Market evolution program
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Market Evolution Program. Regulatory Affairs Standing Committee Meeting September 11, 2003. Market Evolution Program agenda. Long Term Resource Adequacy Day Ahead Market. Long-Term Resource Adequacy Overview. Today’s Discussion: Recap from May 14 RASC meeting Description of Paths

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Market Evolution Program

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Market evolution program

Market Evolution Program

Regulatory Affairs Standing Committee Meeting

September 11, 2003

1


Market evolution program agenda

Market Evolution Program agenda

  • Long Term Resource Adequacy

  • Day Ahead Market

2


Long term resource adequacy overview

Long-Term Resource Adequacy Overview

  • Today’s Discussion:

    • Recap from May 14 RASC meeting

    • Description of Paths

    • Recommendations from Feasibility Assessment

    • Long-Term Resource Adequacy Working Group Update

    • Next Steps

3


Long term resource adequacy

Long-Term Resource Adequacy

  • Recap from May 14 RASC meeting:

    • Long-Term Resource Adequacy Working Group Feasibility Assessment (June 2003)

      • LTRA Objectives

      • LTRA Evaluation Criteria

      • Barriers to Investment

      • LTRA Paths and Options

4


Long term resource adequacy paths

Long-Term Resource Adequacy Paths

  • Path A: Complete the initial market design and structures without an explicit Resource Adequacy Requirement (RAR)

    • Rely on results of improved energy and ancillary service markets alone (e.g. Pricing Team work, day-ahead market, multi-interval optimization, etc.)

  • Path B: Create Load Serving Entities (LSE) and assign a RAR to these entities

    • LSEs required to contract forward capacity requirements through bilateral contracts (different to bilateral contracts for energy)

    • IMO could administer a resource adequacy auction market (similar to NYISO and PJM) as a complementary element to LSE capacity contracts

  • Path C: Allow a central agency to procure adequate resources and allocate the resource acquisition costs to loads

    • IMO administers a resource adequacy auction market and secures forward capacity on behalf of loads (NYISO, PJM and ISO NE are developing)

    • As a mechanism of last resort (different to above), a government agency (e.g. OEFC) could contract forward capacity

5


Recommendations from feasibility assessment

Recommendations from Feasibility Assessment

Fundamental recommendations relating to policy decisions:

1)Barriers to investment must be addressed to better ensure market entry to address long-term resource adequacy

2)The ‘market buyer’ must be defined (in particular, for small default electricity consumers)

3)Improvements to the current IMO-administered market design should be implemented, irrespective of the option to address long-term resource adequacy

4)Given the decision of who the market ‘buyer’ is, the ability and magnitude of spot prices to clear under shortage or near-shortage conditions must be addressed

5)The appropriate level of reliability must be decided

6


Recommendations from feasibility assessment1

Recommendations from Feasibility Assessment

Timeframe for making decisions:

6)An option to address long-term resource adequacy needs to be recommended no later than the end of this year

  • In order to address potential inadequate future supply

  • Recognizing sufficient lead-time required to develop new resources

  • Provide potential investors with required signals

7


Ltrawg update

LTRAWG Update

  • LTRAWG is in the final stages of completing a Strawman that builds on the recommendations and work from the Feasibility Assessment

  • LTRAWG has acknowledged that the 3 Paths may not be mutually exclusive

  • LTRAWG is examining what aspects of each Path could be workable and designed to work together within an integrated manner

8


Market evolution program agenda1

Market Evolution Program agenda

  • Long Term Resource Adequacy

  • Day Ahead Market

    • DAM Chronology

    • DAM Features and Benefits

    • DAM Issues

    • Next Steps

9


Day ahead market reprise

Day Ahead Market - Reprise

  • January - commence work on Day Ahead Market (DAM)

  • Feb 18 MAC - established Day Ahead Market Working Group (DAMWG)

    • ~ 28 members from all industry sectors (generators, loads, transmitter, distributors, marketers, OEB and OEFC)

    • meet every ~10 days - 22 meetings this year

  • April - recommend development of a comprehensive DAM that performs 2 functions...

    • Market - allow participants to buy and sell energy and sell operating reserve and lock-in prices and quantities day-ahead

    • Reliability - process to commit resources to meet forecast demand

    • preferred by DAM WG members

    • more closely aligned with DAMs in neighbouring markets

  • May 14 - Regulatory Affairs Standing Committee update

10


Day ahead market progress since may 14 rasc

Day Ahead Market - Progress since May 14 RASC

  • late May - DAM hi-level design summary released (strawman r1)

  • June 11 MAC - MAC members provide consensus on recommendation to continue develop comprehensive DAM design

  • June and July - hi-level design concepts prepared and discussed

  • mid-August - DAM hi-level design released (strawman r2)

    • DAM WG devoted 2 full days to its review

11


Market evolution program agenda2

Market Evolution Program agenda

  • Long Term Resource Adequacy

  • Day Ahead Market

    • DAM Chronology

    • DAM Features and Benefits

    • DAM Issues

    • Next Steps

12


Day ahead market features participation

Day Ahead Market - Features Participation:

  • Participants with physical resources

  • Importers and Exporters

  • Virtual buyers and sellers - parties without physical resources

    • ‘virtual’ offer (bid) to sell (buy) in the DAM also implies an obligation to buy (sell) back in the real-time market (RTM) at RTM prices

  • Three-part offers/bids:

    • Separate fixed and variable components of energy offer/bid

  • Multi-pass dispatch and commitment engine:

    • DAM schedules are financially binding and consistent with transmission constraints

    • Optimized solution...

