1 / 36

The Financial Model

The Financial Model. An Introduction to Locational Based Marginal Pricing Concepts Dean Chapman New York Independent System Operator. Financial Model. Addresses operation of power system through financial incentives/disincentives Elements of Financial Model:

medwin
Download Presentation

The Financial Model

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. The Financial Model An Introduction to Locational Based Marginal Pricing Concepts Dean Chapman New York Independent System Operator

  2. Financial Model • Addresses operation of power system through financial incentives/disincentives • Elements of Financial Model: • Congestion Management accomplished by Redispatch with locational pricing • Transmission Service is implied, not specifically reserved or purchased • Congestion charges may apply • Financial hedging instruments available • Balancing Market integral part of model • Two settlement market typically employed • Day-ahead by hour and real-time spot market

  3. Locational Pricing is Key to understanding Financial Model • We will discuss: • Security-constrained dispatch with locational pricing • Spot market and bilateral transactions • Imports, exports and wheels • Losses • Use NY as example • Pure financial model, automated • Development was driven by early IPP development in NY, NYPP experience

  4. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  5. Start with simple example • Assume isolated control area with west and east region • Assume single transmission path between west & east • East load is typically higher than west

  6. Simple Example(No congestion) Interface Limit = 400 200 Gen2=600 Load2=800 Gen1=400 Load1=200 West East 30 LBMP =30 LBMP =30 30 400 600

  7. RTO Balance Sheet(unconstrained – pure spot Mkt) Income W. Load 200x$30 = $6,000 E Load 800x$30 = $24,000 total = $30,000 Payout W. Gen. 400x$30 = $12,000 E. Gen 600x$30 = $18,000 total = $30,000

  8. Transmission Congestion Interface Limit = 400100 200100 Gen2=600 700 Load2=800 Gen1=400 300 Load1=200 West East 40 LBMP =20 LBMP =40 20 300 700

  9. RTO Balance Sheet(constrained – pure spot Mkt) Income W. Load 200x$20 = $4,000 E Load 800x$40 = $32,000 total = $36,000 Payout W. Gen. 300x$20 = $6,000 E. Gen 700x$40 = $28,000 TCC Pmt @ (40-20) 100x$20 = $2,000 total = $36,000

  10. Locational Pricing • Generators selling into market get paid LBMP • Load buys from market, pays LBMP • Generation more valuable in east ($40 vs $20) • It can serve heavy load without contributing to congestion • Incentive is to build generation in east (or build more transmission) • Load in east is “dis-incented” • Curves are bid by generators • Will be paid LBMP as long as bid is lower or equal to LBMP • Can bid any price but will not be dispatched if bid>lbmp

  11. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  12. Internal Bilateral Transaction • Suppose Generator in west wants to sell 50 MW to load in east • Parties agree on sale price in private (say $30) • Generator may or may not change bid curve • No reason to do so • If not, Dispatch does not change!

  13. Bilateral Transactionfor 50 MW from west to eastwith Congestion Interface Limit =400100 200 100 Gen2=600 Load2=750+50 700 Gen1=350250+50 Load1=200 West East LBMP =20 LBMP =40

  14. Internal Bilateral Transactionwith congestion • Difference between pure spot market and bilateral transaction is ONLY in the way it is billed! Two ways to accomplish Transaction • Contract for Differences – ISO not involved • Generator sells 50 at his bus for $20/MW. • Load buys 50 at his bus for $40/MW. • Generator makes up difference by paying load $10/MW. • Gen nets $10 (does it cover his cost?) • Register with ISO – • Generator withdraws 50 from spot mkt. Sale • Load does not pay ISO for 50 • Load pays gen. $30/MW. • Tx customer pays ISO difference in LBMPs ($20/MW) as congestion charge. • Net to gen. is $10 (same result)

  15. Hedging against Congestion Charges • Suppose generator owns 50 MW of TCCs (Transm. Congestion Contract or FTR) on this interface • For every hour there is congestion, he gets paid 50 x difference in LBMPs • In this example, payment would exactly cancel $20 cong. charge he would have paid • He buys TCC on auction or in secondary market • Must judge purchase price against hourly exposure to congestion • (More about TCCs later)

  16. RTO Balance Sheet(constrained – Internal Transaction) Income W. Load 200x$20 = $4,000 E Load 750x$40 = $30,000 Cong. Chg 50x$20 = $1000 total = $35,000 Payout W. Gen. 250x$20 = $5,000 E. Gen 700x$40 = $28,000 TCC Pmt @ (40-20) 100x$20 = $2,000 total = $35,000

