Market Renewal Program: Day Ahead Market (DAM) - Stakeholder Engagement Session 5 March 27, 2018 - Ieso
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Market Renewal Program: Day Ahead Market (DAM) Stakeholder Engagement Session 5 March 27, 2018
DISCLAIMER
This presentation and the information contained herein is provided for
information and discussion purposes only. This presentation does not
constitute, nor should it be construed to constitute, legal advice or a
guarantee, representation or warranty on behalf of the IESO. In the
event of any conflict or inconsistency between the information
contained in this presentation and the Market Rules, the Market
Manuals, any IESO contract or any applicable legislation or regulation,
the provisions of the Market Rules, Market Manuals, contract,
legislation or regulation, as applicable, govern.
2
Preliminary Decisions
• Stakeholders have asked the IESO to bring forward preliminary decisions
where possible.
• These materials identify preliminary decisions and offer supporting
rationale.
• The IESO has made preliminary decisions where there is a single option or
lack of viable alternative options, where there is substantial consensus by
the IESO and stakeholders as to a preferred option, or where internal
analysis has led the IESO to propose a specific solution.
• Stakeholders are requested to use meeting time to discuss any comments,
questions or concerns related to these preliminary decisions, and are also
invited to provide written feedback.
• Preliminary decisions are non-binding, are intended to facilitate progress
on design elements, and are subject to final decision-making at the High
Level Design Phase.
3Acronyms
DACP Day Ahead Commitment Process
DAM Day-Ahead Market
ELR Energy Limited Resources
ERUC Enhanced Real-time Unit Commitment
FTR Financial Transmission Rights
HDR Hourly Demand Response
LMP Locational Marginal Price
MGBRT Minimum Generation Block Run-Time
MLP Minimum Loading Point
NDL Non Dispatchable Load
NQS Non-Quick Start
PRL Price Responsive Load
RUC Reliability Unit Commitment
SSM Single Schedule Market
VG Variable Generation
4Today’s Agenda
1. DAM project plan update for high level design
– Where we are, what has been done and what is next
2. Design elements for today’s discussion
– Recap preliminary decisions from Jan 31 meeting
– Review Stakeholder Feedback
– Present preliminary decisions for new primary and
secondary level decisions
3. Next Steps
– Stakeholder feedback
– Topics for the May 23 meeting
5Phases of High Level Design - Reminder
• SE Meetings will be the primary vehicle
for design discussions
• In Phase 1 we will identify design
elements, provide education, and define
scope
• In Phase 2 we will explore options for
the design elements, provide analysis, as
appropriate and develop preliminary
decisions
• In Phase 3 we will finalize decisions for all
design elements and complete the HLD
document
• Throughout this process we are looking
for stakeholders to actively and
collaboratively work with us on the
design
6DAM Project Timeline for High Level Design
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019
Stakeholder Engagement
Phase 1 Phase 2 Phase 3
1 2 3 4 5 6 7 8 9 10 11
Introduction &
Fundamentals Options, Analysis & Preliminary Decisions HLD
Market Renewal Working Group
Strategic Issues and Design Decisions
7Design Elements for Discussion
Design Modules Design Elements Preliminary Decisions
Primary Secondary
A Participation and 1 Reference Quantity (formerly must-offer Revised from Jan 31 Today
Input Data Requirements)
2 Load Participation Completed Jan 31 Today
3 Supply Participation: Variable Generation Completed Jan 31 May 23 Meeting
4 Reliability Input Parameters Completed Jan 31 N/A
5 Virtual Transactions (update only) Completed Jan 31 July 19 Meeting
B Execution, Timing 6 Functional Passes Completed Jan 31 Today
and Real-Time
7 Optimization of ELRs (update only) Completed Jan 31 May 23 Meeting
Integration
8 Submission and Posting Deadlines Completed Jan 31 N/A
9 Initiation of Operational Commitments Completed Jan 31 N/A
10 Market Power Mitigation Completed Jan 31 Today
11 Price Setting Eligibility Completed Jan 31 N/A
12 Reporting Obligations July 19 Meeting N/A
C Settlements 13 Two Settlement for Load Completed Jan 31 Today
14 Two Settlement for Supply Completed Jan 31 N/A
15 Make Whole Payments Today N/A
16 Uplift Recovery Today N/A
17 Financial Transmission Rights Completed Jan 31 N/A
18 Market System Failure July 19 Meeting July 19 Meeting
8Meeting Objectives and Outcomes
• Provide rationale for each of the preliminary decisions presented today:
– Reference quantity (formerly must-offer) obligations
– Price responsive load eligibility
– Objectives and inputs of the functional passes for the DAM engine
– Modified two settlement for non-dispatchable load participants
– Eligibility for make whole payments
– Uplift components and allocation
• Articulate key concepts for virtual transactions
• Present workplan with stakeholders on the optimization of energy limited
resources in the DAM
• Communicate expectations for stakeholder feedback and propose design
element discussions for the May meeting
9DESIGN ELEMENT
DISCUSSIONS
10REFERENCE QUANTITY (formerly must-offer)
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
Reference Functional Initiation of Two Settlement
Quantity Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
11Recap from Jan 31 Meeting
• IESO brought forward a preliminary decision to revise
the existing DACP must-offer requirement under a
DAM
– The existing DACP requirement does not address the
potential for participants to physically withhold
energy and operating reserve in order to raise DAM
prices and profits
– This decision would require coordination with the
ICA project and its must-offer obligation
• Today’s meeting will address how much capacity must
be offered into the DAM for different resource
technologies.
