NEPOOL Markets Committee | March 7-9, 2023 | Westborough, - PowerPoint Presentation

1. NEPOOL Markets Committee | March 7-9, 2023 | Westborough, MAFeng ZhaoTechnical Managerfzhao@iso-ne.comWinter Gas Modeling and AccreditationResource Capacity Accreditation in the Forward Capacity MarketCraig MartinPrincipal AnalystCMARTIN@iso-ne.com

2. 2WMPP ID:157Proposed Effective Date: FCA 19The Resource Capacity Accreditation (RCA) project proposes improvements to ISO-NE’s accreditation processes in the Forward Capacity Market (FCM) to further support a reliable, clean-energy transition by implementing methodologies that will more appropriately accredit resource contributions to resource adequacy as the resource mix transformsThe ISO has made a commitment to file proposed improvements to be implemented in time for FCA 19The goal of this presentation is to provide additional insights into the proposed winter natural gas modeling and gas resource accreditationFigures and numbers in this presentation are for illustration purposes only and do not reflect or imply actual market impact of RCAResource Capacity Accreditation in the Forward Capacity Market

3. 3WMPP ID:157Proposed Effective Date: FCA 19Outline of today’s discussion:Review of Proposed Winter Gas Modeling and Gas Resource Accreditation (slides 5-9)Gas Resource MRI in the Winter Period: Zero vs Non-zero (slides 11-22)De-rating Method for Modeling Non-zero Gas MRI (slides 24-27)Summary on Gas Resource Accreditation (slide 29)Proposed Accreditation for Oil-only Resources (slide 31)Qualification Process for Winter Capacity Enhancements of Gas Resources (slides 33-37)Stakeholder Schedule (slides 39-43)Resource Capacity Accreditation in the Forward Capacity Market

4. Review of Proposed Winter gas modeling And GAS Resource Accreditation4

5. 5Challenges of Gas Modeling and Gas Resource AccreditationGas resources (gas-only and dual-fuel) are subject to regional gas supply constraints (pipeline and LNG) in the 3-month gas-constrained winter period (December through February), potentially reducing reliability contributions or accreditation values of gas resourcesGas supply constraints are shared energy constraints  Difficult to model the impact of a shared energy limit on individual gas resources’ accreditationCurrent GE-MARS software lacks models for shared total energy limitsIt is challenging to allocate the total gas energy to individual gas resourcesIntroducedJanuaryMC Meeting

6. 6De-rating Method for Gas Modeling and Gas Resource AccreditationTo address the challenges, a de-rating method is proposed:Aggregated gas model will be used to represent shared gas energy limitsEquivalencing method will be used to transform the shared gas limits in the aggregated model to de-rated capacities of individual gas modelsIn Resource Adequacy Assessment (RAA) base case, gas resources will be modeled as individual thermal units with de-rated capacities to reflect their potentially reduced winter reliability contributionsDe-rating Factor (DF) for non-firm gas capacity is calculated such that RAA with individual de-rated gas models will yield “equivalent” representation of winter adequacy risk to that of the aggregated gas model (“equivalencing”)IntroducedJanuary MC Meeting

7. 7Illustration of De-rating MethodAggregated storage resource with storage limit being seasonal LNG Aggregated profile resource with profile being available pipeline gas Seasonal LNGPipeline GasInterface limit = Total gas capacity“Aggregated gas model”~Individual gas resources with de-rated capacity for the winter period ~~…“De-rated model” (base case)EquivalencingTwo models have “equivalent” winter risk representationIntroducedFebruary MC Meeting

8. 8Review of De-rated Gas ModelWith the de-rating factor applied to non-firm gas capacity, a gas resource’s winter DQC will be RAA with de-rated gas model (base case) will model individual gas resources as thermal units with EFORd’s and the below monthly ratings:Gas resources’ MRIs and accreditation values will be derived from the individual thermal gas resources in the base case JanFebMarAprMayJunJulAugSepOctNovDecWinter DQCWinter QCSummer QCWinter QCWinter DQC IntroducedJanuary MC Meeting

