PERFORM: Performance-based Energy Resource Feedback, Optimization, and Risk Management

1. Performance-based Energy Resource Feedback, Optimization, and Risk Management: PERFORM

2. Outline • PERFORM Overview • Problem • Opportunity • Tentative Program • Next Steps: Data and Pilot Studies • Impact • Appendix PERFORM Grid Program

3. PERFORM Overview PERFORM Grid Program

4. PERFORM Objective Design a risk-based operational paradigm capturing not just marginal cost but also marginal risk in order to: • Utilize the full potential of emerging technologies (e.g. bulk renewables, DERs, storage) • Enable increased renewable penetration • Lower energy costs A modern grid with modern assets requires modern operational and management systems PERFORM redefines grid operations …without sacrificing service quality or reliability

5. From First Solar PERFORM Grid Program

6. PERFORM Overview Day-Ahead Single Point Prediction • TODAY: • Reliance on conventional generators • Single point predictions 3,180 MW Error 73% Forecast Error Real-Time Production MISO Renewable Day-Ahead Forecast and Real-Time Production June 26, 2019

7. PERFORM Overview • TODAY: • Reliance on conventional generators • Single point predictions • FUTURE GRID: • Make intermittent assets look like conventional generators with massive co-located storage • Ignore delivery risk! Current Trajectory Wind Storage Coal Plant Control Room Management System PERFORM Grid Program

8. PERFORM Overview • TODAY: • Reliance on conventional generators • Single point predictions • FUTURE GRID: • Make intermittent assets look like conventional generators with massive co-located storage • Ignore delivery risk! Current Trajectory Proposed Trajectory PERFORM: Acknowledge asset flexibility and dependability • FUTURE GRID: • New risk-driven operational paradigm • Accurate comparison between assets • Storage acknowledged as the true risk-mitigating asset PERFORM Grid Program

9. Mission: Innovation in Grid Management Objective: Utilize All Resources for Grid Operational and Reliability Requirements New Approach: Understand and Leverage Resource Flexibility Relative to their Dependability Outcome: Risk-Driven Grid Management and Operational Paradigm PERFORM Grid Program

10. Problem PERFORM Grid Program

11. Renewable Portfolio Standards PERFORM Grid Program

12. Problem: Keep the Lights On Without reliability services, blackouts would be commonplace 2003 Blackout Regulation Est. Cost: $6B-$10B Equipment Failure! For emerging technologies to fully displace conventional assets, we need to learn how to value more than just total energy output! Backup to Rescue Load Generation Reserves PERFORM Grid Program

13. Operational Challenge Operational Flexibility Decreases Real-Time Week Ahead Day Ahead Hours Ahead 5 Min Ahead Confidence in Intermittent Assets Increases PERFORM Grid Program

14. PERFORM Grid Program If it works… will it matter? Better forecasting techniques already exist and they do not matter today… Why? Existing management systems can only handle a single point forecast Innovation is needed to quantify risk and enable grid operations to account for and manage risk

15. Opportunity PERFORM Grid Program

16. Intermittent Assets:Treated as Inflexible, Negative Load PERFORM Grid Program

17. Mindset of energy-only plan for intermittent assets must change PERFORM Grid Program

18. TentativeProgram PERFORM Grid Program

19. Approach: Grid Operations and Planning Energy Energy Reliability Services Reliability Services Future paradigm Existing paradigm High risk offers Emerging assets Low risk offers Conventional assets PERFORM Grid Program

20. PERFORM (Tentative) Program Overview Thrust 2 • System Risk Assessment: • Risk-based Energy Management System (REMS) to balance collective risk across the grid Thrust 1 • Asset Risk Assessment: • A standardized, transparent risk score to gauge each asset’s relative performance • Tech to Market: • Pilot testing with utilities or ISOs willing to collect data and evaluate proposed software solutions to verify innovative program pursuits PERFORM Grid Program

21. Risk Management for the Modern Grid Utilize Asset Flexibility and Dependability Software, Hardware, Controls Stochastic Processes, Decision Analytics Quantify Asset Risk Management Systems Evaluate and Manage System Risk T2M, Resource Planning Performance Driven Asset Valuation PERFORM Grid Program

