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The Council’s Regional Portfolio Model. Michael Schilmoeller for the Northwest Power and Conservation Council Generation Resource Advisory Committee Thursday, September 25, 2008. Overview. Planning Principles Selection of Resource Plans Key techniques Model operation.

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The council s regional portfolio model l.jpg

The Council’s Regional Portfolio Model

Michael Schilmoeller

for the

Northwest Power and Conservation Council

Generation Resource Advisory Committee

Thursday, September 25, 2008


Overview l.jpg
Overview

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

  • Model operation

2


Different kind of risk modeling l.jpg
Different Kind of Risk Modeling

  • Imperfect foresight and use of decision criteria for capacity additions

  • Adaptive plans that respond to futures

    • Primarily options to construction power plants or to take other action

    • May include policies for particular resources

  • “Scenario analysis on steroids”

    • 750 futures, strategic uncertainty

    • Frequency that corresponds to likelihood

3

Planning Principles


Sources of uncertainty l.jpg
Sources of Uncertainty

  • Fifth Power Plan

    • Load requirements

    • Gas price

    • Hydrogeneration

    • Electricity price

    • Forced outage rates

    • Aluminum price

    • Carbon allowance cost

    • Production tax credits

    • Renewable Energy Credit (Green tag value)

  • Sixth Power Plan

    • All of those to the left, except, perhaps, aluminum price

    • Power plant construction costs

    • Technology availability

    • Conservation costs

4

Planning Principles


Most elements of the resource plan are options to construct l.jpg

Additions in Megawatts

Beginning of year

2008

2010

2012

2014

2016

2018

2020

CCCT

0.00

0.00

0.00

0.00

0.00

610.00

1,220.00

SCCT

0.00

0.00

0.00

0.00

0.00

100.00

800.00

Coal

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Demand Response

500.00

750.00

1,000.00

1,250.00

1,500.00

1,750.00

2,000.00

Wind_Capacity

0.00

100.00

1,500.00

2,400.00

4,400.00

5,000.00

5,000.00

IGCC

0.00

0.00

425.00

425.00

425.00

425.00

425.00

Conservation cost-

effectiveness premium over

market

10.00

5.00

avg New Conservation

443

746

1071

1416

1774

2020

2198

Most Elements of the Resource Plan Are Options To Construct

5

Planning Principles


Why use a schedule of construction options for a resource plan l.jpg
Why Use a Schedule of Construction Options for a Resource Plan?

  • More realistic!

  • Necessary for capturing construction risk

  • Consistent with earlier Council Plans

6

Planning Principles


Operating costs l.jpg
Operating Costs Plan?

7

Model Overview


Spinner graphs l.jpg
Spinner Graphs Plan?

  • Illustrates “scenario analysis on steroids,” one plan, across all futures

  • Link to Excel Spinner Graph Model

8

Model Overview


Overview9 l.jpg
Overview Plan?

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

  • Model operation

9


Risk and expected cost associated with a plan l.jpg

Avg Cost Plan?

10000

12500

15000

17500

20000

22500

25000

27500

30000

32500

Risk and Expected Cost Associated With A Plan

Risk = average of

costs> 90% threshold

Likelihood (Probability)

Power Cost (NPV 2004 $M)->

10

Selection of Resource Plans


Feasibility space l.jpg
Feasibility Space Plan?

Increasing Risk

Increasing Cost

11

Selection of Resource Plans


Feasibility space12 l.jpg

Space of feasible solutions Plan?

Efficient Frontier

Feasibility Space

Increasing Risk

Increasing Cost

12

Selection of Resource Plans


Slide13 l.jpg

A Plan?

C

B

D

Efficient

Frontier

13

Selection of Resource Plans


Risk importance of multiple perspectives l.jpg
Risk: Importance of Multiple Perspectives Plan?

  • Standard deviation

  • VaR90

  • 90th decile

  • Loss of load probability (LOLP)

  • Resource - load balance

  • Incremental cost variation

  • Average power cost variation (rate impact)

  • Maximum incremental cost increase

  • Exposure to wholesale market prices

  • Imports and exports

14

Selection of Resource Plans


Resource plan selection l.jpg
Resource Plan Selection Plan?

  • Trade-off between economic cost and risk

  • Rate impacts and volatility

  • Exposure to market prices

  • Non-economic costs and risks, including associated carbon emissions

  • Meeting reliability standards

  • Difficulties with changing the resource plan

15

Selection of Resource Plans


How do we interpret and use a schedule of construction options l.jpg
How Do We Interpret and Use a Schedule of Construction Options?

  • As a ceiling for what should be sited and licensed

  • To develop signposts for re-evaluation

Siting and Licensing

Early Construction

Committed Construction

In Service

16

Selection of Resource Plans


Overview17 l.jpg
Overview Options?