  17. Gen. Balance Sheet(constrained – Internal Transaction) Income Sale 50 x $30 = $1,500 TCC Income 50x$20= $1,000 total = $2,500 Less payout = $2,139 Net = $361 Payout Cost of gen 50x$20= $1,000 Cong chg 50x$20 = $1,000 TCC Purch1 = $ 139 total = $2,139 1Assume TCC cost $100,000 for 50 MW for 30 days, 24 hr/day Per hour cost = $100,000/ (30*24)= $139

  18. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  19. External Transactions • External entity can bid generation into market, buy energy from market • Delivers to or takes delivery from pseudo-bus at border • Also possible to wheel energy through market • Next example shows 150 MW west-to-east wheel

  20. Wheel with Transmission Congestion Interface Limit = 400100 150 200100 150 Gen2=600 700 Load2=800 Gen1=400 300 Load1=200 850 150 West East 45 LBMP =20 LBMP =40 15 45 15 150 850

  21. Wheel with Congestion • Note that interface flow does not change • Wheel is for greater than interface limit! • ATC would have been zero before scheduling this transaction! • Congestion charge is now $45-$15=$30 ! • Financial congestion increases • Additional wheels can be accepted until west generation down to minimum or east generation hits max (or price becomes prohibitive!!!)

  22. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  23. Financial Transmission Rights • Total Capacity on this interface is 100 MW • In old world, reservations only available for 100 MW • In financial system, set of awarded TCCs must form feasible case observing all limits, therefore only 100 MW of TCCs available also! • TCC owner does NOT have to schedule transactions to get paid • Transmission customer does NOT have to own TCCs to use transmission • Scheduling of energy does not have to consider who owns what transmission rights. All have equal access but may be exposed to congestion charges

  24. Observations • All internal transactions are automatically accepted, never curtailed • Redispatch to control congestion • Externals accepted up to physical limit of redispatch • Rules allow bilateral transactions to be ignored when dispatching system • Generator does not have to actually generate – can buy at local LBMP • Load can use less, sell excess into market • Congestion Management (i.e. re-dispatch) and Bilateral Market are effectively decoupled!

  25. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  26. Losses • ISO dispatches to total load + losses • Pays generators, collects from loads but generation exceeds load by amt of losses • Cost of losses built into LBMP • LBMP adjusted by loss factor • Adjustment equal to difference between Incremental cost of supplying 1 MW to reference bus at that bus and delivering it to the reference bus from the actual generator bus

  27. Adjustment in LBMPfor Losses 200+1+ 200-1- Ref Bus (1 MW) Gen2=600+1- Load2=800 Gen1=400+1+ Load1=200 West East LBMP =30-D1 LBMP =30+D2

  28. Losses (cont.) • Delivering 1 MW from west increases system losses and therefore detracts from price • Deliver from east reduces system losses and is therefore more valuable, price higher • West to east transmission charge is ($30+D2) – (30-D1) = D1 + D2 • East-west transaction gets PAID D1 + D2 because it is counterflow • Charging at marginal rate results in over-collection which is paid back

  29. Outline • Locational Pricing Example w/wo Congestion • Internal Bilateral Transaction • External Wheel Example • Financial Transmission Rights (TCC) • Losses • Actual Example

  30. Example of R/T LBMP in NY • Security-constrained dispatch runs every 5 min (actually dispatches generators!) • Incremental loss component calculated in real time • Predominant flow from west to east, north to south • Unit that is ramp-limited cannot determine LBMP • Spikes as LBMP shifts to next highest-priced unit

  31. Example from March 2000 C/E i/f L.I. Cable NYC Load Pickup L.I. Cable Congestion Central/East Congestion Diff. Due to Losses

  32. Two Settlement MarketDay-Ahead • Generators bid into day-ahead market (DAM) • Loads do forecast, bid percentage of load into DAM • Security-Constrained Unit Commitment commits generation, determines hourly prices, locks Gen & Load into forward contracts • This includes bilaterals and externals as well • SCUC optimizes for energy, reserves, and regulation, all of which are bid in • About 90-95% of market is conducted in day-ahead, half of that is bilateral

  33. Two Settlement MarketReal-Time • Balancing Market takes place in real time using bids left over from DAM plus new hourly bids • R-T market more volatile because of operational events, inaccurate forecasts, and natural fluctuations in load • Net Real-time energy to be billed is total MW less amount contracted in DAM less amount due to bilaterals. • Can be + or – for generator or load

  34. Summary • Locational price varies to account for effect of congestion and losses • Priced to encourage movement toward reduction of congestion and/or losses • Transmission charge for bilaterals difference between loc. Prices at sink, source • Comprised of congestion, losses components • Can be + or – • Congestion cost can be hedged up to limit of interface • Transactions can be scheduled “independent” of congested interfaces

  35. Summary (cont.) • For Internal Transactions: • No Transmission Reservations needed • No Tags Needed • No TLR so do not need info on source & sink to do schedule or to operate • No ATC postings needed

  36. Questions???

More Related