Transcript Up-To Transactions

Operating Reserves and Extended
Locational Marginal Pricing
1
Operating Reserve Charges in PJM
Calendar Year 2012 Operating
Reserves
$648.7 Million
First Five Months of 2013
$433.6 Million
• First and foremost, operating reserves are unknown when a trader enters
in a transaction. Thus there is no way for me to evaluate that risk for my
traders upfront.
• The numbers above are telling because they demonstrate that in the first
five months of 2013 there was a 55% increase in operating reserves. No
analysis of historical data could have predicted this volatility.
• The rate for East Deviations has been has high as $32. Higher than the
LMP.
2
Who Is Receiving Operating Reserve
Charges And The Impact On the Market
According to the PJM Independent Market Monitor
◦ The top 10 units receiving Operating Reserve Credits
received 40.3% of all credits.
◦ The top 10 organizations received 86.9% of all credits.
Incremental offers of Energy /Dec have been decreasing in
PJM.
◦ INCs have decreased 28.2% in 2013 and 12.8% in 2012
◦ DECs have decreased 21.6% in 2013 and 11.4% in 2012
3
Problems with Current
Locational Marginal Pricing
•Currently Energy prices are being calculated through the
Security Constrained Economic Dispatch (SCED)
•SCED is the primary engine for determining Energy and
Reserve product clearing for both Day Ahead and Real
Time markets.
•A drawback of SCED is that it does not allow certain
Demand Response and Fast Start Resources to set price.
•SCED also may not capture Start up and Shut down cost
and No-Load cost.
•The cost are recouped in the form of Operating Reserve
Charges.
4
A Potential Solution: Extended LMP
•Extended LMP is a new computational method
•It allows Fast Start Resources and Emergency Demand
Response that are either scheduled at limits or are offline
to set price.
•Both Start-Up/Shut-Down Offer costs and No-Load Offer
costs will be reflected in the LMPs and MCPs set by Fast
Start Resources.
•The price will more accurately reflect actual system
conditions.
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Benefits of Extended LMP
•Extended LMP calculates price using incremental
increase in energy that takes into account unit
commitment cost.
•Extended LMP minimizes the amount of Operating
Reserve cost need to make generators whole.
•Extended LMP adds transparency to Uplift cost
allowing market forces to react.
•Extended LMP cuts down on contentious cost
allocation discussions in the stakeholder process.
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