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4 th Stakeholder Update: - PowerPoint Presentation

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4 th Stakeholder Update: - PPT Presentation

Locational Capacity Demand Curves in ISONE Samuel A Newell Kathleen Spees Ben Housman October 7 2014 ISO New England Markets Committee Contents Introduction Impact of Model Updates Stakeholder Questions ID: 812414

system curves curve lole curves system lole curve local demand price zonal constrained zones proposed results iso zone stakeholder

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Slide1

4th Stakeholder Update: Locational Capacity Demand Curves in ISO-NE

Samuel A. NewellKathleen SpeesBen Housman

October 7, 2014

ISO New England Markets Committee

Slide2

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide3

IntroductionObjectives for Today

Benchmark the impact of model updates (described in ISO-NE’s prior presentation)Provide

analytical results illustrating performance of

ISO-NE’s proposed locational

demand curve and market clearing

rules

Summarize analysis of stakeholder proposed curves and respond to stakeholder

questions

Slide4

IntroductionIndex to Stakeholder Questions

Importing Zone Questions

Slides

NU &UI: FCA

8 Back-Cast, ISO-NE Proposed Curve, FCA 8 Cleared Supply as Price-Takers

11

NU: FCA

8 Back-Cast, ISO-NE Proposed Curve, FCA 8 Cleared Supply, Plus 600 MW plant in CT at $7/kW-m

11

NU: Cap at 1-in-5, Foot at 1-in-87

12

NESCOE: NESCOE Curve,

70% shock size, more elastic supply curve

13

CT PURA & DEEP:

Proposed

Curve

, LOLE capped at TSA

14-16

CT PURA & DEEP:

Proposed

Curve

, No Demand Shock

14-16

CT PURA & DEEP:

Proposed

Curve

Shifted

to LOLE at 0.105, 70% Shock Size

14-16

CT PURA & DEEP:

Proposed

Curve

Shifted

to LOLE at 0.105, LOLE capped at TSA

14-16

CT PURA & DEEP:

Proposed

Curve

Shifted

to LOLE at 0.105, No Demand Shock

14-16

CT PURA & DEEP: Cap at 1-in-5, LOLE at 0.105

14-16

CT PURA & DEEP: Cap at 1-in-5, LOLE at 0.105, LOLE Capped at TSA

14-16

CT PURA & DEEP

: Cap at 1-in-5, LOLE at 0.105, LOLE Capped at TSA, No Demand Shock

14-16

UI: What Are Local Prices When LOLE is Similar to System?

17-18

Exporting Zone Questions

Slides

Emera

Energy:

1.5x Width

20

NESCOE:

Cap at MCL, Foot at 1x Foot

21

NESCOE: Cap at MCL, Vertical to

System Net CONE, Foot at 1x Foot

21

Slide5

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide6

Model UpdatesDescription of Model Updates

We describe and show the impacts of two simulation model changes that we have implemented to reflect ISO-NE’s requested updates (see Appendix and written stakeholder responses for more detail):

Updated LOLE Calculation and Reporting

FCM Auction Clearing Rules

The updated LOLE calculation results in minor changes

Adjustment to the auction clearing has more impact on

results

Differences occur in

approximately

1/3 of draws, when one or both import zones price separate

Results are the same as the prior clearing model if there is no price separation (if assuming the same supply and demand in a particular draw, i.e. with no “smart block” adjustment)

Comparison of results for a range of zonal curves is included in appendix

Slide7

Model UpdatesImpact on System Results

Updated LOLE calculation shows minimal impact (but new reported metric provides additional information)Revised clearing algorithm

slightly increases price volatility and reduces reliability system-wideEffect becomes larger with increasing width of local curves and number of importing zones

System Performance Impacts of Model Updates

ISO-NE Proposed System and Local Curves (1x No TTC)

Slide8

Revised clearing algorithm shows slightly lower price volatility in zones

Reliability below

target

in zones,

associated

primarily with lower reliability

on

a system basis (see prior slide)

But more supply is locally-sourced (reducing the contribution of LOLE from locally-driven events)

Model Updates

Impact on Importing Zone Results

Importing Zone Impacts of Model Updates

ISO-NE Proposed System and Local Curves (1x No TTC)

Slide9

ISO-NE Proposal

Impact on Exporting Zone Results

Minimal changes to realized performance in Maine

Primary performance change is associated with impact of revised clearing mechanics on system price and reliability results

Exporting Zone Impacts of Model Updates

ISO-NE Proposed System and Local Curves (1x Curve in Exporting Zone)

Slide10

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide11

Back-Cast of FCA 8

Results

Import-Constrained Zones

NU & UI: FCA 8 Back-Cast with Proposed Curves

Request to re-run FCA 8 auction results with system and local demand curves treating cleared supply as price takers

No price separation occurs across zones

Back-cast prices would have dropped from $15.0 to $13.9/kW-m in the presence of the system demand curve

Adding a 600 MW plant would have reduced the prices to $11.9/kW-m

Assumptions

FCA 8 demand

parameters

System demand curve with Net CONE at 11.08/kW-m

ISO-NE proposed curve in zones

Case 1: FCA 8

cleared

supply as price-takers

Case 2: Add a 600 MW plant at $7/kW-m in Connecticut

Note:

Cleared quantity excludes TTC.

