this congestion must be handled manually through curtailment instructions • To ensure reliability, system operators must take a conservative approach. Can’t risk operating “too close to the edge”. • Manual curtailments do not result in price separation • Wind resources and other Intermittent resources are “non-dispatchable” • Unit Dispatch Software (UDS) is unable to manage congestion by sending dispatch instructions • Creates local economic incentives to maximize output when reliability requires reduced output • LMPs are inconsistent with “dispatch” decisions to curtail zero-price resources

14. Other Factors • When economic dispatch is insufficient to manage congestion, priority goes to resources that cleared or self-scheduled in Day-Ahead. • As a practical matter, this leads to economically inefficient outcomes • Renewable energy credits and production tax credits result in wind plants having a negative energy price • Interconnections on weaker portions of the grid, and fast ramp rates mean wind plants are typically curtailed more frequently than other resource types • Anticipated wind production generally not reflected in unit commitment for real-time • The ISO currently has no feasible way to dispatch wind plants that wish to offer economically

15. Why Now? • New England wind penetration has been doubling every year • Currently at 525 MW • Likely 900 MW by end of 2012 • If Congress renews provisions for Production Tax Credits, wind resources could reach 1500-1700 MW by end of 2013 • Existing manual curtailment procedures cannot effectively manage this amount of wind generation • Software infrastructure to support Wind RT Dispatch can be ready in 2014 • Sooner would be better, but Wind Dispatch depends on other dispatch software improvements already underway

16. What’s Wrong with the Status Quo? • Lack of real-time telemetry and uncertainty about anticipated wind output lead to: • More conservative operating practices and limits • Less optimal resource commitment • Suboptimal dispatch and inappropriate pricing • Low cost resources may be curtailed before higher cost resources • Manual curtailments to manage congestion don’t result in price separation • With higher wind penetration, system operators with only manual dispatch & curtailment procedures will be overloaded during dynamic weather conditions

17. Enabling Improvements Are Already Underway • Wind short-term forecast – early 2013 • Highly accurate 5-minute forecast for each wind plant • Hourly forecasts for the coming 7 days • OP-14 & OP-18 – real-time telemetry from wind plants • Both of these: • Greatly improve operator situational awareness • Reduce uncertainty • Improve commitment and dispatch of all resources • Make possible a real-time “Do Not Exceed” (DNE) dispatch of wind resources

18. What is a “Do Not Exceed” Dispatch? • UDS will calculate and send out a Do Not Exceed limit to each wind plant on dispatch • The DNE limits will reflect • Each plant’s economic offer curve • The maximum output of each wind plant under ideal weather conditions • Transmission constraints • Each plant’s telemetered physical status for the next dispatch interval • Current plant output (the so-called “persistence forecast”) • high-confidence “next 5 minutes” wind output forecasts • A wind plant is free to operating anywhere between 0 MW and the DNE limit • Considers both energy balance (i.e. gen = load) and reliability

19. How Will Wind RT DNE Dispatch Work? • The DNE limit reflects the maximum plant output that can be tolerated, given system conditions and constraints • Wind plants will be considered “following dispatch” if operating between 0 MW and the DNE limit and not exceeding ramping limits. • Output can vary with changing weather conditions • Downward ramps due to plant emergencies and/or decreasing wind not counted for “following dispatch” • Wind plants on dispatch will be eligible to set price • DNE dispatch allows UDS to perform price-based congestion management based on offer parameters • Will prevent “manual procedure” overload for system operators • Accurate forecasts and frequent telemetry should reduce curtailments and provide greater opportunity to maximize output.

20. DNE Dispatch Will Initially Be Optional • DNE dispatch implementation currently estimated for 2014 • Wind resources will be non-dispatchable until DNE dispatch is available • Once available, DNE dispatch may be optionally selected by wind plants through their offer data • If/when negative energy offers become available, MR1 would be revised to make DNE dispatch mandatory for wind plants that meet one or more of the following conditions: • Interconnect to a transmission facility or a FERC jurisdictional distribution facility • Has a Capacity Supply Obligation • Is a Capacity Network Resource • Has a total nameplate capacity at the point of interconnection of >= 5 MW • Possible exclusion for “Settlement Only Generators” – may depend on operational needs of System Operators

21. Other Participation Considerations • Must be providing all weather and plant data required by recent OP-14 & OP-18 changes • This data supports the forthcoming real-time wind forecast system • Accurate real-time wind production forecasts are critical to effective operation of the DNE dispatch • No requirement to offer into Day-Ahead • Self-scheduling will continue to be permissible while Wind RT Dispatch is voluntary. • Assuming a dispatchable wind plant offers $0 commitment costs, it will be treated as “committed” whenever available (i.e. RTHOL > 0) • Otherwise, must offer & clear in DA, or self-schedule in RT

22. Concluding Remarks • Voluntary Wind RT DNE Dispatch – mid-2014 • Market rules being presented today only address voluntary DNE dispatch • Partial/voluntary implementation: • Provides early operational/reliability benefits • Does not fully resolve pricing and congestion management issues • That requires that all wind plants are responding to DNE dispatch instructions • Full reliability benefit occurs only when Wind RT Dispatch becomes mandatory • Not anticipated until negative offers can be implemented (likely not until 2014 or 2015) • Mandatory Wind RT Dispatch will require a separate rule change

23. Anticipated Schedule • May MC meeting – conceptual overview • MR1 language available, but not discussed • June MC meeting – MR1 language presented • July MC meeting – request MC vote • August PC meeting (or later) - request PC approval

24. Appendix Current Curtailment Protocol

25. Existing RT Dispatch and Congestion Management • Existing real-time curtailment procedure • Economic dispatch – most-expensive dispatchable resources (based on sensitivity to the constraint) backed down first • Self-scheduled/non-dispatchable resources not impacted at this point • Resources that did not offer and clear in Day-Ahead • Resource with largest impact on the constraint curtailed first, as long as it can respond quickly enough • If not, other resources may also be requested to reduce output • DA-cleared/self-scheduled resources backed down last • Self-scheduling in DA • If multiple SS requests result in constraint violations, ISO rejects the request(s) that results in the least cost solution

26. Existing RT Dispatch and Congestion Management • Self-scheduling in RT • A SS request (effectively priced at $0/MWH) is accepted if it can be accommodated by backing down DA-cleared resources to their EcoMin/SS amount • If congestion develops and all online resources are RT SS at EcoMin, operators will manually deny self-schedules as needed • Solves the reliability problem, but does not result in price separation • If further action is required, operators may de-commit resources, taking into consideration: • Sensitivity to constraint, system/area capacity, EcoMax/EcoMin, Min Run & Min Down times, economics • Interconnections on weaker portions of the grid, and fast ramp rates mean wind plants are typically curtailed more frequently than other resource types.