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Southwest Power Pool Energy Optimization Discussion

Review the optimization process for Type 1A energy within the Southwest Power Pool, focusing on cost-effective solutions and GHG zone considerations. Explore scenarios and cost comparisons to understand the impact of Type 1A dispatch on overall system efficiency.

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Southwest Power Pool Energy Optimization Discussion

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  1. TYPE 1A ENERGY TYPE 1A ENERGY NOVEMBER 29TH, 2023 DREW MCGILVRAY Working together to responsibly and economically keep the lights on today and in the future. SPPorg southwest-power-pool 1 SouthwestPowerPool

  2. OBJECTIVE: DISCUSSION ON TYPE 1A ENERGY • Review of how the optimization treats Type 1A • Simple optimization • Objective function seeks the lowest cost solution • 100 run Type 1A/1B Analysis • Discuss eligibility criteria for • Type 1A Energy: Pre-arranged contract to serve the GHG zone load • Potential modifications to Type 1A 2

  3. GHG PRICING ZONE PARTICIPATION MODEL • The Markets+ participation model allows for the inclusion of prearranged Specified Source Imports • Gives participants the ability to continue to meet contractual obligations, if dispatched, to serve load in a GHG Zone. Energy Type Participation Attributed to GHG Zone? Always if dispatched Always if dispatched If assigned GHG Internal Internal Specified Type 1A Prearranged Specified Type 1B Prearranged Specified Type 2 Surplus If assigned Unspecified N/A If assigned 3

  4. LEAST COST OPTIMIZATION Any Markets+ resources is available to serve the Markets+ load • Dispatch and GHG Attribution cost considered in the economical optimization assessment • Attribution of MWs to meet the GHG load requirement Type 1A is treated the same as a resource internal to the GHG zone • Because any Type 1A MW dispatched is attributed to the GHG zone, its GHG cost is considered in the dispatch • Type 1A is not precluded from meeting Markets+ load 4

  5. LEAST COST OPTIMIZATION SIMPLE EXAMPLE TO EXPLAIN OPTIMIZATION COSTS 5

  6. SCENARIO 1 WITH TYPE 1A ID Max MW Surplus MW $/MWh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $10.00 $17.00 Optimization cost with attribution to GHG zone G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $11.00 $10.00 $10.00 $17.00 $5.00 $5.00 $1.00 $8.00 $16.00 $15.00 $11.00 $25.00 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 6

  7. SCENARIO 1 WITH TYPE 1A DISPATCH ID Max MW Surplus MW $/MWh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $10.00 $17.00 Optimization cost with attribution to GHG zone $16.00 $15.00 $11.00 $25.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $11.00 $10.00 $10.00 $17.00 $5.00 $5.00 $1.00 $8.00 25 100 100 0 25 100 0 0 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 7

  8. SIMPLE SCENARIO 1 DISPATCH EXPLANATION The optimization seeks a solution with the lowest operating cost (most economical solution) for serving both GHG and non-GHG load In this example, the offer + GHG cost to serve the GHG zone is less for the G10 (Type 2), but the G2 (Type 1A) was still attributed to the GHG zone Why? The reason for the outcome has to do with the lowest cost objective function of the optimization • In this example, allowing any of the G10 (Type 2) MWs to serve the GHG zone will increase overall costs in the optimization 8

  9. SIMPLE SCENARIO 1 COST COMPARISON • Cost of economical optimization • Cost if 1 MW of Type 2 served the GHG Zone Dispatch MW 25 100 100 Dispatch x Cost $400.00 $1,500.00 $1,000.00 $2,900.00 Dispatch MW 25 100 Dispatch x Cost $400.00 $1,500.00 ID Cost $16.00 $15.00 $10.00 ID Cost $16.00 $15.00 G1 (Internal) G2 (Type 1A) G10 (Type 2) G1 (Internal) G2 (Type 1A) G10 (Type 2) Non-GHG G10 (Type 2) GHG 99 $10.00 $990.00 1 $11.00 $11.00 $2,901.00 9

  10. SCENARIO 1 WITH TYPE 1B DISPATCH ID Max MW Surplus MW $/MWh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $10.00 $17.00 Optimization cost with attribution to GHG zone $16.00 $15.00 $11.00 $25.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1B) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $11.00 $10.00 $10.00 $17.00 $5.00 $5.00 $1.00 $8.00 25 100 100 0 25 0 100 0 100 100 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW G10 G1 100 MW G2 G11 Load = 100 MW Load = 125 MW 10