Slide12

Performance

Import-Constrained Zones

NU Curve: Cap at 1-in-5, Foot at 1-in-87

Concept is to define local demand curves according to the same LOLE-based definition as in system

Results in flatter local curves and lower price volatility

However, reliability is degraded in both zones:

Result may appear counter-intuitive, but is a consequence of implementing a wide curve in combination with updated clearing rules

Wide local curves result in less rest-of-system procurement during price separation, therefore reduced rest-of-system reliability and increased rest-of-system price volatility

ISO-NE clearing

rules will prohibit use

of a

zonal curve

this

wide with three importing zones (demand quantity in

zones

could exceed system curve width)

Connecticut

Note:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all

cases.

Slide13

Import-Constrained Zones

NESCOE Curve w/ 70% Shocks, Supply Elasticity

Requested analysis of NESCOE proposed curve (1x system ratio, above and below LSR; see figure on slide

23)

With three changes to modeling assumptions that each reduce price volatility and improve reliability: (1) reduce shock sizes to 70% of base; (2) increase supply elasticity (see right); (3) remove supply lumpiness

Combined effect under sensitivity assumptions is a substantial improvement in all price volatility and reliability metrics

Performance

Supply Curves with More Elasticity

Slide14

Import-Constrained Zones CT PURA & DEEP: Simulation Requests

CT PURA & DEEP requested simulation results under different combinations of sensitivity assumptions, and using two different LOLE tuning approachesSensitivity assumptions would reduce price volatility and increase reliability, including:

70% shock sizes No demand shocks

LOLE capped at the value when local MW are at TSA (i.e. consistent with an assumption of ISO-NE intervention to restore local MW to TSA)

Tuning approaches

are conceptually similar to

approaches we used system-wide, with local LOLE tuned to 0.105 LRA target (note: this request contemplates allowing for the violation of the “minimum acceptable” at TSA)

However, because system LOLE is above 0.105 under the revised clearing

mechanics,

no amount of tuning can restore the zones to this level. We therefore re-interpret this question as tuning the local curves to reach a local adder of

0.005 LOLE (consistent with the LRA delta above NICR)

Re-interpreted tuned curves reflect:

ISO-NE proposed curve, shifted to a local LOLE adder of 0.005 events/year

Cap at 1-in-5 LOLE, adjust foot to meet a local LOLE adder of 0.005 events/year

Slide15

Import-Constrained Zones

CT PURA & DEEP: Tuned Curves

Candidate Curve, Left/Right Shifted to Tune LOLE*

Cap at 1-in-5, Foot Adjusted to Tune LOLE*

NEMA

Connecticut

NEMA

Connecticut

Notes:

The “truncated LOLE” curves were not possible to develop in NEMA because the LOLE adder at TSA was too low (i.e. the LOLE adder cannot be increased to 0.005 because the LOLE adder at TSA is close to

zero).

See appendix slide 34 for system simulation results under the same

curves.

Slide16

Import-Constrained Zones

CT PURA & DEEP: Simulation Results

Note: Tuned curves could not be drawn in NEMA in the cases where local LOLE was capped at TSA. Because the local LOLE “adder” becomes close to zero at TSA, the local curve could never be 0.005 events/year above Unconstrained System LOLE.

See appendix slide 34 for system simulation results.

Slide17

Import-Constrained ZonesUI: What Are Local Prices When LOLE is Similar to System?

Question:

“How often would we expect customers in import constrained zones to pay higher capacity prices than customers in the rest of pool for the same level of reliability (as measured by the LOLE metric)?”

We focus on the subset of draws in which: (a) local price separates above system (b) local LOLE is within 0.005 events/year above unconstrained system LOLE

16% and 2% of draws fall into this subset in NEMA and CT respectively (greater in NEMA because TSA & LSR are right-shifted compared to LRA, and so local LOLE adder is usually very small)

The results in this

subset

of draws may seem counter-intuitive when taken individually (i.e. why pay a price premium in the zones when local reliability is no worse than rest of pool?)

However, these results are consistent with the overall reliability and price volatility objectives of the demand curve and FCM, because the price premium paid in this subset of draws helps to support sufficient local supply to prevent larger price separation or lower-reliability events from occurring in other years

Further, focusing only on LOLE does not account for the transmission security objective TSA

Slide18

Import-Constrained Zones

UI

:

Comparison of

Statistics Across

All

Curves

Comparing all candidate curves in instances where:

The zone price-separates, and

LOLE adder in zone is < 0.005

Anywhere from 0-22% of draws depending on the curve

NEMA always shows greater

frequency from

these draws

for

any

curve drawn to the right of TSA Average price differential above system is the same across all curves (even though the price differential associated with this subset of draws varies substantially)

Slide19

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide20

Export-Constrained Zone

Emera

Energy: 1.5x Width Curve

Emera

Energy proposed a curve with width 1.5x of system ratio (flatter than proposed)

Results in modest improvement in price volatility in Maine (modest degradation in System LOLE) compared to ISO-NE proposal

Performance

Note:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all

cases.

