Use of Shadow Price Cap in Local Congestion Management

1. Use of Shadow Price Cap in Local Congestion Management ERCOT Market Operations Support

2. Topics • Definition of Shadow Price • Shadow Price v. Penalty Factor • How Shadow Price Cap can be used ERCOT Market Operations Support

3. What is a Shadow Price? • Local Congestion Management • Objective Function Minimize the cost of deployment, subject to certain constraints • Local Congestion constraint • System power balance • Zonal Congestion constraint • Portfolio BES Bid Ramp Rate • BES bid amount ERCOT Market Operations Support

4. What is a Shadow Price? Change in cost When this is changed • Local Congestion constraint • Shadow Price • Cost of operation(s) to effect a 1 MW change in a constraint ERCOT Market Operations Support

5. Shadow Price v. Penalty Factor • Shadow Price vs. Penalty Factor • ERCOT assigns a penalty factor to each constraint • For Local Congestion constraints, • Penalty Factor = “Stopping point” price for EACH local constraint • When cost for 1 MW (Shadow Price) = Penalty Factor, clearing engine stops solving ERCOT Market Operations Support

6. Shadow Price v. Penalty Factor • Penalty Factor values ERCOT Market Operations Support

7. Production Shadow Prices 6% ERCOT Market Operations Support

8. Shadow Price v. Penalty Factor • Specific Example • DGIBTOK5 (Jewet 1260_A) on November 1 07:15 • Shadow Price = $4,967.40 • If reduce the constraint limit by 1 MW, • Move BBSES_U2 down 44.0528 MW • Shift Factor = 0.0227 • Reduces flow by 1 MW • Move CBY_G3 up 44.0528 MW • Shift Factor = 0 • No impact on flow • Cost = (44.0528 * $115.76 – 44.0528 * 3) = $4,967.4 ERCOT Market Operations Support

9. How Shadow Price Cap can be used • A Shadow Price cap can… • Limit possibility of deployments to “expensive” units • Units with high bid prices (nuclear, hydro, QF) • Limit possibility of deployments to less effective units • Units with small shift factors ERCOT Market Operations Support

10. How Shadow Price Cap can be used • A Shadow Price cap can… • Limit possibility of deployments to “expensive” units • MW (UBESBP – DBESBP) • (UBESBP – DBESBP) < $150 • MW = 50 (1 MW/0.02 = 50) • Shadow Price cap = 150 * 50 = $7,500 ERCOT Market Operations Support

11. How Shadow Price Cap can be used • A Shadow Price cap can… • Limit possibility of deployments to “expensive” units • Possibility of deployment depends on shift factor and shadow price cap • Guarantee: set unit bid price > shadow price cap ERCOT Market Operations Support

12. How Shadow Price Cap can be used • A Shadow Price cap can… • Limit possibility of deployments to less effective units • Units with small shift factors • MW (UBESBP – DBESBP) • (UBESBP – DBESBP) < $150 • MW= 25 (1 MW/0.04 = 25) • Shadow Price cap = 150 * 25 = $3,750 ERCOT Market Operations Support

13. How Shadow Price Cap can be used • A Shadow Price cap can… • Limit possibility of deployments to less effective units • Possibility depends on bid price and shadow price cap • Guarantee: use shift factor tolerance ERCOT Market Operations Support

14. How Shadow Price Cap can be used • A Shadow Price cap cannot… • Limit Total Cost of deployment • Limit Total MW deployed • Shadow Price = per MW cost • As long as the per MW cost is below the cap, clearing engine will continue deployments ERCOT Market Operations Support