  11. SCENARIO 2 SIMPLE EXAMPLE TO EXPLAIN OPTIMIZATION COSTS 11

  12. SCENARIO 2 WITH TYPE 1A ID Max MW Surplus MW $/MWh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $11.00 $12.00 Optimization cost with attribution to GHG zone G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $10.00 $10.00 $11.00 $12.00 $5.00 $6.00 $1.50 $8.00 $15.00 $16.00 $12.50 $20.00 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 235 MW G10 G1 G2 G11 Load = 110 MW Load = 125 MW 12

  13. SCENARIO 2 DISPATCH WITH TYPE 1A ID Max MW Surplus MW $/M Wh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $11.00 $12.00 Optimization cost with attribution to GHG zone $15.00 $16.00 $12.50 $20.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $10.00 $10.00 $11.00 $12.00 $5.00 $6.00 $1.50 $8.00 25 0 100 100 25 0 100 0 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW 100 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 13

  14. SIMPLE SCENARIO 2 DISPATCH EXPLANATION Having a Type 1A designation is not a guaranteed benefit • Resource offer may become uneconomic and priced out of the dispatch In this scenario, the Type 2 offer is more economical than the Type 1A offer when attributed the GHG Zone. Attributing Type 1A MWs to serve the GHG zone will increase overall costs in the optimization • Type 1A energy is dispatched, it is attributed to the GHG Zone. While a market dispatch is not guaranteed (i.e., if there is another more economic resource available), certainty is provided that any market dispatch of the resource will be considered a specified import to the state for purposes of compliance reporting 14

  15. SCENARIO 2 DISPATCH WITH TYPE 1B ID Max MW Surplus MW $/M Wh GHG $/MWh Optimization cost without attribution to GHG zone N/A $10.00 $11.00 $12.00 Optimization cost with attribution to GHG zone $15.00 $16.00 $12.50 $20.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1B) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $10.00 $10.00 $11.00 $12.00 $5.00 $6.00 $1.50 $8.00 25 100 100 0 25 0 100 0 100 100 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW 100 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 15

  16. SCENARIO 3 SIMPLE EXAMPLE TO EXPLAIN OPTIMIZATION COSTS 16

  17. SCENARIO 3 WITH TYPE 1A ID Max MW Surplus MW $/MWh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $11.00 $12.00 Optimization cost with attribution to GHG zone G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $3.00 $4.00 $11.00 $12.00 $5.00 $6.00 $1.00 $8.00 $8.00 $10.00 $12.00 $20.00 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 17

  18. SCENARIO 3 DISPATCH WITH 1A ID Max MW Surplus MW $/M Wh GHG $/MWh Optimization cost without attribution to GHG zone N/A N/A $11.00 $12.00 Optimization cost with attribution to GHG zone $8.00 $10.00 $12.50 $20.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1A) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $3.00 $4.00 $11.00 $12.00 $5.00 $6.00 $1.50 $8.00 100 100 25 0 100 100 0 0 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 18

  19. SIMPLE SCENARIO 3 DISPATCH EXPLANATION The GHG Internal and Type 1A offers are more economical to serve the Markets+ load • G10 (Type 2) and G11 (Type 2) offers were less economical Dispatching G10 or G11 MWs to meet markets+ load will increase overall costs in the optimization 19

  20. SCENARIO 3 DISPATCH WITH 1B ID Max MW Surplus MW $/M Wh GHG $/MWh Optimization cost without attribution to GHG zone N/A $4.00 $11.00 $12.00 Optimization cost with attribution to GHG zone $8.00 $10.00 $12.50 $20.00 Dispatch MW Obligated GHG MW G1 (Internal) G2 (Type 1B) G10 (Type 2) G11 (Type 2) N/A N/A 100 100 100 100 100 100 $3.00 $4.00 $11.00 $12.00 $5.00 $6.00 $1.50 $8.00 100 100 25 0 100 0 25 0 100 25 WA GHG Zone WA Load Requirement: 125 MW System Power Balance: Total generation = 225 MW 25 MW G10 G1 G2 G11 Load = 100 MW Load = 125 MW 20

  21. TYPE 1A 100 RUN SCENARIO ADDITIONAL ANALYSIS 21

  22. MODELING ASSUMPTIONS • 100 Scenarios • Modeling G1 as: • Type 1A • Type 1B • Without G1 GHG Allowance = $65/ton Type 2 WA GHG Zone WA Load Requirement: 277.2MW System Power Balance: Total generation = 990.1 MW G10 Hydro G1 Hydro G11 Type 1A/B Coal Unspecified G12 Gas G2 Gas G13 Gas Load = 712.9 MW Load = 277.2 MW 22