Slide21

Export-Constrained Zone

NESCOE: Curves at or Above MCL

NESCOE proposed looking at two curves that would be right-shifted compared to MCL

Both curves perform similarly to the ISO-NE proposal (very small increase in price volatility in both cases; and degradation in system reliability in one case)

Both options would

prevent procuring less than MCL supply in

Maine

in

the event of system-wide

shortage

Notes:

Runs modeled with ISO-NE Proposed curve in NEMA/Boston and Connecticut.

Curves

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all cases

Performance

Slide22

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide23

Curve Comparison

Alternative Importing Zone Curves (Connecticut)

Note:

Curves

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all

cases.

Slide24

Curve Comparison

Performance in Import-Constrained Zones

Notes:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all cases.

Base case assumes true Net CONE in NEMA/Boston and Connecticut is 10% higher than system.

Zonal load costs reflect capacity procurement costs paid by customers in each zone, assuming all zonal CTRs are awarded to local customers.

Slide25

Curve Comparison

System-Wide Performance Impacts

Notes:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all cases.

All curves were run with the ISO-NE Proposed 1.0x System Ratio (No TTC) curves

for NEMA/Boston and

Connecticut and the ISO-NE Proposed 1.0x System Ratio curve in Maine.

Slide26

Curve Comparison

Alternative

Exporting Zone

Curves

Note:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s

recommended approach

in all cases

Slide27

Curve Comparison

Performance in

Export-Constrained

Zones

Notes:

Curve

names are labeled based on the stakeholder suggesting those curves for analysis, but do not necessarily reflect that stakeholder’s recommended approach in all cases.

All curves were run with the ISO-NE Proposed 1.0x System Ratio (No TTC) curves

for NEMA/Boston and

Connecticut.

Base case assumes true Net CONE in NEMA/Boston and Connecticut is 10% higher than system, Maine Net CONE is 10% lower than system .

Zonal load costs reflect capacity procurement costs paid by customers in each zone, accounting for CTRs that are awarded to local customers.

Slide28

Contents

IntroductionImpact of Model Updates

Stakeholder QuestionsImport-Constrained Zonal Demand Curves

Export-Constrained Zonal Demand Curves

Summary Comparison of Zonal Demand Curves

Appendix

Slide29

AppendixUpdated LOLE Calculation and Reporting

System:Previously reported only “System LOLE,” which reflected the LOLE that ISO-NE would calculate if there were no internal constraints (i.e. “copper sheet” assumption used when estimating NICR)

That metric will now be labeled as “Unconstrained System LOLE” and used as a primary metric for evaluating the system demand curveAlso reporting a new metric “Constrained System LOLE,” which reflects the max of the LOLE of any zone in any one draw (consistent with NPCC definition of system LOLE in the presence of zonal constraints)

Import Zones:

Zonal LOLE is affected by MW of supply both within the zone (determines local events) and outside the zone (determines system events)

Previously calculated zonal LOLE as the maximum of local and system LOLE

Updated approach calculating local LOLE “adder” on top of system events (results very similar to prior approach)

Revised

Local

LOLE Approach

Local

LOLE

Unconstrained System LOLE

“Local LOLE Adder”

Slide30

Appendix

Updated Local Clearing Approach

System-Wide Clearing Price

and Quantity

Updated clearing mechanics will produce the same prices as the prior model if there is no price separation (clear on system demand curve)

If importing zones

do

price-separate, then system-wide prices and quantities will clear

below

and to

the

left compared

to

prior modeled clearing mechanics (which assumed system + all zones supply would clear on

the

aggregate

system

demand curve)

Affects approximately 1/3 of draws (any time one or both import zones price separate

)

Clearing in Example Draw

Example Draw

(See Below)

Example

Draw

Individual Draws

(Each w/ unique “Residual” System Demand Curve)

Slide31

Appendix

Range of Import Zone Curves Compared

We tested a

range of import zone demand curves under the updated simulation

model

Updated LOLE Calculation

FCM Auction Clearing Rules

Intended to provide stakeholders more information about

results

that can be expected with varying widths of local curves

General observations:

System reliability and price volatility worsen with wider zonal curves

Zonal metrics move in the opposite directions (i.e. local reliability and price volatility improve with wider curves)

Connecticut

Curves Tested Under Updated Model

Note:

“1x System (No TTC)” curve applies the system ratio multiplier to NEMA and CT local curves without including the TTC MW in the calculation.

Slide32

Appendix

System Simulation Results

Note: All runs modeled with a 1x system ratio curve in Maine.

Slide33

Appendix

Importing Zones

Simulation Results

Note: All runs modeled with ISO-NE Proposed 1x system ratio curve in Maine

.

Slide34

Appendix

CT PURA & DEEP System Simulation Results

Note: All runs modeled with a 1x system ratio curve in Maine.