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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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slide1

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

outline
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?

slide4

I. Fundamental Goals of Market Design

  • Min cost / max net economic benefits
  • Min emissions & other environmental impacts
slide5
K

Proxy Goals

  • ?
    • “a
  • S
  • Maximizing proxies not same as maximizing fundamental efficiency & environmental objectives

Source: Kay, 2011

slide6

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

outline1
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?

slide8

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

slide9

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)
slide11

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
what might happen to prices california caiso 20 penetration study 2010
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

what might happen to prices nyiso 2010 nyiso growing wind integration study
What Might Happen to Prices? NYISO2010 NYISO “Growing Wind” integration study

Price Duration Curve for 1275 and 8000 MW Wind Capacity

(Superzones A-E)

why revenues diverge among gen types
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!

outline2
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?

slide16

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

slide17

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

slide18

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

outline3
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?

iv caiso needs it but are they getting it
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?
why doesn t the caiso get its needed capacity
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”

fixes
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

new york monthly capacity market
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

slide24

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”

slide25

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

conclusions
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
questions

Questions?

bhobbs@jhu.edu

E2SHI, The Johns Hopkins University