22. Path to Success • Accurate assessment (and monetization) of emerging assets will increase investment, speed up integration, and promote innovative tech • New revenue streams for emerging assets • Recognizes storage as the ultimate risk-mitigating asset • Not reliant on operator intuition nor on only conventional technologies PERFORM Grid Program

23. Best Path for Success System Return Management Overhaul + Storage Management Overhaul Storage + Management Overhaul Existing Operations Full Grid Storage System Risk PERFORM Grid Program

24. What Difference Will it Make? (and Metrics) • 75%of all grid products and services from bulk renewables, DERs, and flexible load (RPS only consider energy) • 100%of all grid required products and services from clean, sustainable technologies • Reduction in operator discretionary changes by at least 75%(standby capacity to balance intermittent resources) • Cost reduction of 10% for a $400B industry per year with same reliability requirements • Quality of energy service metric of at least 90%: delivered energy to scheduled energy (for every resource) • Quality of ancillary service metric of at least 90%: delivered ancillary service to scheduled ancillary service (for every resource) Targets will vary based on real system analysis vs. hypothetical future studies

25. Timeline and Cost: Program Scope and Beyond Year 1 Year 2 Year 3 Year 4 Year 5 Data Synthetic Data Pilot Site Data Site Data Collection, Processing, Analytics Site Data R&D 10-12 Teams R&D&D Finalize Down Select: 5 Teams R&D Refine R&D Refine Validation Validation Validation and Prediction Down Select: 5 Teams PERFORM R&D Down Select 5 Pilots: 2 Small + 2 Medium + Large PERFORM Grid Program

26. Risks for PERFORM and Goals Complexity Industry Acceptance Plug & Play EMS Challenge Regulation, Markets

27. Players / Who Cares? PERFORM Grid Program

28. Quotes from the Workshop • Our risk assessment methodology needs to be: transparent, verifiable, and agreeable • We (industry) need to be able to speak about risk in the grid with the same ease and understanding as the finance community. • Risk on the grid is a problem when it is ignored, but can be an opportunity if it is understood. • We all need a common language, a common set of metrics for risk • The risk holders need the proper incentives for this to work • We need pilots quickly: • The faster we move from theory to application, the better. • It needs to be incrementally applicable, the end-users need to be able to immediately use and evolve our risk methodologies

29. PERFORM Areas • Targeted pilot locations • Data / validation • Asset and system modeling • Grid software POWER SYSTEMS INDUSTRY • Asset risk assessment • Risk metric • Uncertainty quantification and valuation • System risk assessment • Optimization under uncertainty FINANCE/ ACTUARIAL SCIENCE OPERATIONS RESEARCH PERFORM Grid Program

30. Envisioned Targets • Quantify Asset Risk: • Quantify asset delivery risk (i.e., likelihood the asset delivers on its obligations), at standard look-ahead time stages (e.g., day-ahead, hour-ahead) in a transparent and verifiable manner • Develop methods for tracking asset performance that can be supported by existing data streams • Identify new necessary data streams and collection methodologies for risk assessment • Develop and validate asset risk metrics and asset performance metrics • Define procedures for updating asset risk metrics and asset performance metrics • Design tools for tracking asset performance and delivery risk both spatially and temporally • Evaluate and Hedge System Risk Position: • Design modern grid management systems centered on risk analysis that acknowledge the stochastic nature of intermittent assets, asset interdependence (i.e.., correlation), and the collective system risk while balancing complexity relative to the decision making stage • Capture the marginal cost and marginal risk that assets impose on the system • Quantify the true operational system risk given asset mix and corresponding risk metrics • Demonstrate reliability of operational decisions produced by grid management tools (at least maintain current quality of service) • Design dynamic reliability and flexibility product requirements relative to system risk position • Develop and validatesystem-level risk metrics and performance metrics

31. Envisioned Targets • Leverage Flexibility from All Assets: • Develop asset and system risk and performance metrics that account for and include asset flexibility and dependability • Demonstrate the benefits of providing grid reliability and flexibility services from all assets • Design grid management systems that acknowledge asset risk and clear offers for energy and grid services based on system risk position and relative risk associated with asset offers • Performance Driven Asset Valuation: • Design grid management systems that acknowledge and utilize storage as the ultimate risk-mitigating asset to extract its true value • Develop new grid products (financial and physical) that mitigate system risk to ensure grid reliability while opening new revenue streams for emerging technologies • Replace the existing reliance on operator intuition and rule-of-thumb approaches with holistic approaches that quantify and optimally manage risk while reducing overall costs such that high performance assets are appropriately compensated and risky assets are financially responsible for the risk they impose on the grid