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

    • Resource construction flexibility

    • Valuation calculation

    • Thermal resource dispatch

    • Decision criteria

    • Supply curves for conservation and price-responsive hydro

  • Model operation

17


Power resource risks costs and considerations l.jpg
Power Resource Risks Options?Costs and Considerations

  • Commercial Availability Risk

  • Construction Risk

    • Responding fast enough to capture value

    • Sunk siting and permitting costs

    • Construction materials cost

    • Mothball and cancellation costs

  • Operation Risk

    • Fuel, maintenance, and labor costs

  • Retirement Risk

    • Carrying the forward-going fixed cost of an unused plant

    • Undervaluing and retiring a plant that may have value in the future

18

Resource construction flexibility


The construction cycle l.jpg
The Construction Cycle Options?

  • After an initial planning period, there typically large expenditures, such as for turbines or boilers, that mark decision points.

9 months

9 months

18 months

Cash expenditures

19

Resource construction flexibility


Construction optionality l.jpg

Planning Options?

Committed construction

Construction

In service

Delay

Construction Optionality

Capacity

time

20

Resource construction flexibility


New fixed cost capabilities l.jpg
New Fixed Cost Capabilities Options?

21

Resource construction flexibility


New fixed cost capabilities22 l.jpg
New Fixed Cost Capabilities Options?

22

Resource construction flexibility


New fixed cost capabilities23 l.jpg
New Fixed Cost Capabilities Options?

  • We will work our way through a pdf file that illustrates the logicVisio-Logic_v080925.pdf

23

Resource construction flexibility


Overview24 l.jpg
Overview Options?

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

    • Resource construction flexibility

    • Valuation calculation

    • Thermal resource dispatch

    • Decision criteria

    • Supply curves for conservation and price-responsive hydro

  • Model operation

24


Computation l.jpg
Computation Options?

25

Valuation calculation


Traditional costing l.jpg
Traditional Costing Options?

Hourly variable cost calculation:

26

Valuation calculation


Valuation costing l.jpg
“Valuation” Costing Options?

Complications arise when we use extended time periods

price

Loads (solid) & resources (grayed)

27

Valuation calculation


Valuation costing28 l.jpg
“Valuation” Costing Options?

Average loads and resources are the same, but in the first case, our system has net cost and in the second it has net benefit.

28

Valuation calculation


Valuation costing29 l.jpg
“Valuation” Costing Options?

N*(N+1)/2 correlations (upper triangular matrix)

29

Valuation calculation


Valuation costing30 l.jpg
“Valuation” Costing Options?

30

Valuation calculation


Valuation costing31 l.jpg
“Valuation” Costing Options?

Only correlations are now those with the market

31

Valuation calculation


Overview32 l.jpg
Overview Options?

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

    • Resource construction flexibility

    • Valuation calculation

    • Thermal resource dispatch

    • Decision criteria

    • Supply curves for conservation and price-responsive hydro

  • Model operation

32


Dispatchable resources l.jpg
Dispatchable Resources Options?

33

Thermal resource dispatch


Gross value of resources l.jpg
Gross Value of Resources Options?

34

Thermal resource dispatch


Gross value of resources35 l.jpg
Gross Value of Resources Options?

35

Thermal resource dispatch


Gross value of resources using statistical parameters of distributions l.jpg
Gross Value of Resources Using Statistical Parameters of Distributions

Assumes prices are lognormally distributed

36

Thermal resource dispatch


Estimating energy generation l.jpg
Estimating Energy Generation Distributions

37

Thermal resource dispatch


Estimating energy generation38 l.jpg
Estimating Energy Generation Distributions

38

Thermal resource dispatch


Estimating energy generation39 l.jpg
Estimating Energy Generation Distributions

Applied to equation (4), this gives us a closed-form evaluation of the capacity factor and energy.

39

Thermal resource dispatch


Overview40 l.jpg
Overview Distributions

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

    • Resource construction flexibility

    • Valuation calculation

    • Thermal resource dispatch

    • Decision criteria

    • Supply curves for conservation and price-responsive hydro

  • Model operation

40


Example of decision criterion for construction ccct and scct l.jpg
Example of Distributions Decision Criterion for Construction: CCCT and SCCT

  • Projected economic value, from the construction, fixed, and variable costs and values from simulated forward curves:

    • the electricity forward price is an average of flat electricity prices over the preceding 18-months

    • the natural gas forward price is also such an 18-month average

  • Project the energy adequacy at the end of the construction cycle. If the system would otherwise be inadequate, build this unit if it is the least cost among the options available.

41

Decision criteria


Logic flow for decisions l.jpg
Logic Flow for Decisions Distributions

Stop

Does the resource pay for itself?

