Transcript Export-constrained zone sloped demand curve

MARCH 10-11, 2015 | NEPOOL MARKETS COMMITTEE
FCM Sloped Demand Curve:
Capacity Zone demand curves
Review of proposed zonal demand curves
and accompanying changes for FCA10
Matt Brewster
MARKET DEVELOPMENT
413.540.4547 | [email protected]
Review of design proposal
• Capacity zone demand curves
slide 3
(same as December MC)
• FCA conforming changes
slide 13
(same as November MC)
• Summary and schedule
slide 16
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CAPACITY ZONE DEMAND CURVES
Same as discussed at December 2014 MC.
Overview:
Capacity zone demand curves proposal
• Sloped demand curves for import- and export-constrained
capacity zones beginning in FCA10
– Replace fixed demand requirement (LSR and MCL)
– Fixed demand design has proven problematic
• Zone cap and foot points set using “same as system” approach
– Ratios of cap and foot quantity relative to zonal requirements are
same as approved system-wide demand curve
– Zone demand price at requirement same percentage of Net CONE as
the system-wide demand price at Net ICR
• Zone Net CONE same as system for FCA10
– Separate Net CONE for import zones if ≥115% of system Net CONE
– Current estimates for CT, NEMA, and SEMA/RI are <105%
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Import-constrained zone sloped demand curves
•
Cap
•
Foot
•
Oriented around LSR same as system curve
around NICR
•
Zones have similar slope ($/kW-m per 100MW)
•
FCA7 System demand curve ratios
– Price: MAX (1.6x Net CONE, CONE)
– Quantity:
[LSR + TTC] x System cap-to-NICR ratio - TTC*
NEMA/Boston Zone Proposed Curve
– Price: $0/kW-month
– Quantity:
[LSR + TTC] x System foot-to-NICR ratio - TTC
– Using TTC to set Cap and Foot
– Historically stable for CT and NEMA
–
–
–
–
–
NICR = 32,968 MW
Cap System = 32,053 MW
Foot System = 35,605 MW
Cap-to-NICR ratio = (32,053/32,968) = 97%
Foot-to-NICR ratio = (35,605/32,968) = 108%
Note: curve depicted based upon FCA7 ICR values
* The TTC is deducted to reflect FCM conventions.
Note: FCA7 ICR values at http://www.iso-ne.com/static-assets/documents/2014/12/summary_of_icr_values_expanded.xlsx
5
Export-constrained zone sloped demand curve
•
Cap
Maine Export Zone Proposed Curve
– Price: MAX (1.6x Net CONE, CONE)
– Quantity: MCL x System cap-to-NICR ratio
•
Foot
– Price: $0/kW-month
– Quantity: MCL x System foot-to-NICR ratio
•
Oriented around MCL same as system
curve around NICR
•
FCA7 System demand curve ratios
–
–
–
–
–
NICR = 32,968 MW
Cap System = 32,053 MW
Foot System = 35,605 MW
Cap-to-NICR ratio = (32,053/32,968) = 97%
Foot-to-NICR ratio = (35,605/32,968) = 108%
Note: curve depicted based upon FCA7 ICR values
Note: FCA7 ICR values at http://www.iso-ne.com/static-assets/documents/2014/12/summary_of_icr_values_expanded.xlsx
6
FCA CONFORMING CHANGES
Same as discussed at November 2014 MC.
FCA starting price for capacity zones
• An import-constrained capacity zone may have a separate Net
CONE if estimated to be ≥ 115% of system Net CONE
– FCA starting price for that zone is its demand curve “cap” price
• Separate DCA rounds may be conducted for capacity zones
with a separate FCA starting price
• New capacity zone identified in year prior to FCA (§III.12.3)
would have Net CONE filed for instant FCA if ≥115% of system
8
Revise DCA application of LSR and MCL
• DCA round closing conditions
– Evaluate whether zone supply is less than or equal to demand
specified by the zone demand curve (rather than ≤ LSR, or ≤ MCL)
– System-wide demand curve adjusted to evaluate excess supply in
auction rounds after an import-constrained zone has closed
• Update references to LSR and MCL where capacity quantities
are determined by zone demand curves
9
Remove current administrative pricing rules
• Remove current administrative pricing rules applicable to
capacity zones:
– Inadequate Supply (IS),
– Insufficient Competition (IC), and
– the Capacity Carry Forward Rule
• System IS and IC rules were removed with implementation of
the system-wide demand curve for FCA9
10
Summary and schedule
• Summary
 Proposed zonal demand curves are within range of evaluated curves
expected to achieve balance of reliability and pricing objectives
 Conforming FCA changes adjust auction rules to apply zonal curves
• Schedule
 April MC vote
 May filing with FERC
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APPENDIX
Additional materials previously presented on capacity zone
demand curves proposal.
