Renewables Drive Western Electricity Markets to Real-time Competition

by Bob Shively, Enerdynamics President and Lead Instructor

Quietly, but seemingly inexorably, U.S. wholesale markets continue to march toward higher levels of competition. Later road with solar and windthis year, Entergy will bring its 35,000 MW of load into the Midwest ISO (MISO).  And an announcement last week indicated that years of discussion are culminating with the beginning of integrating California’s ISO into broader western markets. The joint announcement[1] between the California ISO (CAISO) and PacifiCorp, the Oregon-based utility company with a footprint covering parts of six western states, said that PacifiCorp and CAISO will work together to create a real-time energy imbalance market that will be facilitated by CAISO.

Why real-time market is needed
The need for an integrated real-time market is driven by development of renewable electric supply sources. Rapidly developing wind and solar resources are variable (meaning their output varies depending on meteorological conditions), not fully predictable (meaning that actual output is uncertain, even looking forward in as short a time frame as 15 minutes), and not fully dispatchable (meaning that the system operator may not be able to control a unit’s output).  These characteristics make wind and solar more difficult for system operators to integrate onto the grid than most traditional generation because as output from wind and solar varies, supply must be provided from other flexible units such as hydro, natural gas turbines, or partially loaded coal plants.

If you look at statistics for growth of renewables, you will see that most has occurred in regions with an ISO[2].  Key reasons for this include larger balancing areas that allow variability to be balanced over a larger footprint and the existence of real-time markets.  The large exception to ISO-based development is the portion of the Western Electric Coordinating Council (WECC) that is not covered by the CAISO.  Such development has caused problems for system operators because absent a real-time market, generator schedules are set hourly.

Generators who vary from their hourly schedule are required to pay often significant balancing charges.  These charges ostensibly cover the cost of the system operator dispatching its own units to balance during the hour, but do not provide any opportunity for other market participants to provide the service at a lower cost.  And absent a market that allows other generators to participate, system operators who find themselves without enough flexibility must depend on generator curtailments to balance the system. This has resulted in significant curtailment of wind power in the Bonneville Power Administration (BPA) area that is the current subject of a FERC complaint as well as lawsuits[3].

These problems do not occur where there is an ISO because ISOs run real-time markets with dispatch signals based on market prices sent to willing market participants every five minutes.  The result is that as renewable supply varies, generators correct the problem by ramping up or down in response to market price signals.  Wind and solar generators benefit because they don’t have to pay high costs of inflexible hourly scheduling rules. Consumers benefit because they can obtain low variable cost renewable power whenever it is available.

The Western Energy Imbalance Market
Various western system operators have been discussing how to handle real-time variability for years.  Since the west is broken up into many different system operators, real-time balancing has been an issue.  Last week, the discussions resulted in a memorandum of understanding between PacificCorp and CAISO to implement an Energy Imbalance Market (EIM) that will allow generators on the 10,600 MW PacifiCorp system to directly participate in expanded CAISO real-time markets. The result will be real-time optimization of generation dispatch across both organizations regions using a market pricing.  The expected result is lower balancing costs for all market participants including wind and solar.

What does this mean for the future?
Inevitably, such an agreement raises the question: Will we see movement to a larger ISO in the west much as MISO and PJM grew in the Midwest and East?

Both PacifiCorp and CAISO were quick to say they weren’t forming a larger ISO, simply integrating real-time markets. But certainly this could be a first step. Reportedly there are ongoing discussions with NVEnergy for Nevada to also join the EIM, and, if the initial steps prove successful, BPA will feel strong pressure to also join. Will this eventually result in integration of other markets such as day-ahead energy and ancillary services? That remains to be seen, but it certainly could be a long-term outcome.  In the meantime, both renewable generators and consumers in PacifiCorp’s region should benefit.


About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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One Response to Renewables Drive Western Electricity Markets to Real-time Competition

  1. Pingback: The Value of Regional Transmission Organizations, Part I | Enerdynamics

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