9. 9Summary on Winter Gas Modeling and Gas Resource AccreditationGas resources are subject to regional gas supply energy constraints in the winter gas-period of Dec. – Feb. Limited gas supply will potentially reduce gas resources’ winter reliability contributions or accreditation valuesThe proposed de-rating method intends to reflect the reduced winter contribution of gas resources by de-rating their winter capacities

10. Gas Resource MRI in the Winter PeriodZero MRI or Non-zero MRI10

11. 11Conceptual Question on Gas Resource MRIWhen the total gas supply is constrained, a conceptual question arises: This section will address the above question at the conceptual levelTo focus on the question, the discussion will focus on the gas-constrained winter period onlyShould the MRI or accreditation value of gas resources be zero or a reduced but non-zero value?

12. 12Interpretation of MRI and QMRICMarginal Reliability Impact (MRI), in hours/year, represents the expected number of hours that a resource is available at its QC during simulated RAA reliability events(QC  MRI) reflects a resource’s total marginal reliability contribution or expected energy contribution (MWh/year) during the reliability eventsQualified MRI Capacity (QMRIC), is a resource’s reliability contribution normalized by the reference MRI of perfect capacity QMRIC or energy contribution is substitutable!

13. 13Graphic Illustration of the Conceptual QuestionAssume the gas fleet has 10 GW QC; Gas DF = 0.5  Gas supply is available for only 5 GW (DQC) during RAA reliability eventsDQCMRI (hours/year)QC (MW)Zero MRI @ QCNon-zero MRI @ DQCNon-zero reliability contribution or QMRICZero QMRICTwo MRI definitions:Non-zero MRI reflects the marginal value of the 5 GW capacity that gets gasZero MRI reflects the marginal value of the 5 GW capacity that gets no gasBoth are marginalGas supply limitDifference of average vs. marginal in fleet value

14. 14Two Critical Issues of Gas Resource AccreditationAny gas resource accreditation approach should address: Gas fleet accreditation value; and its allocation to individual gas resources Zero MRINon-zero MRIFleet accreditation value0 Total energy contribution of gas fleet in reliability eventsAllocation0Ex-ante allocation

15. 15Accreditation Value of Gas FleetThe gas fleet accreditation value is important for all resourcesIt determines the relative marginal reliability contribution between different resource types A zero MRI produces zero fleet accreditation valueZero fleet accreditation value contradicts the reliability/energy contribution of gas fleet observed in simulated RAA reliability eventsIt undermines the RCA goal of better aligning resource accreditation values with their reliability contributionsIt violates the substitutability principle, i.e. if accreditation of gas fleet does not account for marginal contribution of available shared gas, gas resource capacities are not substitutable with other resource capacities that contribute the same amount of energy during reliability events

16. 16Accreditation Value of Gas Fleet, cont.The non-zero MRI produces a fleet accreditation value consistent with the gas fleet’s total marginal reliability contribution or expected energy contribution during RAA reliability eventsGas fleet is accredited the same way as how other resources are accreditedIt is consistent with the RCA goal of better aligning resource accreditation values with their reliability contributionsIt conforms to the substitutability principle, i.e. gas fleet is accredited the same value as other resource capacities that contribute the same amount of energy during reliability events

17. 17FAQs on Investment SignalsWould a non-zero MRI accreditation send a wrong signal to encourage new gas capacity that cannot get gas?A zero MRI discourages new gas capacity, but it does not have to rely on a zero value to discourage new capacity, e.g., we do not rely on zero accreditation or zero capacity price to signal a binding export interfaceA zero MRI sends the wrong exit signal to all gas resources including the 5GW of resources that can get gasThe correct entry and exit signal should be determined by the market, e.g., if a hypothetical new gas resource can get gas, it should be allowed to compete or replace the existing gas capacity

