Future Ancillary Service Framework Workshop Presentation

1. Future Ancillary Services Team (FAST) and Technical Advisory Committee (TAC) Workshop ERCOT Staff July 25, 2014

2. Presentation Outline • Review the Drivers to Implement a New AS Framwork • Review the Scope of the FAST • Recap and Next Steps • Review the Proposed New Framework • Review each AS (definition, need, qualification, performance requirements) • Review How the AS Requirements are Determined • Review Proposed Procurement and Pricing Approach • Review Deployment Sequence Guidelines • Review Draft NPRR (review edits, deletes and additions) • Discussion/Questions

3. 1. Drivers for New Ancillary Service Framework • Current AS Framework has performed well but has issues • Resources could provide some services more efficiently if the requirements were unbundled (Responsive Reserve Service unbundled into Primary Frequency Response, Fast Frequency Response and Contingency Reserve) • An increase of emerging technologies that do not provide synchronous inertia and that displace conventional generation can reduce the ability of the grid to respond to contingencies. The current AS requirements may have to be increased to maintain reliability • Inability to use some technologies (e.g. CCGTs with duct firing, storage resources and Load Resources) to provide the current AS. This reduces the pool of AS suppliers

4. Goal • Future AS Framework • Technology neutral • Market-based • Based on fundamental needs of the system, not resource characteristics • Unbundled services • Flexible for new technologies • Pay for performance, where practical • Current AS Framework • Based on capabilities of conventional steam generating units • Unique services bundled together due to inherent capabilities of conventional units • Mix of compensated and uncompensated services • New technologies are cobbled on, with difficulty Transition Plan TBD Now 3+ Years

5. 2. Scope of Proposed AS Framework • Ancillary Services (AS) framework intended to guide: • Requirements for changes to ERCOT systems (EMS, MMS, S&B etc.) • Investment in new resources and new resource types • Framework should include roadmap for transition from current AS to future framework • Prioritization of services to be transitioned • Inter-relationship of services that must transition concurrently • High-level consideration of ERCOT systems and market impacts

6. 3. Recap • Original Concept Paper provided 9-27-13 • Concept Paper version 1.1 provided 11-1-13 which incorporated written comments and info received at the October 2013 Workshop. • Weekly work sessions began in January 2014. (17 meetings so far in 2014) • 15 sets of comments from Market Participants on the “Consolidated Working Document” reviewed in June 2014 • Draft NPRR (based on “Consolidated Working Document” and discussion) posted 6-26-14 to the “key documents” area on FAST meeting page at: http://www.ercot.com/committees/other/fast/index.html

7. 3. Next Steps • Two FAST-TAC Workshops to review Draft NPRR: July 25, 2014 and one planned in August, 2014 (TBD) • Comments on Draft NPRR expected September 15, 2014 • Revise the Draft NPRR and submit the numbered NPRR October 15, 2014. • Cost-Benefit Analysis is expected to be provided after the numbered NPRR is submitted.

8. 4. Proposed Transition to Future Ancillary Services Current Proposed Regulation Up Fast-Responding Regulation Up Regulation Up Fast-Responding Regulation Up Mostly unchanged Regulation Down Fast-Responding Regulation Down Regulation Down Fast-Responding Regulation Down 59.8 Hz, Limited duration Fast Frequency Response 1 Fast Frequency Response 2 59.7 Hz, Longer duration Responsive Primary Frequency Response SCED-dispatched Contingency Reserves 1 Contingency Reserves 2 Manually dispatched Supplemental Reserves 1 SCED-dispatched Non-Spin Manually dispatched Supplemental Reserves 2 Ongoing development Synchronous Inertial Response

9. 5. Review each Ancillary Service • Fast Frequency Response Service (FFRS) • Primary Frequency Response Service (PFRS) • Regulation-Up Service • Regulation-Down Service • Contingency reserve Service (CRS) • Supplemental reserve Service (SRS)

10. Fast frequency response service (ffrS)

11. Fast Frequency Response Service (FFRS) - Need • Provide quick (within 30 cycles) automatic response at specified frequency threshold to arrest frequency decay following a generation trip event; • To provide sufficient time for PFRS to respond and arrest frequency excursion in the event of sudden large power imbalance

12. Fast Frequency Response Service (FFRS) Sub-Groups • FFRS1: Group FFRS1 includes Resources capable of sustaining a full response for at least 10 minutes and, once recalled, restoring their full FFRS Ancillary Service Supply Responsibility within 15 minutes. • FFRS2: Group FFRS2 includes Resources capable of sustaining a full response until receiving an ERCOT recall instruction or until the Resource’s FFRS Ancillary Service Resource Responsibility expires, whichever occurs first, and, once recalled, restoring their full FFRS Ancillary Service Supply Responsibility within 180 minutes