32. ARPA-E Framing Questions Approach:Transformational and disruptive risk-driven grid management and operational paradigm that acknowledges asset flexibility and dependability Problem: Antiquated management systems designed for conventional assets not capable of leveraging modern assets; core challenge is the variability and uncertainty Mission: Utilizeallgrid assets for reliability, understand and leverage asset flexibility, and assess system and asset risks ARPA Hard: New dimension of marginal risk requires innovative approaches, overhaul of management systems, market redesign, and unprecedented transition of operations by ISOs and utilities. What’s New: Risk metrics for grid assets which reflect flexibility and dependability; grid management systems that account for asset risk, system risk, correlation to develop robust operations and planning solutions Impact: Transparent, verifiable risk assessment methodology that breaks the reliance on conventional generators to pave the way to a 100% clean sustainable electric power grid Communities: ISOs, Utilities, Generation Asset Owners, DER Aggregators, Power Systems Engineers, Operations Researchers, Financial/Actuarial Scientists Goals: 100% of grid products and services from renewables, storage, and DERs, 10% cost reductions, 75% reduction in operator discretionary changes PERFORM Grid Program

33. Impact PERFORM Grid Program

34. EIA Electricity Generation Prediction PERFORM Grid Program

35. Electricity Production in Quads (EIA) • 2018: 13.65 Quads Overall • 2018: 2.3 Quads Renewables (17%) • 2050: 18 Quads Overall • 2050: 5.7 Quads Renewables (32%) • Growth of 3.4 Quads in Renewables PERFORM Grid Program

36. California: 2015-2019 Monthly Wind and Solar Curtailment $10M in curtailment May 2019 … and growing 250,000 homes could have been powered by clean curtailed energy Last Year: 3m Quads of Curtailment PERFORM Grid Program

37. California: April 9, 2019Net Imports: Providing Most of the Flexibility MW Production Over 24-Hours CA Renewable Production Imports to CA PERFORM Grid Program

38. California: April 9, 2019Net Demand: Demand – Renewables PERFORM Grid Program

39. Appendix PERFORM Grid Program

40. PERFORM Overview Thrust 2 • System Risk Assessment: • Risk-based Energy Management System (REMS) to balance collective risk across the grid Thrust 1 • Asset Risk Assessment: • A standardized, transparent risk score to gauge each asset’s relative performance • Tech to Market: • Pilot testing with utilities or ISOs willing to collect data and evaluate proposed software solutions to verify innovative program pursuits PERFORM Grid Program

41. Risk Assessment Layer: Thrust 1: Risk Rating Assessment Tool Develop metric for grid resources Transparency is key! Incentive compatible! Right innovative tech breaks dependency on conventional units Other industries have metrics for comparing quality of service: Yelp Reviews, Insurance Evals, Credit Scores… Nothing for grid resources! New paradigm Today • Thrust 1 areas targeted: • Data analytics • Stochastic modeling • Statistics • Actuarial science • Teams funded under Thrust 1 will define and produce risk/credit scores for resources which clearly indicate the quality of service the resource can provide. PERFORM Grid Program

42. PERFORM: Asset Risk Score (Thrust 1) • Model Features: • Asset Type • Equipment Info • Offered Services • Recent History/Forecasts • Past Delivery and Commitments • Capacity • Geographic • … Model Probability over time horizon that resource delivers within of forecast Preprocessing, Feature Selection and Model Fit Probability densities Control Action Procure energy and ancillary services Historical data Technical Challenges • High dimensional, time dependent models/inference • Mixed regression/classification PERFORM Grid Program

43. Analogy: Credit Scores • Model Features: • Loan Purpose • Loan Duration • Previous Credit Payment • Age • Salary • Education • Account Balances • # Years in Job • … Model (Logistic Regression, LDA, SVM, etc.) Parameters Features Preprocessing, Feature Selection and Model Fit Make decision (or not) to lend to maximize: p(default)>0.5 Control Action p(default)<0.5 PERFORM Grid Program