12Stakeholder Feedback
• It is not clear whether the must‐offer obligations apply to
all future DAM participants, or only those that are
brought to market via the ICA.
• There are existing financial incentives that deal with the
risk of physical withholding in some contracts. Adding
additional must‐offer obligations may be punitive if
those obligations are somehow conflicting with
contractual terms.
13Stakeholder Feedback
• Capacity values from hydro facilities vary with hourly
water conditions
• Must-offer rules should only apply to water with a high
degree of certainty leaving flexible and low certainty
water to be offered into the real-time market
• Methodologies and quantities need to be discussed and
agreed to by stakeholders
14Update
• Ongoing discussion with the ICA project team revealed
that our respective must-offer requirements should be
designed independently
– ICA wants to ensure resources satisfy their capacity
obligation by offering their actual real-time capability
– DAM wants to ensure resources are not exercising
market power through physical withholding
15Must-offer Requirement Name Change
• This design element will be renamed to “Reference
Quantity” moving forward
– Differentiates it from the ICA must-offer obligation
and aligns it with the design objective of preventing
resources from physical withholding
– “Reference Quantity” applies to all future DAM,
ERUC and real-time market participant resources
16Revised Preliminary Decision
Previous Preliminary Decision:
• Supply and load resources that are used to satisfy IESO resource
adequacy requirements must offer energy and, if capable, offer
operating reserve into the DAM.
Revised Preliminary Decision:
• All registered supply resources shall offer or forecast a reference
quantity reflective of their expected energy availability, and if
capable, all registered supply and load resources shall offer a
reference quantity reflective of their operating reserve ramp
capability into the DAM.
– Revised decision clearly separates the reference quantity
requirement from a capacity obligation and recognizes that
loads are not incentivized to withhold energy
17Reference Quantity for Energy
• The amount of energy to be offered should vary for
different resource technologies and account for:
Mechanical Other Operating Restrictions
Limitations (Fuel, Safety, Legal etc.)
• We do not want participants to offer in capacity they are
physically unable to deliver
• Allows participants to reflect operational restrictions and
manage financial risk under a two-settlement system
18Defining the Reference Quantity for Energy
Installed Capacity (Maximum Registered Capability)
less the most restrictive of…
Outages or
• Restrictions that Deratings
qualify as outage
or
reporting • Restrictions that do not
requirements Pre- qualify as outage
Approved reporting requirements
• Grid incapability Operating • Could be discrete (easy
(transmission outage) Restrictions to quantify on a
continuous/periodic
basis); or a
• Range (difficult to
quantify on a
continuous/periodic
basis)
Reference Quantity
19Pre-Approved Operating Restrictions in
Other Jurisdictions
• NYISO requires resources to register operating data and
provide supporting documentation in order to recognize their
operating restrictions and classify resources as:
– Capacity Limited Resources (e.g. gas unit with inlet
cooling capability)
– Energy Limited Resources (e.g. hydro unit with a
reservoir)
– Ambient Condition Dependent Resources (e.g. gas unit
with temperature based ratings)
• Sets clear expectations for the must-offer requirement and
rules out false positives when testing for physical withholding
20Pre-Approved Operating Restrictions
• Most operating restrictions should qualify as outage
reporting requirements under the market rules
• Pre-approved operating restrictions would not exempt
resources from outage reportable restrictions
• Would be captured through the facility registration
process and could be updated as restriction conditions
change
21Pre-Approved Operating Restrictions
• Potential operating restrictions that may differ from outage-
reportable restrictions could include:
Wind: Variable and intermittent fuel supply
Solar: Variable and intermittent fuel supply
Hydro: Head, streamflow, reservoir storage and recreational requirements
Nuclear: None that the IESO is aware of
Gas: None that the IESO is aware of
Bio Fuel: Flow rate limitations that impact rate of biogas production
Storage: Limited volume of fuel available in storage
• Public safety, environmental, regulatory and legal requirements
may also be valid restrictions for all resource types
22Energy Reference Quantity Example 1
• Gas generator submits a forced derating to the IESO reflecting a
capacity reduction due to high temperature and humidity
Installed Capacity Variable Quantity
Installed Capacity 100 MW
Outages or
Deratings
Unavailable Outages / 20 MW
Capacity Derates
Pre-
Approved
Operating
Pre-Approved N/A
Restrictions
Operating
Restrictions
Reference Quantity 80 MW
Reference Quantity
23Energy Reference Quantity Example 2
• An energy limited hydro resource registers a pre-approved operating
restriction that reflects a regulatory range restriction in the summer
Installed Capacity
Variable Quantity
Outages or
Deratings Installed Capacity 80 MW
Pre-
Approved
Operating Unavailable Outages / N/A
Restrictions
Capacity Derates
Pre-Approved 20 – 40 MW
Operating
Restrictions
Reference Quantity 40 – 60 MW
Reference Quantity
24Reserve Reference Quantity: Ramp Capability
Most Restrictive Ramp Capability Time Period of the Operating
for the Energy Reference Reserve Product
Quantity (MW/min) (10 min or 30 min)
150
Energy Reference
Quantity (MW)
Ramp
10 20 30 (MW/min)
Product Ramp Product Time Ramp x ≤ Energy Reserve
(MW/min) Period (min) Time Period Reference Reference
Quantity? Quantity
10 min OR 10 10 100 MW Yes 100 MW
30 min OR 10 30 300 MW No 150 MW
25Test for Physical Withholding • A resource’s expected reference quantity for energy and/or operating reserve will be used to test for physical withholding as described in this morning’s presentation on market power mitigation for physical withholding
Questions for Stakeholders and Next Steps
Wind Solar Hydro Nuclear Gas Bio Fuel Storage
• Input that the IESO is looking for from Market Participants:
– What operating characteristics should be captured in defining the
proposed definition for pre-approved operating restrictions (with
rationale)?
