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Title:

A Reserve Market Reform Proposal

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Shadow pricing of reserves with co-optimization ... The ISO runs the proposed unit commitment model. commit reserves and energy jointly ... – PowerPoint PPT presentation

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Title: A Reserve Market Reform Proposal


1
A Reserve Market Reform Proposal
ISO-NE
  • Hung-po Chao and Mario DePillis
  • DRAFT
  • July 20, 2000

2
Goals of reform
  • Fix the last man bidding problem that plagues the
    reserve markets
  • Provide more reasonable price signals for
    reserves
  • Provide a quick interim remedy before the CMS/MSS
    is fully developed
  • Set the stage for CMS/MSS and forward markets

3
What are the problems?
  • Reserves are designated and priced in real-time
  • Unit commitment produces inefficient
    energy/reserve schedules
  • Prices fail to value flexibility/ramp rates
    appropriately

4
Real-time reserve designation results in
excessive generation from flexible units
ECP0
Reserve
Total capacity for energy market
Capacity capable of reserve
5
Co-optimization recognizes the opportunity cost
of reserves
B shadow price
Reliability adder shadow price
A
ECP
opportunity cost
B
Reserve req.
A B shadow price
Energy
Reserve
Load
Rmax
Capacity capable of reserve
Total capacity for energy market
6
Take an innovative approach
  • Forward cascading of reserves
  • Shadow pricing of reserves with co-optimization
  • Dispatch reserves (call options) for energy with
    reliability adders (strike prices)
  • Incentive compatibility in design

7
What is the proposed solution?
  • Modify the unit commitment model
  • Commit energy and reserves jointly in day-ahead
    unit commitment
  • Develop reserve prices using shadow prices from
    the UC model
  • Maintain adequate replacement reserves and
    release uncommitted capacity
  • To be implemented in three stages

8
The Unit Commitment Model
9
A Modified Unit Commitment Model
10
Forward cascading of reserves fixes the price
reversal problem
TMSR gt RRTMSR (TMSR - RRTMSR) TMNSR gt
RRTMNSR (TMSR - RRTMSR) (TMNSR - RRTMNSR)
TMOR gt RRTMOR
PA TMSR gt RRTMSR PB TMSR TMNSR gt RRTMSR
RRTMNSR PC TMSR TMNSR TMOR gt RRTMSR
RRTMNSR RRTMOR
PTMSR PA PB PC gt PTMNSR PB PC gt PTMOR
PC
11
Use different versions of UC model in different
stages
  • One-part bidding with fixed cost recovery
  • To minimize the sum of total energy cost and
    fixed costs
  • Two-part bidding (reserve and energy)
  • To minimize the sum of total energy cost and
    reserve bids
  • Two-part bidding with reserve demand function
  • To minimize the sum of total energy cost, reserve
    bids and reliability costs

12
How does this work?
  • Each bidder submits bids, which include
  • HOL, LOL
  • energy prices (/MWh)
  • Max reserves, Ramp rates
  • reserve bids (including start-up costs) (/MW)
  • The ISO runs the proposed unit commitment model
  • commit reserves and energy jointly
  • calculate reserve clearing prices
  • calculate reliability adders

13
Develop energy and reserve prices
  • Develop 7 load forecast scenarios
  • Reserve clearing price the expected shadow
    prices of reserve requirements under various
    forecasted load scenarios
  • Commit reserves based on joint optimization
  • Financial penalty for non-availability other than
    dispatched for energy
  • Energy clearing prices are calculated after
    dispatch as before

14
How are generators paid?
  • For providing reserve capacity
  • RCP ? committed reserve MW
  • For energy
  • ECP ? Generation MW
  • Lost opportunity for constrained-off (Econ MW gt
    Gen MW)
  • Min(Econ MW, HOL) - Gen MW ? (ECP - Energy
    Bid)
  • Uplift for out-of-merit (Gen MW gt Econ MW)
  • Gen MW - Max (Econ MW, LOL) ? Energy Bid - ECP

15
In future, energy prices should be developed
jointly with CMS
/MWh
Lost opportunity cost
Energy bid curve
ECP
Uplift (due to LOL or congestion)
Gen MW
Econ MW
16
Conclusion
  • Modify the UC model to produce more reasonable
    price signals
  • Commit energy and reserves jointly a day-ahead,
    price reserves day-ahead
  • Eliminate an apparent source of inefficiency
  • Stage the implementation to meet both the
    short-term and the long-term needs
  • Set the stage for CMS/MSS and forward markets
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