18. 18FAQs on Gas Firming IncentivesWould a zero MRI send stronger incentives for gas units to firm up their fuel?Zero MRI may send the stronger signal, but that is not necessarily the correct signalFirming up fuel comes at a cost, which will in turn be reflected in offers (and, thus, potentially, clearing prices)The de-rate approach affords gas resources the option to firm up gas supplies, should a gas resource determine that doing so is in its economic interestShould gas resources choose not to do so, the de-rate approach reflects this decision in their MRI value and QMRIC value

19. 19FAQs on Comparison with Solar AccreditationWhy not apply a capacity limit on aggregated solar resources?Gas supply limit represents an actual energy limit on gas resources while there is no such energy limit on solar resources There is no justification for creating an artificial limit and no criterion to determine such limitWhile applying a limit will increase solar fleet MRI, the resource’s QC would need to be de-rated, and the total QMRIC for solar would likely reduce

20. 20FAQs on Equal Treatment of All ResourcesDoes the non-zero MRI for gas resources constitute a different treatment from other resource types?The non-zero MRI for gas accredits the gas resources based on their reliability/energy contributions during RAA reliability events, the same MRI methodology is employed to accredit other resourcesDe-rating is a modeling technique for calculating the total marginal reliability contribution of gas fleet, not a different MRI conceptFor resources that have energy constraints such as storage, their MRIs will not be zero if their energy is limited, e.g., the value of a 2-hour battery during a 4-hour reliability event will not be zero in their MRI calculation, but rather a reduced value as compared to a 4-hour battery

21. 21Allocation of Gas Fleet Value to Individual ResourcesAllocation is important for individual gas resources in the gas fleetIt determines the relative marginal reliability contribution between individual gas resources in the fleetA zero MRI has no allocation issue because the fleet value is zeroThe non-zero MRI approach relies on ex-ante allocation that inevitably involves inaccuracyE.g., we do not know ex-ante which 5GW of gas resources will get gas and how the gas will be distributed among those 5GW

22. 22Key Takeaways of Zero vs Non-zero Gas MRINon-zero MRI is a marginal approachZero MRI will lead to different accreditation treatments among resource types, which undermines the RCA principlesNon-zero MRI properly captures the total marginal reliability contributions of gas fleetNon-zero MRI requires ex-ante allocation of the fleet accreditation value to individual gas resources

23. De-rating Method for Modeling Non-zero Gas MRI23

24. 24Proposed De-rating Method Captures Total Marginal Reliability Contribution of Gas Fleet The non-zero MRI correctly captures the total marginal reliability contribution of gas fleet, and the proposed de-rating method uses DQC to establish this fleet contributionDQCMRI (hours/year)QC (MW)Non-zero MRI @ DQCTotal Marginal Reliability ContributionDQC represents the gas fleet capacity that can be supported by available gas (5 GW in the example)The blue area represents the total marginal reliability/energy contribution of gas fleet: (DQC x Non-zero MRI)Gas supply limit

25. 25 Illustration of Uniform De-rating as Allocation MethodIdeally, we would allocate the total fleet accreditation value to the 5GW block capacity that can get gas, and zero to the rest 5 GW blockSince we don’t know which block each resource belongs to, a uniform de-rating is applied to all 10 GW gas capacityThe blue area has the same size as the purple areaThe gas MRI with QC is reduced to half of the Non-zero MRI @ DQCDQCMRI (hours/year)QC (MW)Non-zero MRI @ DQC(DQC x NonZeroMRI)(QC x 0.5NonZeroMRI)0.5NonZeroMRI @ QC5GW

26. 26Allocation Improvements Under De-rating MethodImprovements on allocation of gas fleet accreditationRecognize Firm Gas Arrangements (FGA)Identify Operationally Limited Resources (OLR)Total fleet accreditation value = Dark blue area + Dark purple area The improvements take into account additional information on gas allocation MRI (hours/year)QC (MW)Fleet Reliability ContributionNon-firm gas MRI with improved accuracy FGAOLRGas supply limit

27. 27Key Takeaways on De-rating MethodThe proposed de-rating method captures the total marginal reliability contribution of gas fleet through DQCIdentifying capacities that cannot get gas and modeling firm fuel arrangement will help reduce the inaccuracy of ex-ante allocation of fleet contributions to individual resources Efforts that can help identify the capacity of getting gas or not getting gas will reduce the allocation inaccuracy

