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The Addition of a Forward TMSR Market to ASM II

The Addition of a Forward TMSR Market to ASM II. John G. Farr NEPGA Technical Advisor NEPOOL FSR Working Group April 3, 2006. Why Add a Forward TMSR Market?. Efficient and equitable treatment of spinning reserve resources

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The Addition of a Forward TMSR Market to ASM II

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  1. The Addition of a Forward TMSR Market to ASM II John G. Farr NEPGA Technical Advisor NEPOOL FSR Working Group April 3, 2006

  2. Why Add a Forward TMSR Market? • Efficient and equitable treatment of spinning reserve resources • Increase incentives for resource flexibility and lower uplift payments among spinning resources • Improve efficiency of proposed forward TMOR and TMNSR markets by correcting imbalance in supply and demand

  3. Spinning Resources Provide Highest Value to System Operator of all Reserve Resources • Spinning resources also typically very reliable because they are already running (no failures at start-up – See Manual 11, Section 2.5.5(5)) • In addition, spinning resources provide additional ramping capability to system operator to follow load throughout operating day • Need selection of synchronized reserve to meet load ramp up/ramp down (can be much larger requirement than total 30 minute requirement) • High value of increased flexibility to system operator (currently unrecognized) Note: ISO-NE has no operational requirement for quick start capacity (See OP-8)

  4. Current Market Capacity to meet forward reserve obligation designated at FR auction Forward reserve capacity obligations cannot be traded Participants unable to change energy offer (re-offer) after day-ahead auction if any portion of resource is scheduled Spinning resources largely unable to participate in FRM Proposed Market (ASM II) Capacity to meet forward reserve obligation designated after close of day-ahead market Capacity obligations may be traded between participants Participants able to change energy offers after day-ahead Spinning resources fully able to participate in FRM* Major Changes in Proposed FRM Greatly Impact Ability to Incorporate Spinning Resources *Note: NEPGA objects to the proposed market’s failure to recognize TMSR requirement, NOT full participation of TMSR resources

  5. Current Market - Demand Estimate of System TMNSR and TMOR Current Market – Potential Supply TMOR TMNSR TMSR largely excluded (see previous slide) (Resources must be willing to commit throughout seasonal obligation period) ____ TMNSR + TMOR ≈ TMNSR + TMOR Demand and Supply in Balance Proposed Market (ASM II) – Demand Estimate of System TMNSR and TMOR Proposed Market – Potential Supply TMOR TMNSR TMSR (Resources may be designated on portfolio basis or obligations may be traded daily) ____ TMNSR + TMOR ≠ TMNSR + TMOR + TMSR Fundamental Imbalance Creates Serious Market Flaw System Supply and Demand Requirements in Proposed FRM Creates Serious Imbalance

  6. Imbalance in Current Design Will: • Distort system forward reserve prices away from efficient levels • Fail to incent flexible resource base • Continue reliance on uplift and other out of market mechanisms (e.g., mandate that resources offer at low economic limit) to procure needed reserve services

  7. The Addition of Forward TMSR will Increase Flexibility/Lower Uplift (NCPC) • Current markets reward inflexibility • NCPC a function of how much out-of-merit energy is produced on system • Little incentive to increase ramp rate or lower LEL • Reserve markets reward operational flexibility • Real-time market will help, but only for very limited hours • Forward reserve markets more likely to produce steady incentives for investments in operational flexibility

  8. Proposed Solution • Add spinning reserve “module” to existing forward reserve market parallel to TMNSR and TMOR • Winning bidders to have same obligations, except must provide TMSR instead of TMOR or TMNSR. • Same penalties for non-delivery • Same real-time obligations • Allowed to meet MW obligation on portfolio basis or trade

  9. Proposed Solution • Market clearing to extent cascading to TMSR (for system* reserves) • TMOR ≤ TMNSR (Current Proposal) • TMOR ≤ TMNSR ≤ TMSR (w/ TMSR “Extension”) • Extension follows same mathematical principals as two product cascading • Parallel to process of cascading in real-time market (i.e., where TMSR is priced) *Cascading of locational TMOR not shown. No defined/direct relationship between locational TMOR and system TMSR.

  10. Proposed Solution • Market quantity based on expected OP-8 requirement. Calculated in parallel manner to TMNSR and TMOR • Obligations and payments made in parallel manner to TMNSR and TMOR markets *Cascading of locational TMOR not shown. No defined/direct relationship between locational TMOR and system TMSR.

  11. Implementation • Market design work minimal (i.e., based almost entirely on existing design) • But “train has already left station” for initial ASM II implementation • Implementation work well underway w/o forward TMSR “module” • ISO says not possible to add forward TMSR without delay • Add Forward TMSR ASAP immediately after completion of initial Phase II implementation

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