13. Fast Frequency Response Service (FFRS)- Discussion • Presently there is no separate FFRS in ERCOT, however up to 1400 MW of Responsive Reserve Service (RRS) procured from Load Resources (LR) satisfy FFRS characteristics • In the proposed AS framework FFRS and PFRS are highly interdependent and the required quantity of each service can vary based on the system conditions • There is an equivalency ratio (R) between FFRS and PFRS that equates 1 MW of FFRS to R MW of PFRS. This ratio (R) is greater than or equal to 1 and depends on system conditions • FFRS and PFRS work together to meet the desired reliability goals • PFRS provides a continuous frequency support. FFRS cannot completely replace the PFRS

14. FFRS – Performance • Self deployment (automatically detect frequency threshold and respond) • Provide full response within 30 cycles (0.5 secs.) at a specified frequency thresholds and sustained • FFRS1 Resources must be able to sustain for up to 10 minutes • FFRS2 Resources must be able to sustain until ERCOT issues recall instruction or Resource’s FFRS Responsibility expires • Must be able to fully respond within 10 minutes of an ERCOT manual dispatch instruction

15. Primary frequency response service (PFRS)

16. Definition of PFRS Primary Frequency Response Service (PFRS) is defined as the immediate proportional increase or decrease in real power output provided by a Resource in response to system frequency deviations. • This response is in the direction that stabilizes frequency. • PFRS is attained due to Governor or Governor-like action • PFRS is an immediate response relative to the frequency deviation, • PFRS is fully deployed within 12 to 16 seconds.

17. PFRS - Need ERCOT as a single Balancing Authority Interconnection with only limited interconnection to the other Interconnects is solely responsible for maintaining frequency to maintain reliability and meet NERC standard requirements. • All of ERCOT’s frequency response can only come from Resources within the ERCOT Interconnection. • BAL-003 NERC Frequency Response Standard sets a Frequency Response Obligation (FRO) for ERCOT based on loss of two largest single units. • The minimum FRO for ERCOT is 413 MW/0.1 Hz • ERCOT must develop methodologies for the regular assessment of the needed concurrent amounts of both FFRS and PFRS.

18. PFRS - Performance and Resource Limit • ERCOT will use events measured by BAL-TRE-001 Regional Standard to calculate the droop performance • The quantity of PFRS that can be provided by a specific Resource, will be based on the median of actual measured “Initial” and “Sustained” performance of the Resource in last six measurable events.

19. PFRS - Performance and Resource Limit • Capacity that can be deployed by a Resource’s Governor for 1% change in Frequency outside Governor Dead-band

20. Regulation-Up & Regulation-Down service

21. Regulation Service – Up & Down ERCOT generation is dispatched through Security Constrained Economic Dispatch (SCED) every five minutes to balance the generation and demand. The power imbalance between each SCED interval will cause frequency deviation that requires Resources providing Regulation to compensate

22. Regulation Service – Up & Down • Regulation is made up of “Conventional” Regulation and Fast Responding Regulation ---- similar to today. Future method to deliver instructions will remain similar to today’s approach (with QSE instructions and participation factors). • Need for tighter performance metric • A single Generation Resource shall not be allowed to carry more than 25% of total ERCOT wide regulation requirement for that particular hour • Resources shall be limited to provide Regulation Service up to the amount successfully tested during the qualification test • Criteria for determining maximum allowed FRRS participation, shall be included in the AS Methodology document.

23. Regulation Service - Sub-Groups Fast Responding Regulation Down Service (FRRS-Down) • A subset of Reg-Down in which the participating Resource provides Reg-Down capacity to ERCOT within 1 second of either its receipt of an ERCOT Dispatch Instruction or its detection of a trigger frequency independent of an ERCOT Dispatch Instruction. Except where otherwise specified, all requirements that apply to Reg-Down also apply to FRRS-Down. Fast Responding Regulation Up Service (FRRS-Up) • A subset of Reg-Up in which the participating Resource provides Reg-Up capacity to ERCOT within 1 second of either its receipt of an ERCOT Dispatch Instruction or its detection of a trigger frequency independent of an ERCOT Dispatch Instruction. Except where otherwise specified, all requirements that apply to Reg-Up also apply to FRRS-Up.