12
Key design issues considered by the ISO
• ISO considered trade-offs among multiple factors to assess zonal
alternatives, including interactions with the system demand curve
– Simulations indicate a range of reasonable curves to address combination of
reliability and pricing objectives
– Trade-offs exist because objectives are inter-related and sometimes conflicting
• Import-constrained zones key considerations
– Address upward price volatility (system curve helps address downward spikes)
– Balance zonal and system reliability (affected by zone curve cap & foot widths)
– Limit cost of purchasing considerably more than LSR
• Export-constrained zones key considerations
– Address downward price volatility (system curve helps address upward spikes)
– Limit system reliability degradation of displacing rest-of-pool capacity
– Recognize cost benefits of abundant low-price supply
• Mitigating the potential impacts from the exercise of market power
– Seller-side (upward volatility) and buyer-side (downward volatility)
– Potential for impact within constrained zones and rest-of-pool
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Key design considerations (cont.)
• Balancing zonal and system reliability is one of the most evident
trade-offs across the range of feasible zonal curves
• Primarily affected by width of zonal curves (cap and foot)
– Width changes amount of system demand allocated to capacity zones
– Demonstrated in Brattle’s October, 2014, A02 presentation on slides 31-33
Objective
Narrow Zone Curves
Wide Zone Curves
Price volatility
• Higher zone volatility
• Lower system volatility
• Lower zone volatility
• Higher system volatility
Reliability
• Less likely to achieve zone
minimum requirements
• More likely to achieve NICR
system-wide
• More likely to achieve zone
minimum requirements
• Less like to achieve NICR
system-wide
Cost
• Less zone excess
• Lower costs
• More zone excess
• Higher costs
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Import-constrained zone curve examples
NEMA/Boston Zone Proposed Curve
Connecticut Zone Proposed Curve
MW
MW
Cap
Curve Definition
Price
Quantity
1.6x Net CONE
Foot
$0
[LSR + TTC] x System
[LSR + TTC] x System
cap-to-NICR ratio - TTC foot-to-NICR ratio - TTC
Quantities based on FCA7
Local MW
7,320
Slope
Change in Price ($/kW-month)
Change in Quantity (MW)
Slope ($/kW-month per 100 MW)
8,419
Cap to Foot
$17.7
1,099
$1.6
Curve Definition
Price
Quantity
Cap
Foot
1.6x Net CONE
$0
[LSR + TTC] x System
[LSR + TTC] x System
cap-to-NICR ratio - TTC foot-to-NICR ratio - TTC
Quantities based on FCA7
Local MW
2,985
Slope
Change in Price ($/kW-month)
Change in Quantity (MW)
Slope ($/kW-month per 100 MW)
3,854
Cap to Foot
$17.7
868
$2.0
Notes: minimum cap price is 1x CONE; slopes based on Net CONE of $11.08; and System “cap-to-NICR” and “foot-to-NICR” ratios shown on prior slide (based on FCA7)
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Import-constrained zone simulation results
• Proposed curves are expected to achieve balance of
objectives for import zones
• Compared to current use of vertical LSR demand for zones:
– Some decrease in long-run price volatility
– Reduced frequency of clearing below LSR
– Increased excess above LSR (but by small fraction of zone LSR)
Price
Quantity
Frequency
Standard Frequency
Average
of Price
Deviation
at Cap
Separation
($/kW-m) ($/kW-m) (% of draws) (% of draws)
NEMA/Boston
ISO Proposal
Vertical LSR demand
Connecticut
ISO Proposal
Vertical LSR demand
Average Excess
(Deficit)
Above LSR
(MW)
St. Dev.
