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Benjamin F. Hobbs Schad Professor of Environmental Management, Whiting School of Engineering

The Future Ain't What It Used to Be: What Variable Renewables Mean for Conventional Generation NY Association for Energy Economics August 23, 2012. Benjamin F. Hobbs Schad Professor of Environmental Management, Whiting School of Engineering

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Benjamin F. Hobbs Schad Professor of Environmental Management, Whiting School of Engineering

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  1. The Future Ain't What It Used to Be: What Variable Renewables Mean for Conventional GenerationNY Association for Energy EconomicsAugust 23, 2012 Benjamin F. Hobbs Schad Professor of Environmental Management, Whiting School of Engineering Director, Environment, Energy, Sustainability & Health Institute (E2SHI) The Johns Hopkins University Chair, Market Surveillance Committee California Independent System Operator

  2. Outline Our goals: economy, environment The challenge of variable output & prices Investment impacts Why won’t the market provide needed capacity? And how can it be fixed?

  3. A Lesson about Electricity

  4. I. Fundamental Goals of Market Design • Min cost / max net economic benefits • Min emissions & other environmental impacts

  5. K Proxy Goals • ? • “a • S • Maximizing proxies not same as maximizing fundamental efficiency & environmental objectives Source: Kay, 2011

  6. Renewable Portfolio Standard Policies, June 2012 29 states,+ Washington DC and 2 territories,have Renewable Portfolio Standards (8 states and 2 territories have renewable portfolio goals). Source; DSIRE, NCSU, www.dsireusa.org/summarymaps

  7. Outline Our goals: economy, environment The challenge of variable output & prices Investment impacts Why won’t the market provide needed capacity? And how can it be fixed?

  8. II. The Challenge of Variability:Dispatch Conventional Gen to Net LoadM. Rothleder, CAISO, Operational Flexibility Study Update, 6/22/2012 Market Surv. Comm. Mtg. Load, Wind & Solar Profiles – High Load Case, Jan. 2020 46,000 10,000 6,300 MW in 2 hours 13,500 MW in 2 hours 44,000 8,000 MW in 2 hours 9,000 42,000 8,000 40,000 7,000 38,000 36,000 6,000 Load & Net Load (MW) Wind & Solar (MW) 34,000 5,000 32,000 4,000 30,000 28,000 3,000 26,000 2,000 24,000 1,000 22,000 20,000 0 0:00 1:30 3:00 4:30 6:00 7:30 9:00 10:30 12:00 13:30 15:00 16:30 18:00 19:30 21:00 22:30 0:00 Load Net Load Wind Solar 8

  9. Example of Fundamental vs. Proxy Goals: Absolute Priority for Wind in Dispatch Makes No Economic or Environmental Sense • Can increase both costs and emissions • KU-Leuven stochastic unit commitment (De Jonghe, Hobbs, Belmans 2011): • Minimizing wind spill increases fuel costs & CO2 (relative to dispatch under 0 €/MWh wind bid) • 17% reduction in spill possible • Per MWh of spill reduction: • 0.71 t CO2increase (+1.5% totalCO2) • 49 € cost increase (+1.3% total cost)

  10. What’s Happened To Prices? TexasDavid J. Maggio, ERCOT, Presentation IEEE PES, 7/2012

  11. What’s Happened to Prices? South Australia: 17% Wind Cutler, Boerema, MacGill & Outhred, Energy Policy, 2011; I. MacGill, IEEE PES Mtg, 7/2012 Load (MW) Duration Price ($/MW) Duration Wind MW Wind MW • Revenue by gen type • 47 $AU for wind • 90 $AU for other

  12. What Might Happen to Prices? CaliforniaCAISO 20% Penetration Study (2010) Gas weekly MW generation Spring Energy Price Distribution 2012 Base Case vs. Hour 20% RPS  2.5% Lower Prices 20% Wind Case

  13. What Might Happen to Prices? NYISO2010 NYISO “Growing Wind” integration study Price Duration Curve for 1275 and 8000 MW Wind Capacity (Superzones A-E)

  14. Why Revenues Diverge Among Gen Types W W W W • E.g., a system with two types of thermal generation: • 1000 MW of quick start peakers @ $70/MWh • 2100 MW of slow thermal @ $30/MWh; Max ramping = 600 MW/hr • Morning ramp up and resulting generation: 2000 Net Load, MW 1000 Avg. Price Received $70 $34.3 $18.6 Fast 0 0 400 0 MW Slow 1000 1000 1600 2000 MW Wind 600 500 200 100 MW LMP: 30 -107030 $/MWh time Spot prices reward flexibility!

  15. Outline Our goals: economy, environment The challenge of variable output & prices Investment impacts Why won’t the market provide needed capacity? And how can it be fixed?

  16. III. What do those Prices Imply for Long Run Generation Mix? The WECC CaseJ. Bushnell, “Building Blocks: Investment in Renewable & Nonrenewable Technologies,” Iowa State U, 2010 Baseload CC Peakers MW MW

  17. What do those Prices Imply for Long Run Generation Mix? The UK Case (15% Wind)R. Green & N. Vasilakos, Imperial College, The Long-Term Impact of Wind Power on Electricity Prices and Generating Capacity Wind Peakers Combined Cycle Baseload

  18. CAISO: 33% Wind in 2020  Potentially 4,600MW of Upward Flexible Resources Needed (Hi-Load Scenario) M. Rothleder, CAISO, Operational Flexibility Study Update, 6/22/2012 Market Surveillance Comm. Mtg. 18

  19. Outline Our goals: economy, environment The challenge of variable output & prices Investment impacts Why won’t the market provide needed capacity? And how can it be fixed?

  20. IV. CAISO Needs It, But Are They Getting It? www.calpine.com/power/plant.asp?plant=28 Announced intent to retire new (2001) CC Plant (Sutter) • Losing 11 GW of Once-Through Cooled Capacity?

  21. Why Doesn’t the CAISO Get Its Needed Capacity? Spot Market Failures: Markets suppress price variability  Flexibility not rewarded 5-15-60 minute averaging times Risk disregarded in scheduling Public/operator distaste for price spikes Bid & price caps  “Missing Money”

  22. Fixes? Operational market fixes Shorter intervals Ramp constraints/products in spot markets MISO CAISO: Twice as costly as spin in Q2 2012 Stochastic unit commitment/dispatch? Capacity market fixes Different flavors of capacity Longer horizon & liquid capacity market

  23. New York: Monthly Capacity Market S. Harvey, S. Pope, W. Hogan, Preliminary Evaluation of the New York ISO Capacity Market, New York ISO ICAP Working Group, 7/31/2012

  24. PJM Capacity Market (RPM): Eliciting Capacity Investment from Surprising SourcesBrattle, Second Performance Assessment of PJM’s Reliability Pricing Model Market Results 2007/08 through 2014/15, Aug.2011 More than enough capacity ….. …At prices lower than “CONE”

  25. PJM RPM: Surprising Capacity SourcesBrattle, Second Performance Assessment of PJM’s Reliability Pricing Model Market Results 2007/08 through 2014/15, Aug.2011 Target Losses Gains

  26. Conclusions • Variable net loads and prices  • Lower margins from spot energy for thermal generation • To get an economic & clean gen mix, more revenues needed from: • Ancillary services • E.g., CAISO flexiramp • Capacity markets • E.g., PJM RPM

  27. Questions? bhobbs@jhu.edu E2SHI, The Johns Hopkins University

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