• Do these operating restrictions translate into MWs (a discrete
quantity or a range)?
• When are these operating restriction effective (time of year,
permanent, periodic or occasional)?
– What issues might exist with implementing a range based
reference quantity?
27LOAD PARTICIPATION
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
28Recap from Jan 31 Meeting
Preliminary Decisions Rationale
1 Provide NDL the option of being a • Increase the efficiency of
Price Responsive Load (PRL). PRLs scheduling and unit commitments
submit their own bids into the DAM • Facilitates expanded participation
and will receive a financially binding as dispatchable load in the future
schedule, but would continue to be
non-dispatchable in real-time.
2 The IESO will continue to bid on • Most efficient until a greater level
behalf of all remaining NDL that are of load participation can be
not registered as PRL. realized (e.g. load aggregators or
load serving entities)
• Today’s meeting will address which existing NDLs can
elect to participate as PRL
29Stakeholder Feedback
• Providing opportunities for load to fully participate in
the capacity and energy markets will allow for a
competitive and efficient Ontario electricity market
30PRL Eligibility
• In the short term, the IESO expects the initial uptake of PRL
status will come from industrial transmission connected or
embedded loads that satisfy IESO registration requirements
• As the market and sector continues to evolve, other loads, such
as LDCs or aggregators may become PRL
– Current regulatory requirements would limit the participation of LDCs
as PRLs
– Some participants, such as load aggregators, would have to meet
metering and modelling requirements that may limit the amount of load
they could bid for in the DAM.
• Longer term, the PRL design is expected to be able to
accommodate future regulatory, metering and modelling
changes that might facilitate expanded load participation in
the DAM.
31Next Steps
• No other decisions are required for high level design.
• Any stakeholder feedback is requested and will be
addressed on May 23.
32TWO SETTLEMENT FOR LOAD
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
33Recap from Jan 31 Meeting
Preliminary Decisions Rationale
1 PRLs would be exposed to two Party responsible for bidding
settlement upon receiving a financially should bear the financial
binding DAM schedule responsibility of those bids
2 NDLs will also be exposed to two- Since the IESO will be responsible
settlement, however the total sum cost for bidding on behalf of NDL, any
(or benefit) of their real-time balancing balancing payments should be
payments will be distributed amongst distributed in a non-discriminatory
all NDL. manner
• Today’s meeting will clarify NDL participant settlement and discuss
how to distribute the cost or benefit of NDL real-time deviations
from the IESO day ahead load forecast for NDL.
34Recap: Two Settlement
Day Ahead Real-Time (Balancing)
QDA x $DA (QRT – QDA) x $RT
• PRLs and DLs will submit their own bids into the DAM and be
exposed to two settlement upon receiving a DAM schedule
• NDL bids however, will be submitted by the IESO into the DAM
on behalf of NDL market participants
– A modified settlement approach is necessary for NDL
participants considering the IESO uses a top-down approach
in forecasting Ontario load and has little to no visibility for
how much energy NDL participants may actually expect to
consume at their location
35Preliminary Decision and Rationale:
NDL Settlement
Modified Settlement for NDL
$ForecastDeviation = cost or benefit of
(QRT x $DA) + (QRT x $ForecastDeviation) forecast deviations on a per
MW-consumed basis
• NDL participants will only be exposed to day-ahead prices and a settlement
if they actually consume in real-time
– It is reasonable to assume that a NDL would not have bid into the DAM
if they did not consume
– QRT will therefore be used as the basis for NDL settlement
• NDL participants that do consume in real-time will be exposed to a modified
settlement and the total balancing cost or benefit of IESO forecast deviations
will be prorated for each NDL based on their real-time consumption
36Rationale: Balancing Settlement Distribution
The IESO currently uses a top- Real-Time
Day Ahead
down, lower granularity approach (Balancing)
in forecasting Ontario load
QDA x $DA (QRT – QDA) x $RT
Global Demand Forecast
Distributing the
Balancing overall cost or
costs or benefit of load
benefits could forecast
Distribution be large for deviations
factors are used some NDL among all NDL
in projecting participants will more evenly
load at a specific while small spread the cost
location for others or benefit of
these deviations
37Balancing Settlement Distribution
• The level for distributing the cost or benefit of NDL forecast
deviations should be dictated by the granularity of the load forecast.
– For example, a load forecast produced globally would dictate
that the level of distribution should be global.
– A load forecast produced globally and balancing costs
distributed zonally could disproportionately benefit some zones
and harm
• Zonal distribution is generally favoured over global:
– Produces prices that better reflect the marginal cost of
consumption within the zone.