  23. IDENTIFICATION OF THRESHOLD/SURPLUS • Merit Order Calculated Threshold/Surplus on each resource equal to non-GHG zone MP Load • MP1 – 2/3 of non-GHG zone load (475.2 MW) • Met by economically stacking G10 and G11 • MP2 – 1/3 of non-GHG zone load (237.7 MW) • Met by economically stacking G12 and G13 • Identifies the threshold for each resource and remaining supply available for surplus 23

  24. SCENARIO PARAMETERS MW Max Offer Block MW Range Lower Limit 80 30 80 20 380 15 130 20 120 20 120 20 Energy Offer Range ($/MWh) Lower Limit $45.00 $55.00 $30.00 $90.00 $35.00 $85.00 $40.00 $60.00 $40.00 $57.00 $40.00 $57.00 ID GHG ton/MWh Upper Limit 90 40 90 30 400 25 140 30 130 25 130 25 Upper Limit $55.00 $65.00 $45.00 $110.00 $50.00 $110.00 $60.00 $80.00 $55.00 $62.00 $55.00 $70.00 0.1 ($6.5/MWh) 0.1 ($6.5/MWh) 0.41 ($26.65/MWh) 0.41 ($26.65/MWh) 0 ($0/MWh) 0 ($0/MWh) 0.99 ($64.35/MWh) 0.99 ($64.35/MWh) 0.43 ($27.95/MWh) 0.43 ($27.95/MWh) 0.4 ($26/MWh) 0.4 ($26/MWh) Type1A/ 1B 110-130 G1 220-240 Internal G2 395-425 MP1 G10 150-170 MP1 G11 140-155 MP2 G12 140-155 MP2 G13 24

  25. SCENARIO RESULTS • Scenario with Type 1A Optimization Method • Scenario with Type 1B Optimization Method Average GHG Cost Average GHG Cost Average LMP Average LMP GHG Threshold $10.32 $53.98 GHG Threshold $11.09 $53.97 +0.76 -0.01 Enhanced Floating Surplus Enhanced Floating Surplus +0.76 $10.32 $53.98 $11.09 $53.97 -0.01 Floating Surplus $9.62 $54.69 Floating Surplus $10.56 $54.49 +0.95 -0.19 Change in average GHG costs reflects reduced access to supply Change in average GHG costs reflects increased access to supply 25

  26. SCENARIO RESULTS • Scenario with Type 1A Optimization Method • Scenario with Type 1B Optimization Method Average GHG Cost Average GHG Cost Average LMP Average LMP GHG Threshold $10.32 $53.98 GHG Threshold $11.09 $53.97 Enhanced Floating Surplus Enhanced Floating Surplus $10.32 $53.98 $11.09 $53.97 Floating Surplus • Scenario without G1 Optimization Method $9.62 $54.69 Floating Surplus $10.56 $54.49 Average GHG Cost Average LMP Change in average GHG costs and LMP reflects reduced access to supply GHG Threshold $46.90 $54.67 Enhanced Floating Surplus $36.24 $58.87 Floating Surplus $34.30 $58.95 26

  27. BUSINESS DECISION FOR TYPE 1A A mechanism for entities to meet their business requirements and obligations • Allows the market to recognize contracted capacity when there is more than one GHG zone • This is similar to non-GHG zone entities identifying surplus for export to the GHG zone • Is also relevant to future conversations the non-pricing programs Potential for resources to opt out of participation in Markets+ could lead to increased costs for the entire market 27

  28. POTENTIAL MODIFICATIONS TO TYPE 1A DESIGN 28

  29. TYPE 1A “HANDSHAKE” Qualification for 1A eligibility could include a recognition, or “handshake” by the load market participant • Loads that contract with Type 1A resources verify such contracts exist before the resource is eligible to make Type 1A offers Pro • Addresses verification concerns Con • ? 29

  30. TYPE 1A $0 GHG ADDER Type 1A could require a $0 GHG Adder Pro • Maintains attribution to GHG zone • No direct GHG Adder cost if attribution to GHG zone exceeds GHG Load Con • Potential exposure for Type 1A offers that are marginal or mitigated if the resource has GHG costs 30

  31. ARE THERE OTHER PROPOSED MODIFICATIONS TO 1A THAT COULD BE CONSIDERED? Type 1A energy offers must be at or below the resource’s mitigated offer Transitional mechanisms such as a sunset or reassessment date • How would the market recognize contracted capacity when there is more than one GHG zone? Could implement a settlement mechanism to transfer GHG costs back to the load if applicable • Not a GHG design Others? 31

  32. QUESTIONS? 32

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