28. Summary on Gas Resource Accreditation28

29. 29Summary on Gas Resource Accreditation The non-zero MRI of gas resources in the winter period is the same marginal approach applied to all other resourcesThe proposed de-rating method captures the total marginal reliability contribution of the gas fleetThe proposed de-rating method reflects ex-ante allocation of gas accreditation among gas resources

30. Proposed Oil-only Resource Accreditation30

31. 31Oil-Only Resource AccreditationOil-only resources are subject to similar oil supply limitations as dual-fuel resources with liquid fuel storageThe ISO proposes to apply the same Firm Oil Storage Requirement (FOSR) to both dual-fuel and oil-only resources for consistent treatment in their capacity accreditationThe oil tank size will be compared with FOSR to determine the firm oil capacity of a dual-fuel or oil-only resourceFor the winter period (Dec. – Feb.), oil-only resources will be modeled at their firm oil capacities in RAA base caseQualification and demonstration of oil-only resources will follow the same rules as dual-fuel resources, and will be discussed in more detail in coming meetings

32. qualification process For Winter Capacity Enhancements of Gas ResourcesOverview of Key Concepts32

33. 33Fuel Arrangements Can be Submitted to Improve the QMRIC of Gas ResourcesMaterial today focuses on improvements to gas resource capabilityTwo key areas will be discussed:Qualification process for improved gas resource capabilityDemonstration process for improved gas resource capability

34. 34Eligible Fuel Arrangement Improvements for Gas ResourcesPipeline Firm Transmission (FT) Contracts:must have a receipt point outside of New Englandfirm delivery point at power plant gas meterwill be compared to firm daily operations requirement (FDOR) to determine the winter de-rated qualified capacity (DQC)Firm Gas Supply and Delivery Contracts:firm delivery point at power plant gas meterwill be compared to firm daily operations requirement (FDOR) and firm seasonal operations requirement (FSOR) to determine winter DQCDual-Fuel Capability:addition of oil storagewill be compared to firm oil storage requirement (FOSR) to determine winter DQC

35. 35Qualification and Auction Participation ProcessParticipant submits qualification package for gas arrangementscommitment document, supported by affidavit of Company officer, confirming intent to enter into gas arrangementno critical path schedule (CPS) monitoring process for gas arrangementsCPS monitoring for addition of dual fuel capabilityISO reviews submission and issues a Qualification Determination Notification (QDN)ISO will issue a QDN that reflects the updated winter DQC, based on qualification information submitted by participantForms basis for participating in auction

36. 36Demonstration ProcessDemonstration of cleared accredited capacity: Gas ContractsFCM Commercial Operation deemed to occur at later of:submittal to ISO of executed firm fuel or FT pipeline contractsubmittal to ISO of attestation document confirming gas arrangement is deliverable to the resourcestart of contractual gas delivery periodDemonstration of cleared accredited capacity: Dual-Fuel CapabilityFCM Commercial Operation achieved in accordance with CPS Monitoring requirementsMust also complete an annual winter capability audit on back-up fuel ahead of winter periodAdditional potential consequences of failure to demonstrate committed arrangement to be discussed at the NEPOOL Budget & Finance Subcommittee (B&F)

37. 37Key Takeaways on Qualification Process for Winter Capacity Enhancements of Gas ResourcesCertain fuel arrangements or addition of dual fuel capability can improve the QMRIC of gas resourcesNew qualification and demonstration processes will be established for gas arrangements and dual fuel capability additionIn coming meetings, details will be presented on the auction treatment of fuel arrangements