– Provides a greater incentive for NDLs to respond to a zonal
price recognizing this benefit would be reduced if they were also
exposed to the cost of forecast deviations in other zones
38Next Steps
• The IESO is conducting an internal assessment on the feasibility to
forecast load and manage forecast uncertainty at a zonal level.
Global Demand Zone 1 Zone 2 Zone 3
Forecast Forecast Forecast Forecast
• We will provide stakeholders with an update on our findings on
May 23 and bring forward a preliminary decision of the level of
socialization that can be achieved.
39VIRTUAL TRANSACTIONS
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
40Recap from Jan 31 Meeting
• The need for virtual transactions in the initial
implementation of a DAM depends on the level of risk
market participants will be exposed to:
Reduced need if IESO is
bidding for most NDL;
VG is forecasting into
DAM under contract
Increased need with
greater PRL
participation; VG is
forecasting into DAM
when contracts expire
41Recap from Jan 31 Meeting
Preliminary Decisions Rationale
1 The capability for virtual Virtual transactions are proven market based
transactions will be included mechanisms that provide both efficiency and
in the DAM high level design. disciplinary benefits for both participants and the
IESO.
2 The decision as to whether Virtual transactions would be new to Ontario and
they will be deployed for the additional education should be provided for
initial implementation of stakeholders to understand how they could make
DAM requires further use of virtual transactions in addition to the risks
discussion with stakeholder. they may introduce if not carefully implemented.
• Educational materials on virtual transactions will be posted shortly.
• Today’s session will provide a summary of key concepts and
illustrative examples on the use of virtual transactions.
42Stakeholder Feedback
• Virtual transactions should be included in the DAM at a
nodal level
43Virtual Transactions: Introduction
• Virtual transactions are financial
instruments used to buy and sell Real-Time
Day Ahead
(Balancing)
energy in the DAM just like physical
energy bids and offers.
(QRT – QDA) x
QDA x $DA + $RT
• They are evaluated just like physical
bids and offers, can receive a DAM
schedule and are subject to two
settlement
QDA x $DA + – QDA x $RT
• Since they do not represent physical
load or supply, real-time quantities are
always zero and their balancing
settlement is always for their full DAM QDA x ($DA - $RT)
schedule.
44Virtual Transactions: Settlement
Virtual Supply Virtual Load
Sells MWs into the DA Buys MW from the DA
market at the DA price market at the DA price
Buys those MWs from the Sells those MW into the RT
RT market at the RT price market at the RT price
QDA is positive QDA is negative
Virtual supply profits when Virtual load profits when
$DA > $RT $RT > $DA
QDA x ($DA - $RT) -QDA x ($DA - $RT)
= QDA x ($RT - $DA)
45Key Benefits of Virtual Transactions
1. Improve day-ahead and real-time price convergence by enlarging
the pool of participants in the DAM
– If $DA > $RT, virtual supply offers correct the imbalance by
increasing QDA and drive $DA downward towards $RT
– Conversely, if $DA < $RT, virtual demand will drive $DA upward
towards $RT
2. Provide ways for loads and suppliers to manage their exposure to
real-time price excursions
– Generally not needed for load to hedge this risk at its own
physical location, but could benefit a supplier
– More prevalent in hedging bilateral contract price risk at
another location
46Virtual Transactions and Price Convergence
47Physical Supplier Using Virtual Load
• A generator must-offer 100 MW into the DAM to meet its reference quantity
requirement but is concerned about RT price exposure because of a 10% derate
risk (10 MW risk)
• The generator could protect DAM revenues by scheduling a 10 MW virtual load
bid, the 10 MW derate occurs and QRT > QDA
QDA $DA DAM Rev QRT $RT RT Rev NET
QDA x $DA (QRT – QDA) x $RT Rev Generator protects $100
Gen 100 $30 $3000 90 $40 (90-100) x 40 = -$400 $2600
of DAM revenue
(Keeps $2700 vs. $2600)
Virtual Load -10 $30 -$300 0 $40 (0- (-10))x 40 = $400 $100
• However if the 10 MW derate does not materialize and QRT < QDA, the generator
will lose DAM revenue due the virtual load loss
QDA $DA DAM Rev QRT $RT RT Rev NET
QDA x $DA (QRT – QDA) x $RT Rev Generator loses $100 of
Gen 100 $30 $3000 100 $20 (100-100) x 20 = $0 $3000
DAM revenue
(Keeps $2900 vs. $3000)
Virtual Load -10 $30 -$300 0 $20 (0- (-10))x 20 = $200 -$100
48Physical Load Using Virtual Supply
• A physical load seeking to hedge the risk of increased load consumption at a higher
RT price at its own location could perform the reverse action of the generator in the
previous example by submitting a virtual supply offer
QDA $DA DAM Rev QRT $RT RT Rev NET
QDA x $DA (QRT – QDA) x $RT Rev Load avoids $100
Load -90 $30 -$2700 -100 $40 (-100-(-90)) x 40 = -$400 -$3100 (Pays $3000 vs. $3100)
Virtual Supply 10 $30 $300 0 $40 (0- (10))x 40 = -$400 $100
• However the load does not need a virtual supply offer to achieve this. It could simply
schedule more of its physical load in the DAM
QDA $DA DAM Rev QRT $RT RT Rev NET Load still avoids $100
QDA x $DA (QRT – QDA) x $RT Rev (pays no more than
Load -100 $30 -$3000 -100 $40 (-100-(-100)) x 40 = $0 $3000 $3000)
• This approach to hedging works because the DAM schedule and RTM physical
injection or withdrawal occur at the same location.
