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Making the Market Work: Market Design Issues from a Market Participants View Thorvin Anderson Calpin

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Uninstructed deviation. Ancillary Services Capacity. Ancillary Services Energy. CSC Congestion ... Uninstructed deviation. 16. Areas of Improvement: 'Layered' Services ... – PowerPoint PPT presentation

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Title: Making the Market Work: Market Design Issues from a Market Participants View Thorvin Anderson Calpin


1
Making the Market WorkMarket Design Issues from
a Market Participants ViewThorvin
AndersonCalpine Corporation
2
Introductions
  • Thorvin Anderson, Manager of Market Operations
    for ERCOT
  • Responsible for intra-month utilization of
    Calpines portfolio of gas-fired, combined-cycle
    generation assets in ERCOT
  • Member of Wholesale Market Subcommittee of ERCOT

3
Introductions
  • Calpine Corporation is a major market participant
    in ERCOT
  • 5000 MW by summer 02
  • Active in most aspects of ERCOT grid
  • QSE
  • PGC
  • REP
  • PM
  • Major industrial load provider
  • Full-requirements services

4
Todays Topics
  • What works well in ERCOT
  • Areas of improvement, from Calpines perspective
  • Creating a true market

5
What works well in ERCOT?
  • Single control area
  • No tagging
  • Firm product - all schedules flow
  • Ease of bringing new generation online
  • Active markets for competitive ancillary services

6
What works well in ERCOT?
  • Timely implementation of deregulation
  • Retail wholesale deregulation
  • Successfully implemented specified structure
  • Involvement of market participants

7
Areas of Improvement Clarity of Rules
  • Difficult to ascertain correct or acceptable
    approach for market participant to take
  • Participants often must make decision between
    financial rewards and conformance to ERCOT rules
  • Ambiguity of rules gives rise to inconsistency of
    market participant behavior
  • Difference in approach leads to unlevel playing
    field

8
Clarity of Rules SCE
  • Schedule Control Error
  • QSEs shall make a good-faith effort to cause
    their Resources to operate to the final Resource
    bilateral schedules as converted to a base power
    function
  • Location ERCOT Protocols, Section 6.10.5.1
    (Ancillary Services section)
  • SCE deviation is inevitable, but
  • What is tolerable deviation?
  • To what lengths should a QSE go to avoid
    deviation?

9
Clarity of Rules SCE
  • Suggestion
  • Clarify ERCOTs performance metric for QSEs
    acceptable or not.
  • Develop a market where imbalance is welcome and
    cleared at market price so SCE does not matter.

10
Clarity of Rules Balancing Energy
  • Underscheduling loads shorting Balancing Energy
  • Available only to those with load
  • Entities with large load can get away with
    some, while entities with small loads cannot
  • Overscheduling loads going long
  • Does ERCOT formally prohibit this activity?
  • Settlement for this activity is often favorable
  • No clear articulation in rules, though behavior
    is controversial.

11
Areas of Improvement Resource Plan
  • Resource plan Non-binding plan used by ERCOT to
    predict congestion day-ahead
  • Reference point used vs. schedule in settling
    congestion charges
  • Reference point used in settling
    Resource-Specific deployments

12
Areas of Improvement Resource Plan
  • Impossible to keep the Resource Plan updated
  • Cumbersome manual process
  • Operating Period lockout prevents updating
  • Resource plan unit-based, not busbar-based
  • Too complex
  • Not appropriate for combined-cycle

13
Areas of Improvement Settlement
  • Ambiguous connection between deployments and
    settlement
  • Difficult to make day-after projections
  • Myriad service classes overlapping charge types
  • Congestion data not real
  • Voluminous settlement data available need table
    of contents
  • Reliance on dispute process

14
The Settlement Gordian Knot
  • Revenues to QSE
  • Balancing Up
  • Balancing Down
  • Instructed Deviation
  • Uninstructed Deviation
  • OOM
  • OOME Up
  • OOME Down
  • Resource-Specific, non-OOM
  • Ancillary Services Capacity
  • Ancillary Services Energy
  • Resource Imbalance
  • Load Imbalance
  • TCR Load Ratio Pmts
  • TCR Entitlement Pmts
  • Costs to QSE
  • Balancing Energy Purchased
  • Instructed deviation
  • Uninstructed deviation
  • Ancillary Services Capacity
  • Ancillary Services Energy
  • CSC Congestion
  • OOM Replacement Capacity
  • ERCOT Admin Fee
  • Mismatch Schedule Fee
  • Resource Imbalance
  • Load Imbalance
  • TCRs

15
Example Settlement Challenge 3/29/02
  • Gas turbine at CC facility generating 250 MW
  • Resource Plan 250 MW
  • QSE gets two days worth of OOM deployments,
    including a Category 4 for this GT to 150 MW.
  • QSE receives verbal instruction to ignore
  • QSE receives another Category 4 deployment for HE
    11, taking unit to 150 MW
  • No accompanying Category 1 deployment to balance
    portfolio
  • QSE complies with deployment, SCE -100
  • Settlement?
  • Instructed deviation?
  • Uninstructed deviation
  • QSE buy at 31.40 BE price?

16
Areas of Improvement Layered Services
  • Early commitment to pure bilateral market
    necessitated layers of products to accommodate
    operational concerns
  • Out-of-Merit Capacity
  • Out-of-Merit Energy
  • Resource-Specific Deployments
  • Categories 1-4
  • Congestion charges (shadow prices)
  • Instructed deviation
  • Uninstructed deviation

17
Areas of Improvement Layered Services
  • Operational concerns precipitated more rules
  • Minimum Balancing Down bid requirements
  • Ramps governed by smoothing algorithm

18
Areas of Improvement Congestion Mgmt
  • Inter-zonal directly assigned since Feb. 15
  • Intra-zonal direct assignment plan to be
    developed by mid-September
  • Intra-zonal congestion currently handled by
    instructed deviation through resource-specific
    deployments

19
Areas of Improvement Congestion Mgmt
  • Congestion charges effective, but not efficient
  • Basis differential often clears in excess of
    underlying commodity value
  • Example Afternoon of 2/26, CSC charges
    West-to-North exceeded 1,000/MW for several
    15-minute intervals
  • Regulatory risk number and location of zones
    determined annually
  • Bilateral market is slow to trade zonal products
  • Forward markets ill-equipped to provide zonal
    risk management products

20
Areas of Improvement Congestion Mgmt
  • Congestion operations
  • Line limits capricious set by ERCOT operator on
    duty
  • Difficulty in predicting congestion to manage
    day-ahead
  • Possible alternative Locational Marginal
    Pricing (LMP), or something similar

21
Making the Market Work
  • Is there an energy market in ERCOT?
  • No ERCOT-sponsored market
  • Balancing Energy is not a market
  • Need for realtime and day-ahead spot markets
  • Eliminate inefficiencies
  • Price transparency
  • Allow longs and shorts
  • Reference for financial derivative mkts

22
Closing Thoughts
  • Optimism more going right than wrong
  • Beginning of Journey, not End
  • Participants committed to successful market,
    ongoing improvement
  • But the situation reminds us once again never
    underestimate the importance of market design.
    - Utilicast
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