44. Operational Layer: Thrust 2: Risk-Based Energy Management Systems • Deterministic • Conventional resources providing ancillary services • Recognize performance • Risk management • Diversification • All resources (DER, renewables) providing ancillary services Today New paradigm • Thrust 2 areas targeted: • Power systems engineering • Optimization • Controls • Stochastic modeling • Teams funded under Thrust 2 will design and develop new Energy Management System software that accounts for resource performance and system risk. PERFORM Grid Program

45. PERFORM:EMS/MMS to Risk-based EMS/MMS (Thrust 2) • Max Market Surplus / Min Total Cost • Subject to: • Physical system constraints • Resource constraints • Engineered limits/protocols • Exogenous product / service requirements to satisfy N-1 • Max Risk-Driven Market Surplus/ Min Risk-Driven Total Cost • Subject to: • Physical system constraints • Resource constraints • Engineered limits/protocols • Endogenous product / service procurement to balance system risk Stochastic Short-term assessment of resource default risk and offered products / services Deterministic Assumes resource delivers as promised PERFORM Grid Program

46. Appendix: Inclusion of Risk PERFORM Grid Program

47. Incorporating Risk Into Investments Improved Frontier Thrust 1: Resource Risk Assessment Tech To Market: (Feedback Mechanism) Thrust 2: System Risk Assessment Current Evaluation: Risk not Quantified Efficient Frontier Value – Cost Ratio 1.0 Compliment with New Tech (Storage) 0.9 Chosen Portfolio Improve Forecasts Deploy more often as base-load 0.8 Chosen Portfolio 0.7 Onshore Wind Assets Advance Technology PV-Solar Assets 0.6 Combined Cycle Assets Nuclear Assets 0.5 Risk Value-Cost Ratio is used as a proxy for “Return” and is defined by the EIA as the ratio of Levelized Avoided Cost of Electricity (LACE) to Levelized Cost of Electricity (LCOE). Sample values derived from: https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf

48. Incorporating Risk into Operations % Renewable Penetration 4 3 2 1 8 9 0 7 1 3 4 2 6 5 Change Operations: Allow renewables to make firm / non-firm / ancillary offers supported by well-founded risk analysis Existing Rule: Treat as must-take energy or curtail Value – Cost Ratio Convert to Ancillary Backup during daytime hours 1.0 Risk Balanced Operations 0.9 Starting Portfolio With 15% Renewables 0.8 Reduce need for conventional asset backup 0.7 Onshore Wind Assets Constrained Operations PV-Solar Assets 0.6 Combined Cycle Assets Begin shuttering older plants Nuclear Assets 0.5 Risk Value-Cost Ratio is used as a proxy for “Return” and is defined by the EIA as the ratio of Levelized Avoided Cost of Electricity (LACE) to Levelized Cost of Electricity (LCOE). Sample values derived from: https://www.eia.gov/outlooks/aeo/pdf/electricity_generation.pdf

49. Traditional Reliability with Conventional Assets Traditional Risk Management with Conventional Assets P[DMW] P[DMW] P[DMW] P[DMW] Renew A Plant B Plant A Plant C Plant D Variable Generation on a Small Asset “All or Nothing” Chance of failure at each asset P[DMW] DMW DMW DMW DMW DMW Conventional assets can secure system with N-1 policy Not part of security policy Manage with Regulation System Risk Renewables are a small component of system. Other generators can handle the loss of any one asset P[MW Deviation] Manage with Contingent Reserves Chance of Cascading Failure and Blackout Avoid Failure MW Deviation (Offers – Deliveries) PERFORM Grid Program

50. Traditional Reliability with Increasing Renewables Traditional Risk Management with Conventional Assets and Intermittent Renewables Renew A Renew B Renew C P[DMW] P[DMW] P[DMW] P[DMW] P[DMW] P[DMW] P[DMW] Renew A Plant D Plant A Plant C Plant B Variable Generation on a Small Asset DMW DMW DMW “All or Nothing” Chance of failure at each asset P[DMW] Renew D Renew E Renew F P[DMW] P[DMW] P[DMW] DMW DMW DMW DMW DMW DMW DMW DMW Fewer conventional assets to secure N-1 Renewables use must-take or curtail policy Manage with Regulation System Risk Renewables are a small component of system. Other generators can handle the loss of any one asset Probability Manage with Contingent Reserves Chance of Cascading Failure and Blackout Forced Curtailment Avoid Failure MW Deviation (Offers – Deliveries) PERFORM Grid Program