49Lessons Learned in Other Jurisdictions
• Other jurisdictions with DAMs have reported that virtual
transactions have helped to converge DAM and RTM prices
– Physical load and supply take production or forecast
uncertainty into account when offering into the DAM
– Virtual transactions can proxy for physical load or supply that
have been underbid into the DAM and have caused DAM and
real-time prices to diverge
– Virtual transactions can lengthen the time required to execute
the DAM and have an impact on DAM engine performance
– ISOs have taken steps to address performance issues by limiting
the locations at which virtual transactions may be bid or offered
and limiting the numbers of bids or offers per market
participant
50Next Steps
• Additional educational materials will be posted shortly
– Stakeholders are asked to review and submit follow up
questions or comments ahead of the May meeting
Secondary Decisions Next Steps
1 Timing of implementation • Discuss benefits and risks
• Deploying on day one of DAM vs. on May 23
break-in period • Present preliminary
decisions in July
2 Trading volume and impact on DAM • Discuss benefits and risks
solution time on May 23
• Determining modelling • Present preliminary
granularity (zonal vs. nodal) decisions in July
and/or limits on virtual bid/offer
quantities
51FUNCTIONAL PASSES
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
52Recap from Jan 31 Meeting
Preliminary Decision Rationale
1 Apply Market Power Incremental energy and operating reserve costs
Mitigation and NQS resource parameters must be mitigated
on an ex-ante basis in single schedule markets.
2 Run RUC within DAM Allows reliability based commitments to be
reflected in DAM schedules and prices,
increasing operational certainty and supporting
day ahead to real-time price convergence
3 Calculate Settlement Required in order to provide participants with
Ready Prices accurate financially binding schedules.
• Today’s meeting will address objective functions and
input criteria for each functional pass
53Preliminary Decision: Pass Objectives
• The objectives for each of the functional passes will be
similar to those already used in DACP today:
1 2 3
Bid Commitment Reliability Unit Final Scheduling &
Commitment Pricing
•NO CHANGE: •NO CHANGE: •NO CHANGE:
Determine NQS Determine Determine final
unit whether resource
commitments additional NQS schedules
needed to meet unit •NEW:
bid load. commitments are Determine DAM
•NEW: Market needed to meet clearing prices
Power Mitigation IESO forecasts
54Preliminary Decision: Pass 1 Input Changes
1
• Determine NQS unit commitments needed to meet
Bid Commitment bid load.
Bid Commitment
• Apply market power mitigation.
DACP Inputs DAM Inputs Rationale
MP Supply Offers and No Change
Forecasts (Dispatchable Gen,
Self-Schedulers and Imports)
IESO elected VG forecast MP elected VG forecast VG resources will be responsible for
submitting their own forecast
MP Load Bids (Dispatchable No Change
Load, HDR and Exports)
IESO average load forecast PRL bids and IESO avg. load NDL will have the option of
for NDL forecast for remaining NDL becoming a PRL
No Virtual Bids/Offers Virtual Bids/Offers Virtual transactions can participate
in the DAM
55Preliminary Decision: Pass 2 Input Changes
2
Reliability Unit • Determine whether additional NQS unit
Commitment commitments are needed to meet IESO forecasts.
DACP Inputs DAM Inputs Rationale
NQS unit commitments from Pass 1 No Change
MP Supply Offers and Forecasts (Dispatchable No Change
Gen, Self-Schedulers and Imports)
IESO elected VG forecast No Change IESO is responsible for reliability;
therefore IESO forecast will continue to
be used for assessment.
MP Load Bids (Dispatchable Load, HDR and No Change
Exports)
IESO peak load forecast for NDL No Change IESO is responsible for reliability;
therefore IESO forecast will continue to
be used for assessment
No Virtual Bids/Offers No Change Virtual transactions do not physically
contribute to meet system reliability
56Preliminary Decision: Pass 3 Input Changes
3
Final Scheduling & • Determine final resource schedules and DAM
Pricing clearing prices.
DACP Inputs DAM Inputs Rationale
NQS unit commitments No Change
from Pass 2
MP Supply Offers and No Change
Forecasts (Dispatchable Gen,
Self-Schedulers and Imports)
IESO elected VG forecast MP elected VG forecast VG resource schedules and clearing
prices will be based on MP elected VG
forecasts
MP Load Bids (Dispatchable No Change
Load, HDR and Exports)
IESO average load forecast PRL bids and IESO avg. load PRL schedules and clearing prices
for NDL forecast for remaining NDL will be based on PRL bids
No Virtual Bids/Offers Virtual Bids/Offers Virtual schedules and clearing prices
will be based on virtual bids
57Next Steps
• No other decisions are required for high level design.
• Stakeholder feedback is requested and will be addressed
on May 23.
58OPTIMIZATION OF ELRs
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
59Recap from Jan 31 Meeting
Preliminary Decision Rationale
1 Do not retain the DACP • Fairness and Competition - retaining the
resubmission window resubmission window under a DAM would
for cascade hydro provide one group of participants the potential to
resources under a DAM. improve their financial positions but harm others’
2 Determine alternative • Implementability - a reduced overall DAM
ways for ELRs to duration will make it easier to introduce engine
manage operational and enhancements as the market evolves (e.g.
financial risks under a modelling and evaluating new technologies,
DAM. virtual transactions etc.)
