by Bob Shively, Enerdynamics President and Lead Facilitator
To prepare for an operating day, the independent system operator (ISO) must schedule units one day ahead of time to provide supply across the upcoming 24 hours. This is handled by the day-ahead scheduling process. Units are scheduled hourly, meaning that units will receive 24 schedules – one for each hour of the following day. The schedule tells the unit what services it is expected to provide and the amount of megawatts (MW) associated with each scheduled service.
For instance, for a given hour a unit with a capacity of 200 MW might have 150 MW scheduled to provide energy and 50 MW scheduled as spinning reserves. This tells the unit operator that for the given hour, it is expected to provide 150 MW of energy and must be prepared to ramp up an additional 50 MW if called on by the ISO.
The day-ahead process works as follows:
- At a specified time in the morning, unit scheduling coordinators submit an offer to the ISO. This offer includes services the unit is willing to provide at a given price as well as various operational characteristics such as start-time, ramp capability, willingness to be started and then stopped, and minimum and maximum run times.
- Simultaneously, load-serving entities (LSEs) submit hourly bids for buying energy to supply loads. Although LSEs sometimes state an unwillingness to buy energy above a certain price level, in most cases LSEs simply state a forecast load plus a willingness to pay whatever the price is to receive supply.
- The ISO inputs expected system conditions including transmission availability and then runs optimization software to determine the least-cost dispatch available to serve the required loads given the various generation offers.
- By the early afternoon, the ISO sends out schedules to each unit that was selected in the optimization process and notifies other generators that they have not been scheduled. The ISO also notifies all LSEs of the amount of load scheduled to be served. The optimization model creates day-ahead energy prices for each location on the grid and zonal prices for ancillary services. The energy prices are called locational marginal prices, or LMPs, and reflect the actual marginal cost of serving load at each location.
- Since day-ahead schedules are considered firm, units are paid the LMP for their scheduled output, and loads are charged the LMP for their scheduled deliveries regardless of what actually happens in real time.
A separate group at the ISO runs the system to ensure that supply and demand are kept in balance in real time during the operating day. This process works as follows:
- The real-time operators have various units available to ramp up or down given the resources selected in the day-ahead scheduling process.
- As the supply-demand balance fluctuates, the ISO ramps units as needed based on the offers accepted in the day-ahead. A real-time LMP is determined based on the price for marginal units used in ramping.
- After the hour, the ISO calculates each unit’s actual output compared to the output scheduled in day-ahead. The real-time LMP is applied to any deviation from scheduled, and each unit is paid or charged (depending on whether the unit generated more or less than scheduled) based on the LMP at that unit’s location.
- Similarly the ISO compares each LSE’s schedule at specific grid locations to the LSE’s actual usage. Again, the deviation from day-ahead schedule is either charged or paid depending on whether the LSE used more or less than scheduled.
Want to learn more about ISOs and how they operate? ISO Market Basics, an online course by Enerdynamics, gives a thorough overview of how ISO markets work, how services (capacity, energy, operating reserves, and financial transmission rights) are bought and sold in an ISO, the role of ISOs and various market participants, and the various types of electric markets available to market participants.