38. Stakeholder Schedule38

39. 39RCA Stakeholder ProcessThere are several broad phases laid out for this proposal in the stakeholder process:Background, Conceptual Design, & Education: June 2022 – January 2023 Detailed Design: November 2022 – April 2023 Finalize Design, Review Tariff Language, and Stakeholder Amendments: May 2023 – August 2023 Voting: September 2023 (Technical Committees) and October 2023 (Participants Committee)There are also several key dates for the impact assessment projected in the process: September 2022: Introduce proposed impact assessment approachFebruary 2023: Review updated IA scenariosApril 2023: Review initial results July 2023: Final reportIntroduceIA ApproachReviewUpdated IAScenariosReviewInitial IAResultsFinal IAReportFERCOrder202220232024Q2Q3Q4Q1Q2Q3Q4Q1JJASONDJFMAMJJASONDJFMCurrentScheduleConceptual Design Final Design,Review Tariff,and AmendmentsMC/RCVotePC VoteFile  Eff. Date      Detail Design

40. Stakeholder Schedule – Conceptual Design PhaseAUGUST 2022Joint Markets and Reliability CommitteesMC Meeting Dates: August 9-10, 2022 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: August 3, 2022Topics: Continue discussion of ISO's conceptual design. Stakeholders should submit additional clarifying questions on average and marginal approaches or the conceptual design to the MC Secretary by July 22, 2022SMTWTFS 12345678910111213141516171819202122232425262728293031   JUNE 2022Joint Markets and Reliability CommitteesMC Meeting Dates: June 7-8, 2022 (with joint RC during RCA components)(link to materials)Posting Materials Beginning: June 1, 2022Topics: Review background and discuss opportunities for adjusting the way resources are accredited in the FCM to support a reliable, clean-energy transitionSMTWTFS   123456789101112131415161718192021222324252627282930  JULY 2022Joint Markets and Reliability CommitteesMC Meeting Dates: July 12-14, 2022 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: July 6, 2022Topics: Discussion of ISO's design objectives and conceptual design. Stakeholders should submit additional clarifying questions on average and marginal approaches to the MC Secretary by June 24, 2022SMTWTFS     12345678910111213141516171819202122232425262728293031      SEPTEMBER 2022Joint Markets and Reliability CommitteesMC Meeting Dates: September 13-14, 2022 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: September 7, 2022Topics: Continue discussion of conceptual design and review proposed impact assessment approach. Stakeholders should submit remaining clarifying questions on average and marginal approaches or additional questions on the conceptual design to the MC Secretary by August 22, 2022SMTWTFS    123456789101112131415161718192021222324252627282930 40

41. Stakeholder Schedule – Conceptual/Detailed Design PhaseOCTOBER 2022Joint Markets and Reliability CommitteesMC Meeting Dates: October 12-13, 2022 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: October 5, 2022Topics: Continue discussion of conceptual design. Stakeholders should submit remaining clarifying questions on average and marginal approaches, additional questions on the conceptual design, and any feedback on the Impact Assessment to the MC Secretary by September 26, 2022 Additional Joint Markets and Reliability CommitteesRC Meeting Date: October 18, 2022 (with joint MC during RCA components) (link to materials)Posting Materials Beginning: October 12, 2022Topics: Continue discussion on ISO's conceptual design and review proposed impact assessment scope and scenariosSMTWTFS      12345678910111213141516171819202122232425262728293031     NOVEMBER 2022Joint Markets and Reliability CommitteesMC Meeting Dates: November 8-10, 2022 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: November 2, 2022Topic: Review design elements associated with MRI framework revisionsSMTWTFS  123456789101112131415161718192021222324252627282930   DECEMBER 2022Joint Markets and Reliability CommitteesMC Meeting Dates: December 6-8, 2022 (with joint RC during RCA components; TC invited to participate in RCA discussions) (link to materials)Posting Materials Beginning: November 30, 2022Topic: Review detailed design elements associated with MRI framework revisions. Introduce framework for integrating gas limitations into resource adequacyReliability CommitteeRC Meeting Date: December 14, 2022 (MC invited to participate in RCA discussions) (link to materials)Posting Materials Beginning: December 8, 2022Topic: Review detailed design elements associated with resource modeling enhancementsSMTWTFS    1234567891011121314151617181920212223242526272829303141