• Today’s session will be used to
• Review market participant feedback
• Provide stakeholders with additional information on how
cascade hydro resources are managed in other DAMs
• Outline a process for addressing decision 2 above
60Stakeholder Feedback
• The following feedback for ELR optimization in the DAM was
received:
– Cascade hydro modelling within the DAM engine
– Offer linking capabilities in both DAM and real-time
market
– Increasing self scheduling capabilities
– Deferring the start time of DAM so that offers could better
reflect anticipated conditions in real-time
– Compliance/settlement aggregation and the use of one
virtual delivery point for all stations on a cascade river
system
– Recognizing energy limitations in the must-offer
requirement
61Key Observations in Other Markets
• As a general observation the responsibility for managing operational
and financial risk usually lies with the market participant
– Participants are in the best position to most efficiently manage
these risks
– Typically these risks are managed through offer curve submissions
• Where risks leading to inefficient market outcomes are identified to be
due to market design and tool limitations, such as for cascade hydro,
system operators do provide some degree of mitigation such as:
– Modifying offer requirements (market rules)
– Modelling generic offer parameters that participants can couple
with their offer curves
• Market designs strive to achieve a fair balance of risk that leads to
efficient market outcomes
62Typical Offer Strategies
• Cascade resources typically manage their operating characteristics
through their offer curves
– Offer desired quantities at lower prices and undesired quantities
at higher prices, for example:
Dispatchable G1 for 2 hrs at high $
G1 for 4 hrs at low $
(Flexible) Strategy G2 for 2 hrs at low $
G2 + G3 for 4 hrs at high $
Illustration G3 for 2 hrs at high $
2 hrs
G1
G2
G3
4 hrs
• These base strategies are used in other DAMs with cascade hydro
penetration similar to Ontario (i.e. New York and California)
63Dispatchable Strategy: Potential Barriers
• Offers strategies can also be used to exercise market power and the
DAM will include features designed to mitigate these behaviours:
Behaviour Mitigation
Physically withholding supply in must-offer Requirements – the
order to increase margins for other minimum quantity a resource must-
remaining supply. offer into the DAM
Economically withholding supply Reference Levels – price caps that
by offering at very high prices replaces the offer price of a resource
during tight supply conditions . when it is deemed to be
economically withholding
• While these measures are necessary, they may further limit a
cascade resource’s ability to generate feasible DAM schedules
through their offer curves
64Dispatchable (Flexible) Strategy
• Cascade resources can also couple additional parameters with their
offer curves to minimize the risk of an infeasible DAM schedule:
– Daily Energy Limits (do not schedule > X MWh per day)
– Forbidden Regions (do not schedule between X MW and Y MW)
• The NordPool (Norway) DAM has a much larger penetration of
hydro (~95%) and provides participants with the ability to link offer
curves between resources
G1 offer must first be economic for G2 and G3 offers to be considered
2 hrs
G1
G2
G3
4 hrs
65The NordPool Market
• Linked offer capabilities are available to all participants
(i.e. technology neutral)
• Linked offers can be more easily accommodated because
their day ahead market engine is less complex
– Less processing time needed because they do not
account for the same level of transmission constraints
that North American markets are required to account
for in determining day ahead market schedules
66Alternative Offer Strategies
• Cascade resources could alternatively choose to self-schedule their
resources in the DAM in order (non-dispatchable strategy)
– Submit fixed quantities irrespective of price, for example:
Self Scheduled G1 for 2 hrs at 0 MW
G1 for 4 hrs at X MW
(Inflexible) Strategy G2 for 2 hrs at X MW
G2 + G3 for 4 hrs at 0 MW
Illustration G2 for 2 hrs at 0 MW
2 hrs
G1
G2
G3
4 hrs
• This strategy is used by cascade hydro in the PJM market, however
their hydro penetration is < 5%
67Self Schedule (Inflexible) Strategy
• Self scheduling strategies also create risk for both the market
participant and the IESO
– Market participant becomes a price taker, which still leaves them
financially exposed because they have no ability to respond to
lower prices that may not cover marginal costs
– IESO loses the flexibility that dispatchable resource can provide
in managing forecast uncertainty and providing standby energy
(operating reserve)
– Market outcomes are more costly because they are less efficient
• The market design should not incentivize cascade resources to
participate as self-schedulers
68Aiming for a Flexible Offer Strategy
• IESO will be working with stakeholders to implement a solution
that allows cascade resources to participate in the day-ahead market
within an acceptable level of risk.
• Potential solutions include but are not limited to:
– Striking a balance between must-offer Requirements and
Reference Levels for Mitigation
– Retaining the ability for Daily Energy Limits and Forbidden
Regions to be submitted and optimized by the DAM engine
– Introducing additional features such as linked offers
69Next Steps
• Continue investigating potential solutions that
would allow cascade hydro resources to
participate in the DAM within an acceptable
level of risk.
• Present findings and secondary decisions to
stakeholders on May 23.
70MAKE WHOLE PAYMENTS
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
71Recap from Jan 31 Meeting
• No preliminary decisions were brought forward, however
two broad make whole scenarios were identified for
consideration based on best practices and lessons learned in
other jurisdictions:
DAM energy and operating reserve
Day-ahead Margin Assurance
revenues are less than DAM offer
Payments (DAMAPs).
costs
• Today’s session will address which of these make whole
scenarios will apply and what the eligibility criteria are for
each.
