ERCOT Market Education Market Role in Emergency Operations OTS 2016

1. ERCOT Market Education Market Role in Emergency Operations OTS 2016

2. Module Objectives • Upon completion of this module, you will be able to: • Identify the role of the Market in a declared EEA • List three steps ERCOT may take to procure additional Ancillary Services in Real-time. • Predict the settlement outcomes for a Resource Committed by RUC. • Identify the process and implications for opting out of the RUC commitment. • Recognize the economic value of Real-Time Capacity Reserves.

3. Energy Emergency Alert At times, it may be necessary for ERCOT to reduce System Demand because of a temporary decrease in available supply. The Energy Emergency Alert (EEA) provides orderly pre-determined procedures for operating under short supply conditions.

4. Market Role in Reliability Operations The same way they always do! So how do the Markets contribute to reliable operations immediately before and during an EEA?

5. Market Role in Reliability Operations • The ERCOT market systems are designed to . . . • Manage reliability • Match generation with demand • Operate transmission system within established limits • Operate the system at least cost

6. Market Role in Reliability Operations Use of market processes to the fullest extent practicable without jeopardizing the reliability of the ERCOT System Even in an EEA, the protocols require

7. Market Role in Reliability Operations • But before we get to an EEA . . . • ERCOT may need additional Ancillary Services • ERCOT may need additional Capacity for SCED • Reliability Unit Commitment (RUC) • Self-commitment through pricing signals

8. Ancillary Services Insufficiencies

9. Watch AS Insufficiencies in Adjustment Period & Real-Time AS Insufficiency • In Adjustment Period & Real-Time: • AS Insufficiencies detected by AS Capacity Monitor • ERCOT must issue Watch • Plan to address the situation depends on time insufficiency is discovered

10. AS Insufficiencies in Adjustment Period & Real-Time SASM Assign HRUC • In General . . . • If time, conduct a SASM • Next, use HRUC to commit Resources with status of OFF • Lastly, assign to Resources with status of ON

11. Reliability Unit Commitment

12. Reliability Unit Commitment • Purpose of Reliability Unit Commitment (RUC) • It ensures: • Enough capacity is committed to serve the forecasted load • Committed capacity is in the right locations

13. If ERCOT commits a Resource through RUC. . . • Operational Considerations • Update COP – ONRUC • Must start/run resource if available • May not provide ancillary services • Financial Considerations • ERCOT provides QSE with a payment guarantee • May provide “Make-Whole Payment” • ERCOT ensures Energy Offer Curve is priced at or above $1500

14. RUC Make-Whole Payment Revenues = RTSPP * Metered Generation Costs come from Three Part Supply Offer $ • RUC Guaranteed Amount Make-Whole Payment Minimum Energy Costs Start-up Costs IncrementalEnergy Costs Real-TimeRevenues Costs Incurred Revenues Received What if revenues are less than cost?

15. RUC Make-Whole Payment $ Real-TimeRevenues Minimum Energy Costs Start-up Costs IncrementalEnergy Costs Costs Incurred Revenues Received What if revenues are greater than cost?

16. RUC Make-Whole Payment But how does ERCOT determine how much to clawback? $ Clawback Charge Minimum Energy Costs Real-TimeRevenues Start-up Costs IncrementalEnergy Costs Costs Incurred Revenues Received What if revenues are greater than cost?

17. RUC Clawback Charge Clawback Factors depend on the circumstances:

18. RUC Clawback Charge If an Energy Emergency Alert is in effect:

19. A QSE may opt out of RUC settlement • Operational Considerations • Update COP – ONOPTOUT • Must start/run resource if available • May provide ancillary services • Financial Considerations • No RUC Make-Whole Payments • No Clawback Charges • No requirement for energy to be priced at or above $1500

20. Real-Time Pricing Considerations

21. Real-Time Pricing Considerations 1 Real-Time Pricing 2 Real-Time Ancillary Service Imbalance

22. Real-Time Pricing Methodology ERCOT is an energy-only market • Sufficient pricing for new investment • Appropriate price signals Scarcity pricing – higher energy prices during periods where energy reserves are scarce

23. Real-Time Pricing Methodology SWCAP Price of Energy ($ MWh) SCED can set Scarcity Pricing under the right conditions Time

24. Real-Time Pricing Methodology Therefore, we may deduce . . . Value of real-time reserves = Value of avoiding load-shed • But there is additional value for Real-time Reserves • Sufficient real-time reserves help avoid load-shedding events • There is value in avoiding load-shedding events

25. Real-Time Pricing Methodology Value of Lost Load (VOLL) is administratively set to $9000. • ERCOT implemented an Operating Reserve Demand Curve on June 1, 2014 • Created a Real-time Price Adder to reflect the value of available reserves • Reflects Value of Lost Load (VOLL) • Based on Loss of Load Probability

26. Operating Reserve Demand Curve VOLL

27. Real-Time Pricing Methodology $9000 Reserve Price Adder improves Scarcity Pricing Price of Energy ($ MWh) SCED can set Scarcity Pricing under the right conditions Time

28. Reserve Pricing Methodology • What are some • examples of each? • But not all reserves are created equal . . . • Some are available to SCED immediately • Some can be made available to SCED in 30 minutes

29. Reserve Pricing Methodology Real-Time Reserve Price Adders RTORPA – Available during the next 30 minutes RTOFFPA – Available during the next 60 minutes ERCOT System … calculated each SCED interval

30. Real-Time Pricing Methodology Settlement Point Prices (SPPs) • SCED produces LMPs • LMPs are combined with Reserve Price Adders to form Real-Time Settlement Point Prices Resource Nodes Load Zones LMPs are location-specific. Reserve Price Adders represent the value of reserves ERCOT-wide. Hubs

31. Real – Time Pricing Considerations 1 Real-Time Pricing 2 Real-Time Ancillary Service Imbalance

32. Real – Time Ancillary Services Imbalance ) ( – x On-line Reserve Price On-Line Reserve SUPPLIES On-Line Reserve OBLIGATIONS (-1) ) ( + Off-line Reserve Price – x Off-Line Reserve SUPPLIES Off-Line Reserve OBLIGATIONS Calculated ERCOT-wide per QSE The Basic Idea:

33. Real – Time Ancillary Services Imbalance How’s it settled? SCENARIO HSL Paid in Real-Time AS Imbalance Price: On-line Reserve Price EnergyProduced ? ? Paid at Real-TimeSPP Real-Time Generator

34. Real – Time Ancillary Services Imbalance How’s it settled? SCENARIO HSL Paid in DAM or SASM Price: MCPC AS Capacity EnergyProduced ? ? Paid at Real-TimeSPP Real-Time Generator

35. Real – Time Ancillary Services Imbalance How’s it settled? SCENARIO HSL Charged in Real-Time AS Imbalance Price: On-line Reserve Price AS Deployed AS Capacity EnergyProduced ? ? Paid at Real-Time SPP Real-Time Generator

36. Real – Time Ancillary Services Imbalance How’s it settled? SCENARIO HSL EnergyConsumed Paid in Real-Time AS Imbalance Price: On-line Reserve Price ? Charged theReal-Time SPP LSL Real-Time Controllable Load Resource

37. Module Summary • You should now be able to: • Identify the role of the Market in a declared EEA • List three steps ERCOT may take to procure additional Ancillary Services in Real-time. • Predict the settlement outcomes for a Resource Committed by RUC. • Identify the process and implications for opting out of the RUC commitment. • Recognize the economic value of Real-Time Capacity Reserves.