Go

yes

Is the resource least cost of alternatives?

Is forecast requirement on or before the earliest on-line date?

no

yes

no

42

Decision criteria


Decision criteria for construction l.jpg

+ Distributions

On

On

-

-

Line!

Line!

criterion

criterion

construction phase

-

optional cancellation period

time

time

evaluation phase

Decision Criteria For Construction

43

Decision criteria


Example of decision criterion for retirement l.jpg
Example of Distributions DecisionCriterion for Retirement

  • Forecast the value of the unit using the forward-going fixed cost only (fixed fuel transportation and salaries)

  • Mothball (de-staff, sell fixed fuel contracts) after pre-specified number of periods

  • Permanently decommission (convert the site to other purposes) if the plant remains in mothball status for some period

44

Decision criteria


Overview45 l.jpg
Overview Distributions

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

    • Resource construction flexibility

    • Valuation calculation

    • Thermal resource dispatch

    • Decision criteria

    • Supply curves for conservation and price-responsive hydro

  • Model operation

45


Supply curves l.jpg
Supply Curves Distributions

46

Supply curves


Supply curves47 l.jpg
Supply Curves Distributions

47

Supply curves


Conservation supply curve l.jpg

δ Distributions

Conservation Supply Curve

48

Supply curves


Components of cost reduction l.jpg
Components of Cost Reduction Distributions

Additional conservation at $50/MWh

SCCT deferral

Reduced market prices

Total System Costs

49

Supply curves


Price takers still see benefits l.jpg
Price-takers Still See Benefits Distributions

Additional conservation at $50/MWh

SCCT deferral

Total System Costs

50

Supply curves


Scct deferral l.jpg
SCCT Deferral Distributions

  • Why does conservation defer single cycle combustion turbines?

    • Low-capital cost resources are the traditional solution for risk management

    • SCCT have low capital cost

    • Conservation has high capital cost

  • Under what conditions does conservation hold an advantage over SCCTs?

51

Supply curves


Scct deferral52 l.jpg
SCCT Deferral Distributions

52

Supply curves


Price responsive hydro l.jpg
Price Responsive DistributionsHydro

53

Supply curves


Price responsive hydro gross value l.jpg
Price Responsive Hydro: DistributionsGross Value

54

Supply curves


Price responsive hydro net value or cost l.jpg
Price Responsive Hydro: DistributionsNet Value or Cost

At right, value associated with use of hydro to meet higher market price.

At left, value to return hydro using purchased market power at lower price.

55

Supply curves


Supply curves56 l.jpg
Supply Curves Distributions

Supply curve representations also include constraints on utilization rate and on upper and lower prices.

56

Supply curves


Conventional hydro l.jpg
Conventional Distributions Hydro

  • User-defined lookup function, with a random draw from 50 hydro years each simulation year

  • Derived from Genesys BPAREGU.OUT file and 2000 Bi-Op and includes independents and the three non-PNCA Idaho hydro units

  • Estimates of east-side and west-side generation by month, by hydro condition

  • Estimates of on- and off-peak generation (6x16 definition)

57

Not! Supply curves


Overview58 l.jpg
Overview Distributions

  • Planning Principles

  • Selection of Resource Plans

  • Key techniques

  • Model operation

    • Equilibrium search

    • Order of calculations

58


Energy balance l.jpg
Energy Balance Distributions

  • First Law of Thermodynamics: In a closed system, energy may not be created or destroyed.

  • generation = loads – imports (+exports)

  • We assure balance by controlling generation through electricity price. The model finds a suitable price by iteration.

59

Model operation


Equilibrium search l.jpg
Equilibrium search Distributions

60

Model operation


Computation61 l.jpg
Computation Distributions

61

Model operation


Slide62 l.jpg
End Distributions

62


Predictors l.jpg
Predictors Distributions

  • Demand Response and Wind: identical logic for fixed and variable costs for the unit, except

    • the size of the plant is 1MW,

    • the electricity price is an period average of flat electricity prices

63

Decision criteria


Predictors64 l.jpg
Predictors Distributions

  • Coal: identical logic for fixed and variable costs for the unit, except

    • the size of the plant is 1MW,

    • the electricity price is an period average of flat electricity prices

    • There was no variation or uncertainty in coal prices

64

Decision criteria


Predictors65 l.jpg
Predictors Distributions

  • Conservation

    • Discretionary

      • Annual, energy-weighted average of year before last’s flat electricity price (lagged for budgeting)

      • Optional premium over market

    • Lost Opportunity

      • Energy-weighted average of last five year’s electricity prices

      • Ratchets upward to reflect represents such things as market transformation and the implementation of codes and standards

      • Optional premium over market

65

Decision criteria