72Triggers: DAM Revenues < DAM Offer Costs
• There are constrained up and down events in the DAM where
energy and operating reserve prices and revenues may not cover a
resource’s as offered/bid costs into the DAM.
How can Automatically during DAM Manually through out-of-market
these occur? scheduling DAM operator actions
Respecting resource operating
To address reliability issues the
Why do they parameters, price formation rules
DAM may not recognize (e.g.
occur? and IESO Reliability Unit
local adequacy; extreme events)
Commitment requirements
• DAM make whole payments provide assurance offers and bids into
the DAM will be recovered for the amount of the resource’s DAM
schedule, which encourages efficient bids and offers.
73Preliminary Decisions and Rationale: Make
Whole when DAM Revenues < DAM Costs
Preliminary Decision Rationale
1 The following resources • Self schedulers are non-dispatchable
are ineligible: price takers who submit forecast
• Self Schedulers schedules that do not reflect a
• Non-Dispatchable Load resource’s costs
• Virtual Transactions • Non-Dispatchable Loads are also price
takers that the IESO submits forecast
schedules for
• Virtual transactions are purely financial
instruments that do not have
production costs
74Preliminary Decisions and Rationale: Make
Whole when DAM Revenues < DAM Costs
Preliminary Decisions Rationale
2A All NQS resources will be eligible for NQS resources are scheduled
a make whole payment if their based on minimum load
energy, operating reserve and requirements and start-up
commitment costs are not covered by and speed no load costs in
the energy and operating reserve addition to their incremental
revenues earned over their entire energy and operating reserve
DAM schedule. costs.
75Preliminary Decisions and Rationale: Make
Whole when DAM Revenues < DAM Costs
Preliminary Decisions Rationale
2B NQS resources must actually come online in • Current practice for
order to qualify for a make whole payment DACP and common
covering start up costs: practice in all other
• Fully covered if the resource comes online jurisdictions.
before the 30th min of their 1st scheduled hour • Reduces uplift as
at MLP costs are only covered
• Partially covered if the resource comes online if they are actually
between 30 and 90 min of their 1st scheduled being incurred.
hour at MLP (1/12th deducted for every 5 min • Incentivizes timely
the resource is late to start) start-up for ISO
• Not covered if the resource comes online reliability
after 90 min of their 1st scheduled hour at requirements
MLP
76Preliminary Decisions and Rationale: Make
Whole when DAM Revenues < DAM Costs
Preliminary Decisions Rationale
2C NQS resources must actually come • Current practice for
online in order to qualify for a make DACP and common
whole payment covering speed no practice in all other
load costs jurisdictions.
• Fully covered if the resource • Reduces uplift as costs
delivers energy for the full hour are only covered if
• Partially covered at 1/12th of the they are actually being
cost for every 5 min of delivery incurred.
within an hour
77Preliminary Decisions and Rationale: Make
Whole when DAM Revenues < DAM Costs
Preliminary Decision Rationale
3 All remaining supply and load Unlike NQS resources, all
resources, including imports and remaining supply and load
exports, will be eligible for a resources are only scheduled based
make whole payment in every on their incremental energy and
hour that their energy and operating reserve costs.
operating reserve costs are not
covered by their revenues.
78Day Ahead Margin Assurance Payments
• Lessons learned in other jurisdictions show certain real-time
dispatch scenarios may unintentionally encourage resources
to reduce their real-time dispatch flexibility to avoid
balancing costs and protect DAM profits
– Ramp-limited coal-fired generators that are unable to
reverse their ramp direction quickly enough
– An illustration for the described scenario is provided on
the next two slides
79Rationale for DAMAP in other Jurisdictions
Issue
Real-Time
Output
DAM
Schedule
Unit must buy out of DAM
Unit is schedule at high price,
dispatched reducing DAM margins
below DAM
schedule due to
Price spike
falling prices
occurs, unit
gets dispatched
back up but is
slow to turn-
around.
80Rationale for DAMAP in other Jurisdictions
Undesired Response
Real-Time
Output
DAM
Schedule Day ahead buy out
risk reduced
Unit reduces its ramp rate
offer to reduce risk of
quick dispatch turnaround
81Update and Next Steps
• While the IESO doesn’t foresee a need for a DAMAP since
coal has been decommissioned, analysis is being performed to
determine if a DAMAP would be appropriate for slower
ramping gas resources.
– IESO is currently analyzing historical data to identify
instances where a DAMAP may be appropriate
– Results of the analysis and preliminary decision will be
presented on May 23
82UPLIFT RECOVERY
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
83Recap from Jan 31 Meeting
• No preliminary decisions were brought forward since the
make whole payment design was still being developed.
• With a make whole proposal now in place, today’s session
will revisit uplift discussions from the fundamentals phase
and provide preliminary decisions for recovery and
disbursement.
84Recap from Fundamentals Phase
• The only uplift charges currently allocated to participants
under DACP are make whole payments for NQS unit
commitments (i.e. day ahead production cost guarantees)
• Transitioning to a DAM will introduce additional uplift
components for which allocation decisions are required:
– DAM make whole payments for energy
– DAM operating reserve costs
85Status in Other Jurisdictions
• All other DAMs do not levy uplift charges based on the two-
settlement principle; no uplift recovery is settled in the DAM
– Levying a charge on DAM load would discourage loads from
scheduling in the DAM to avoid the charge.