24. Contingency reserve service (CRS)

25. Contingency Reserve Service (CRS) An Ancillary Service provided by Generation Resources that can be synchronized and ramped to a specified output level within 10 minutes and Load Resources that can provide demand response within 10 minutes. • CRS is needed to restore frequency within defined limits following a large generator trip event and restore the FFRS and PFRS • To ensure ERCOT can meet the NERC standard, the CRS must be fully deliverable within 10 minutes so that frequency is restored to the pre-disturbance level within 15 minutes to achieve compliance with NERC BAL-002 Standard • ERCOT’s CRS is not to be confused with the NERC Contingency Reserve

26. Contingency Reserve Service (CRS) - Sub-Groups CRS may be provided by two CRS sub groups • Group CRS1 includes Resources that are capable of responding to SCED Base Point Dispatch Instructions • Group CRS2 includes Resources that are not SCED dispatchable. • Once recalled, Resources providing CRS2 should be capable of restoring its CRS2 responsibility, within 180 minutes for it to be qualified as CRS2.

27. Contingency Reserve Service (CRS) Qualification • Resources providing CRS should be qualified up to the MW value to which they are able to ramp within 10 minutes from the time of deployment. Deployment • ERCOT will deploy CRS for a sizable generation trip. • Resources providing CRS1 must telemeter their ramp-rates such that SCED can dispatch the full Resource CRS responsibility within 10 minutes. Performance • Resources providing CRS must be able to deliver and sustain the reserve deployments for the entire duration it is carrying that responsibility.

28. Supplemental reserve service (SRS)

29. Supplemental Reserve Service (SRS) An Ancillary Service provided by Generation Resources capable of ramping to a specified output level within 30 minutes and Load Resources capable of providing Demand response within 30 minutes. • SRS is the reserve that will be used to compensate for net load forecast error, abnormal number of unit unavailability and/or net load ramps. • ERCOT may also procure additional SRS capacity in anticipation of severe weather conditions.

30. Supplemental Reserve Service (SRS) - Sub-Groups SRS may be provided by two SRS groups • Group SRS1 includes Resources that are capable of responding to SCED Base Point Dispatch Instructions • Group SRS2 includes Resources that are not SCED dispatchable • Once recalled, Resource providing SRS2 should be capable of restoring its SRS2 responsibility, within 180 minutes for it to be qualified as SRS2

31. 6. Overview of Methodology to determine minimum quantities of Ancillary service

32. 6. Overview of Methodology • When to publish the monthly minimum AS Procurement quantity (by 20th of each month) • The minimum AS requirement by each hour or by block of hours • The methodology to analyze sufficiency of AS in day-ahead time-frame (normal and severe weather conditions) • The maximum limit on how much FFRS can be procured • The maximum limit on how much FRRS can provide Regulation • The methodology will also include minimum requirement for CRS1 and SRS1 • Equivalency ratio between PFRS and FFRS

33. PFRS and FFRS • Frequency nadir shall be equal to or above 59.4 Hz when losing two largest units. (0.1 Hz margin for the first stage of UFLS at 59.3 Hz) • Frequency overshoot does not result in generation trip • No angular and voltage instability

34. Regulation Service • 5 minute Net load variability—98.8 percentile of previous month and the same month in the previous year • Short Term Load Forecast (STLF) Error- 98.8 percentile of previous month and the same month in the previous year • CPS1-Metric (if CPS1 Less than 100% for more than 10 times for a given hour, add 10% to the base requirement for that hour) of the previous month?

35. Contingency Reserve Service (CRS) • Recovery from settled frequency to 60 Hz • Back-up Regulation • Build in a margin based on the amount of CRS a single Resource can provide • BAL-002 Disturbance Control Standard

36. Supplemental Reserve Service • 95 Percentile 6-Hour-ahead net-load forecast error • 95 Percentile of hourly net-load ramps • For extreme weather condition, SRS requirement to be based on unit forced outage rate

37. 7. Overview of Procurement and Pricing of Ancillary Services

38. General Philosophy • The current scope of the procurement and pricing for Ancillary Services is for the following future Ancillary Services: • Regulation Up Service [Reg-Up and FRRS-Up] • Regulation Down Service [Reg-Down and FRRS-Down] • Primary Frequency Response Service (PFRS) • Fast Frequency Response Service (FFRS) [FFRS1 and FFRS2] • Contingency Reserve Service (CRS) [CRS1 and CRS2] • Supplemental Reserve Service (SRS) [SRS1 and SRS2] Synchronous Inertial Response Service is to be considered at a later time.