42. Stakeholder Schedule – Conceptual/Detailed Design PhaseJANUARY 2023Joint Markets and Reliability CommitteesMC Meeting Dates: January 10-12, 2023 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: January 4, 2023Topic: Continue review of detailed design elements associated with MRI framework revisions, and review conceptual design for gas resource modeling and accreditationSMTWTFS12345678910111213141516171819202122232425262728293031FEBRUARY 2023Joint Markets and Reliability CommitteesMC Meeting Dates: February 7-9, 2023 (with joint RC during RCA components) (link to materials)Posting Materials Beginning: February 1, 2023Topic: Continue review of detailed design elements associated with MRI framework revisions, continue review of the design for gas resource modeling and accreditation, and review updated impact assessment scenariosReliability CommitteeRC Meeting Date: February 14, 2023 (MC invited to participate in RCA discussions) (link to materials)Posting Materials Beginning: February 8, 2023Topic: Continue review of detailed design elements associated with resource modeling enhancements and winter gas limitationsSMTWTFS12345678910111213141516171819202122232425262728MARCH 2023Markets CommitteeMC Meeting Dates: March 7-9, 2023 (RC invited to participate in RCA discussions)Posting Materials Beginning: March 1, 2023Topic: Continue review of detailed design elements associated with MRI framework revisions, and review detailed design elements for gas resource accreditationReliability CommitteeRC Meeting Dates: March 14-15, 2023 (MC invited to participate in RCA discussions)Posting Materials Beginning: March 8, 2023Topic: Continue review of detailed design elements associated with resource modeling enhancements and winter gas limitationsBudget & Finance SubcommitteeB&F Meeting Date: March 23, 2023 (MC invited to participate in RCA discussions)Posting Materials Beginning: March 16, 2023Topic: Introduction of the Financial Assurance (FA) conforming changes associated with the RCA designSMTWTFS1234567891011121314151617181920212223242526272829303142

43. Stakeholder Schedule – Detailed Design PhaseAPRIL 2023Markets CommitteeMC Meeting Dates: April 11-13, 2023 (RC invited to participate in RCA discussions)Posting Materials Beginning: April 4, 2023Topic: Continue review of detailed design elements associated with MRI framework revisions, review detailed design elements for gas resource accreditation, and review of initial impact assessment results Reliability CommitteeRC Meeting Date: April 18-19, 2023 (MC invited to participate in RCA discussions)Posting Materials Beginning: April 11, 2023Topic: Continue review of detailed design elements associated with resource modeling enhancements and winter gas limitationsSMTWTFS123456789101112131415161718192021222324252627282930MAY 2023Markets CommitteeMC Meeting Dates: May 9-11, 2023 (RC invited to participate in RCA discussions)Posting Materials Beginning: May 3, 2023Topic: Review remaining design elements and introduce initial Tariff redlines. Continue review of Impact Assessment results. Stakeholders interested in proposing conceptual amendments should contact the MC secretary for time on the agendaReliability CommitteeRC Meeting Date: May 16, 2023 (MC invited to participate in RCA discussions)Posting Materials Beginning: May 10, 2023Topic: Review remaining design elements and introduce initial Tariff redlines. Stakeholders interested in proposing conceptual amendments should contact the RC secretary for time on the agendaSMTWTFS12345678910111213141516171819202122232425262728293031JUNE 2023Markets CommitteeMC Meeting Dates: June 6-8, 2023 (RC invited to participate in RCA discussions)Posting Materials Beginning: May 31, 2023Topic: Review refinements to the design and continue review of Tariff redlines. Continue review of Impact Assessment results. Stakeholders interested in proposing amendments should contact the MC secretary for time on the agendaReliability CommitteeRC Meeting Date: June 13, 2023 (MC invited to participate in RCA discussions)Posting Materials Beginning: June 7, 2023Topic: Review refinements to the design and continue review of Tariff redlines. Stakeholders interested in proposing conceptual amendments should contact the RC secretary for time on the agendaSMTWTFS12345678910111213141516171819202122232425262728293043

44. 44