– Therefore uplift charges are only levied to all real-time loads and
exports on a per MWh basis
• Some DAMs allocate a portion of uplift costs to specific resources
based on cost causation
– Appropriate only if these costs can be allocated accurately and
consistently, and incentivize efficient behaviour
– For example, allocating a portion of commitment cost make
whole payments to underbid load and virtual supply
86Preliminary Decisions and Rationale
Uplift component Allocation Rationale
1 DAM make whole All real-time Will not discourage loads and
payments for loads and exports from participating in the
incremental energy and exports DAM.
commitment costs
2 DAM operating reserve
costs
3 DAM energy residuals TBD Pending decisions on the
disbursement methodology for
these residuals being discussed
in SSM.
87Secondary Decisions and Next Steps
• Will a portion of commitments costs coming out of the
DAM reliability unit commitment pass be allocated to
specific DAM resources?
– Considerations include only allocating these uplift
costs to underbid load and virtual supply, following
best practice and lessons learned in other jurisdictions
• A decision will be proposed on May 23
88FINANCIAL TRANSMISSION RIGHTS
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
89Recap from Jan 31 Meeting
Preliminary Decision Rationale
1 External FTRs will External FTRs should be settled at DAM
be settled at DAM prices in order to provide a hedge for
prices congestion charges on day-ahead
schedules (real-time congestion charges
are already hedged by a participant’s
DAM schedule).
• Today’s session was intended to address how internal
FTRs (i.e. disbursement of residuals) would be settled
– This decision is on hold until the SSM project
brings forward a final decision on the
disbursement methodology currently being
discussed with stakeholders.
90SUBMISSION AND POSTING DEADLINES
ISO and MP Inputs DAM Engine DAM Outputs & RT Settlements
Market Processes
Two Settlement
Submission & Posting Deadlines for Load
must-offer Functional Initiation of Two Settlement
Requirements Passes Operational Make Whole
for Supply
Commitments Payments
Load Optimization of Make Whole
Participation Energy Limited Reporting Payments
Resources (ELRs) Obligations
VG Supply Uplift
Participation Price Setting Eligibility Recovery
Virtual FTRs
Market System Failure
Transactions
Reliability Input
Market Power Mitigation
Parameters
Process, Timing and Reference Levels
91Recap from Jan 31 Meeting
Preliminary Rationale
Decision
Execute DAM A posting deadline of no later than 12:30 EST
between ~ 09:00 ensures DAM schedules are available to market
and 12:30 EST participants before the gas nomination window
closes at 14:00 EPT (during daylight savings
time).
• While there were no further decisions planned for high level design,
stakeholders provided feedback on the preliminary decision
• Today’s session will be used to highlight the feedback received
92Stakeholder Feedback
• A submission deadline equal to or after 10:00 EST would:
– Have greater alignment with neighbouring jurisdictions
– Increase offer certainty since forecast conditions improve as the
day progresses and
– Provide participants more time to inform their offers during
normal business hours
• Market renewal could be an ideal opportunity for the IESO to
consider moving from EST to EPT across all timeframes in order to
have greater alignment with other jurisdictions
93RECAP AND NEXT STEPS
94Summary of Preliminary Decisions
• Reference quantity obligations will apply to all registered resources capable
of providing energy and/or operating reserve and will account for outage
and non-outage related restrictions
– IESO is looking for participants to provide input on non-outage related
operation restrictions that may apply to their resources
• The PRL design is expected to be able to facilitate expanded load
participation in the DAM from existing NDL participants.
• Objectives for the DAM functional passes remain very similar to the current
DACP. New inputs into the DAM will include:
– Variable generator elected forecasts
– Price responsive loads bids
– Virtual transactions
95Summary of Preliminary Decisions
• A modified settlement equation will apply for NDL participants since the
IESO will be bidding in the load forecast on their behalf.
– The level of distribution of NDL balancing costs will depend on the
level of forecast granularity that can be achieved (i.e. zonal or global).
• Eligible resources will qualify for a make whole payment when their DAM
revenues do not cover their as-offered DAM costs.
– Eligibility criteria differs between NQS resources and all other
resources.
• DAM uplift will be allocated to all real-time loads and exports
– A portion of DAM uplift may apply to certain DAM participants if cost
causation can be determined with certainty. This preliminary decision
will be presented at the next meeting.
96Next Steps
• Feedback on pre-approved operating restrictions (see slide 27 for
details) requested by April 13
• Feedback on remaining preliminary decisions requested by April 27
• Design element decisions for the May meeting include:
Design Elements Preliminary Decisions Being Brought Forward
3 VG Supply Participation VG submission and interaction procedures with existing IESO
centralized forecasting procedures
7 Optimization of ELRs Alternative ways for cascade hydro resources to manage operational
and financial risks under a DAM
18 Two Settlement for Load Forecast granularity and distribution level of balancing payments for
NDL
16 Make Whole Payments Whether a Day Ahead Margin Assurance Payment will be included
in the DAM design
17 Uplift Recovery Whether to allocate a portion of DAM make whole payments to
DAM participants that specifically contributed to those costs.
97You can also read