39. General Philosophy - continued • The Day-Ahead Market (DAM) Procurement of Ancillary Services will be performed under the energy and Ancillary Service co-optimization framework. This results in DAM optimizing such that the capacity offered from a Resource is divvied up between energy and AS such that • Total System Cost to procure energy and AS is minimized • For the given prices, each Resource is guaranteed the maximum revenue from the sale of energy and AS in the DAM

40. General Philosophy - continued • Procurement of Ancillary Service from the offered Resource capacity, as per the above energy and AS co-optimization framework, requires a capacity reservation for the procured amounts • This capacity reservation on the Resource is mutually exclusive; i.e. a given capacity cannot be reserved for more than one type of Ancillary Service. i.e. a given MW cannot be paid for providing more than one Ancillary Service • Unless instructed by ERCOT, the capacity reserved for a given Ancillary Service, a Generation Resource cannot use that same capacity for energy production and a Load Resource cannot curtail energy consumption to a level below this capacity reservation level for AS

41. General Philosophy - continued • Following current DAM practice, the procurement of AS will be setup in a manner such that the MCPC for AS that will be paid to Load Resource AS awards will incorporate opportunity costs for energy and other applicable AS in a manner similar to Generation Resource AS awards • Load Resources, unlike Generation Resources cannot submit Resource specific Energy Bids (to buy energy at their location) and hence, if cleared on a separate stack from the Generation Resource AS Offers, are not afforded the opportunity costs of energy (and other AS) in the resulting Load Resource specific Market Clearing Price Capacity (MCPC) for AS

42. Constraints & AS MCPCs • Generally, the constraints for the procurement of AS will be setup similar to the current DAM where the AS offers are stacked from lowest price to highest price and are cleared to meet the AS Plan requirement (minus AS Self arrangement) • Regulation procurement constraint and MCPC is generally the same as in the current DAM implementation • Reg-Up and FRRS-Up have the same MCPC which is the shadow price of the Regulation Up requirement constraint • Reg-Down and FRRS-Down have the same MCPC which is the shadow price of the Regulation Down requirement constraint

43. Constraints & AS MCPCs - continued • CRS offers from Load Resources and Generation Resources are cleared together with an additional constraint to ensure that a minimum amount of CRS is procured from SCED dispatchable Resources (CRS1). • The MCPC for CRS is the sum of the shadow prices of the CRS procurement constraint and the shadow price of the constraint that ensures a minimum amount of CRS is procured from SCED dispatchable Resources. i.e. the MCPC for CRS1 and CRS2 are the same.

44. Constraints & AS MCPCs - continued • SRS offers from Load Resources and Generation Resources are cleared together with an additional constraint to ensure that a minimum amount of SRS is procured from SCED dispatchable Resources (SRS1). • The MCPC for SRS is the sum of the shadow prices of the SRS procurement constraint and the shadow price of the constraint that ensures a minimum amount of SRS is procured from SCED dispatchable Resources. i.e. the MCPC for SRS1 and SRS2 are the same.

45. Constraints & AS MCPCs - continued • PFRS and FFRS procurement is combined into one constraint as the amounts of each to be procured are interdependent. • Studies have shown that during certain scenarios (low load, high wind), when there is lower amounts of synchronous inertia, the value of FFRS is higher than PFRS. This ratio that defines how many MW of PFRS capacity is needed to replace 1 MW of FFRS capacity is incorporated into the clearing process and has an impact on the MCPC of FFRS. • The MCPC for PFRS will be the shadow price of the combined PFRS and FFRS procurement constraint • The MCPC for FFRS is the product of the MCPC for PFRS and the ratio (R) that equivalences 1 MW of FFRS with R MW of PFRS. Both FFRS1 and FFRS2 are given the same MCPC • There is another constraint that limits the maximum amount of FFRS procured – this is equivalent to stating that there is a minimum amount of PFRS to be procured • There is another constraint that limits the maximum amount of FFRS1 procured

46. URLs for more details on procurement and pricing of AS • Consolidated Working Documents as of 5-6-14 (last section) http://www.ercot.com/content/committees/other/fast/keydocs/2014/Consolidated_Working_Document_as_of_5-6-14.doc • FAST Redline Documents 5-6-14 http://www.ercot.com/content/meetings/fast/keydocs/2014/0606/FAST%20Redline%20Documents%205-6-14.zip • In this zip file the redline version of the following documents: • Procurement and Pricing Working Document.docx • Results of Example procurement and Pricing 05022014.docx - examples • ExampleDAM_FutureAS-05062014.xlsx – spreadsheet tool to create your own scenarios

47. 8. Deployment Sequence Guidelines Capacity Insufficiency (Manual) RECALL SEQUENCE

48. 8. Deployment Sequence Guidelines Slow Frequency Recovery (potential DCS Event with frequency at or below 59.7 Hz) RECALL SEQUENCE

49. 9. Review Draft NPRR See the spreadsheet showing the Protocol sections edited, deleted or added

50. Appendix