      • over 24-hour period (hourly granularity)

      • amongst three-part offer/bid components

      • energy and operating reserve markets solved simultaneously

  • 13


    Day ahead market features pricing

    Day Ahead Market - Features Pricing

    • DAM WG conclusion - a day-ahead market under a uniform pricing regime would be costly to implement and maintain, complex and confusing, and is not recommended.

    • Strawman positions:

      • Nodal pricing should be implemented in the DAM to reflect the actual cost of serving load at each location

      • Suppliers and selected customers subjected to nodal prices

        • selected customers include appropriately metered loads that opt to pay nodal price and dispatchable loads

      • Remaining (most) loads would pay a ‘uniform’ price - weighted average of nodal prices

      • A system of internal transmission rights will allow participants to hedge nodal price differences

    • Note - requires that nodal pricing also be applied to the real-time market to maintain pricing consistency between markets

    14


    Day ahead market benefits

    Day Ahead Market - Benefits

    • DAM provides an improved point of convergence for forward products

      • DAM prices are transparent and predictable

        • DAM less volatile than RTM

        • greater liquidity in DAM

        • nodal pricing assigns value to congestion efficiently

        • DAM prices converge to RTM prices

    • DAM allows participants to reduce exposure to real-time volatility

      • price certainty - participants have financial commitment for quantities bought/sold in DAM

      • operational certainty - DAM results allow participants to make critical operating decisions in advance of real-time

    15


    Day ahead market benefits1

    Day Ahead Market - Benefits

    • DAM improves reliability

      • Allows for direct participation of loads in market

        • additional opportunity for demand side responses - allows price-sensitive loads to participate in market without being dispatchable on 5-minute basis

      • Improved commitment process for all resources (generators and loads)

      • Intertie transactions implemented and priced day-ahead

        • moves transactions to DAM from real-time market

        • reduces uncertainty associated with intertie trading

        • should reduce the number of failed intertie transactions and IOG payments in real-time market

    16


    Market evolution program agenda3

    Market Evolution Program agenda

    • Long Term Resource Adequacy

    • Day Ahead Market

      • DAM Chronology

      • DAM Features and Benefits

      • DAM Issues

      • Next Steps

    17


    Day ahead market issues

    Day Ahead Market - Issues

    • For a DAM to be effective:

      • Pricing Issues must be addressed...

        • Both the RTM and DAM prices need to represent the actual costs of serving loads as reflected by competitive market prices.

        • Each of the mechanisms that currently distort market prices must be corrected.

      • Structural Issues must be addressed...

        • Buy-side - ‘market-buyers’ required for default supply customers

        • Supply-side - market power issues need to be addressed

    18


    Market evolution program agenda4

    Market Evolution Program agenda

    • Long Term Resource Adequacy

    • Day Ahead Market

      • DAM Chronology

      • DAM Features and Benefits

      • DAM Issues

      • Next Steps

    19


    Day ahead market next steps

    Day Ahead Market - Next Steps

    • In the coming months...

      • Complete final elements of high-level design

      • Complete significant parts of the detailed design

      • Begin writing market rules

    • Expecting significant interaction with and contributions from stakeholders:

      • DAM WG

      • MAC - October 8

      • RASC, MOSC, ITSC

      • ad hoc meetings with stakeholder groups

    20


    Market evolution program

    • -- END --

    21


    Supplemental slide 1 market buyer proposals

    Supplemental Slide 1 - ‘Market-Buyer’ proposals

    • A number of industry organizations and stakeholders have recently put forth proposals to increase load participation in the market, particularly for default supply customers...

      EDA - Beyond Bill 210

      • Contemplates an aggregator that will facilitate a contract-based approach to default supply

      • All consumers, large or small, should have option of entering in to fixed price contracts or taking spot price

      • The security of long term contracts will provide incentives for investment in new sources of supply

        AMPCO - DAM Position Paper

      • OEB should allow LDCs to procure SSS energy through the DAM

      • Dispatchable load participation will be enhanced by providing similar reciprocal treatment, as for generators, for commitment costs, and market payments for demand reduction

    22


    Supplemental slide 2 market buyer proposals

    Supplemental Slide 2 - ‘Market-Buyer’ proposals

    Toronto Board of Trade - A Healthy Electricity Market

    • SSS should introduce default suppliers, selected through a competitive bidding process, to provide multi-year fixed price supply

    • Change should be implemented immediately;

      • in the short-term to reduce subsidy to finance price freeze,

      • in the long-term will provide stable prices for transition to eliminating price-cap in 2006

    • Customer education at all levels is required to restore confidence in a market-based electricity system -- OEB should take leadership role

    • Enhances investment in new sources of supply

    23


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