Frequency
Below LSR
Zonal Load Cost
Frequency Frequency Average
Below TSA Below 1-in-5
LOLE
(MW) (% of draws) (% of draws) (% of draws) (events/yr)
Average
Average of
of Bottom
Top 20%
20%
($mil/yr) ($mil/yr)
($mil/yr)
Average
$12.2
$12.2
$4.0
$4.1
15.1%
21.1%
17.5%
16.9%
683
633
404
405
15.8%
17.1%
15.8%
17.1%
11.0%
10.1%
0.112
0.107
$943
$947
$497
$509
$1,413
$1,418
$12.2
$12.2
$3.9
$4.2
14.0%
22.6%
21.7%
18.9%
544
491
469
470
17.4%
18.9%
12.7%
14.3%
14.7%
13.7%
0.125
0.123
$1,219
$1,222
$690
$679
$1,725
$1,777
Notes: the approved FCA9 System-wide demand curve is modeled; the ISO proposed export-constrained zone curve is modeled for Maine.
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Maine export-constrained zone curve and
simulation results
• Simulations demonstrate proposed
curve can be expected to achieve
balance of objectives for export zones
Maine Export Zone Proposed Curve
Cap
Foot
Curve Definition
Price
1.6x Net CONE
$0
MCL x System
MCL x System
Quantity
cap-to-NICR ratio foot-to-NICR ratio
Quantities based on FCA7
Local MW
3,606
4,006
Slope
Cap to Foot
Change in Price ($/kW-month)
$17.7
Change in Quantity (MW)
400
Slope ($/kW-month per 100 MW)
$4.4
• Compared to current use of MCL:
• Reduced zone price volatility
• Clear more capacity in export zone
(below MCL on average)
Notes: minimum demand curve cap price is 1x CONE; slopes based on
Net CONE of $11.08; and System “cap-to-NICR” and “foot-to-NICR”
ratios shown on prior slide (based on FCA7)
• Slight increase in system LOLE
Price
Average
Standard
Deviation
Frequency
at Cap
Quantity
Frequency
of Price
Separation
($/kW-m) ($/kW-m) (% of draws) (% of draws)
Zonal Load Cost
Average Quantity
Above (Below)
MCL
Standard
Deviation
Constrained
System LOLE
Unconstrained
System LOLE
Average
Average of
Bottom 20%
Average of
Top 20%
(MW)
(MW)
(events/yr)
(events/yr)
($mil/yr)
($mil/yr)
($mil/yr)
ISO Proposal
$10.0
$4.3
4.5%
18.9%
(269)
170
0.125
0.111
$287
$116
$463
Vertical MCL demand
$10.0
$4.6
5.4%
13.7%
(387)
171
0.123
0.109
$287
$96
$465
Notes: the approved FCA9 System-wide demand curve is modeled; the ISO-NE proposed import-constrained zone curve is modeled for NEMA/Boston and CT.
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System-wide simulation results
• Proposed capacity zone demand curves appear to strike a
good balance between zonal and system objectives
• Simulation results demonstrate trade-offs among objectives
– System price volatility and reliability indices worsen somewhat with
sloped zonal demand curves whereas zonal metrics improve
Price
Average
Standard
Deviation
Reliability
Frequency
at Cap
($/kW-m) ($/kW-m) (% of draws)
System Load Cost
Constrained
System LOLE
Unconstrained
System LOLE
Average
Reserve
Margin
Reserve
Margin
St. Dev.
Frequency
Frequency
Below 1-in-5
Below NICR
in RoP
Average
Average of
Bottom 20%
Average of
Top 20%
(events/yr)
(events/yr)
(%)
(%)
(% of draws) (% of draws)
($mil/yr)
($mil/yr)
($mil/yr)
System-Wide Demand Curve and ISO
Proposed Zonal Sloped Demand Curves
$11.1
$3.9
7.1%
0.125
0.111
12.8%
2.7%
38.4%
10.9%
$4,503
$2,648
$6,479
System-Wide Demand Curve and All Vertical
Zonal Demand Constraints
$11.1
$3.6
4.7%
0.120
0.104
13.1%
2.7%
35.6%
8.9%
$4,513
$2,669
$6,378
Notes: the approved FCA9 System-wide demand curve is modeled; the "All Vertical" case uses LSR and MCL demand.
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