IESO Market Renewal Project

IESO Market Renewal Project

IESO Market Renewal Project Market Evolution Workshop and Input on Benefits Case Approach PRESENTED TO Independent Electricity System Operator IESO M...

2MB Sizes 1 Downloads 14 Views

IESO Market Renewal Project Market Evolution Workshop and Input on Benefits Case Approach PRESENTED TO

Independent Electricity System Operator IESO Market Renewal Working Group PRESENTED BY

Johannes Pfeifenberger Judy W. Chang Kathleen Spees Mariko Geronimo Aydin Peter Cahill

September 29, 2016

Copyright © 2016 The Brattle Group, Inc.

Agenda Time

Duration

8:30

10 min

Topics Overview

Market Evolution Workshop 8:40

30 min

Session 1: Identify Drivers of Market Evolution • Group discussion • Identify the primary regulatory, market, and institutional forces that will define the nature of Ontario’s electricity future and may challenge the electricity market design

9:10

30 min

Session 2: Develop Market Evolution Futures • Group discussion • Combine the drivers into 4-6 distinct futures with qualitatively different functional requirements that the market will need to support market evolution

9:40

60 min

Session 3: Breakout Groups Analyze Implications for Market Renewal • Break into groups of 4-5 including a mix from different sectors • Identify the primary regulatory, market, and institutional forces that will define the nature of Ontario’s electricity future and may challenge the electricity market design

10:40

10 min

Break

10:50

40 min

Session 4: Groups Present Findings for Market Renewal • Representatives from each breakout group will present findings • Present a qualitative, narrative description of the future including key challenges • Identify status quo barriers, pitfalls to be avoided, and requirements to enable market evolution

11:30

25 min

Feedback on Study Approach

11:55

5 min

Next Steps 1 | brattle.com

Overview

Purpose of Market Evolution Workshop ▀

We regularly use scenario-based workshops and analyses similar to today’s session with executive teams and stakeholders to develop business strategy and electric system planning cases − Provides an opportunity to “future proof” a business strategy (or in this case, a market design) against a range of plausible scenarios − Identify pitfalls and opportunities early on



Backdrop: − The Province’s decarbonization goals, market forces, and policy preferences will shape the future of the electric system in Ontario − One of the goals of Market Renewal is to prepare Ontario to manage future change in a more flexible manner − The session will build upon scenarios outlined in the Ontario Planning Outlook, but need not be the same given the different purpose of this exercise



In Today’s Workshop this Group will: − Identify key future drivers (challenges) to Ontario’s market design − Develop a few diverse futures to identify the general range of functional requirements that may be needed to support the future of Ontario electricity 2 | brattle.com markets

Overview

Overview of Market Evolution Workshop 1. Identify Drivers of Market Evolution

3. Evaluate Implications for Market Design Driver of Market Design Needs Distributed Resources

Current Trends ▀

Intermittent Resources

2. Combine Trends and Drivers Into Qualitatively Different Futures

Deep Interconnections Electrification





Extreme Green

Fast Growth

What functions must the market perform to support this future What will “break” in the current design if nothing changes Potential barriers to market evolution

Decarbonization

System

3 | brattle.com

Overview

Interpretation of the Futures ▀

The range of futures will be used to evaluate the potential market design needs and impacts on stakeholders and will build on the scenarios outlined in the Ontario Planning Outlook



Each future does not represent a deterministic prediction of what will occur. Instead, together the futures cover a range of possible outcomes



We aim to push the envelope in terms of stress-testing the market design with the range of plausible futures, best outcome is if participants: − Keep an open mind about how big the changes can be over the course of 15 years (Perspective: Ontario achieved 80% CO2 reductions in 10 years)

− Don’t be a technology skeptic or future skeptic (Perspective: 15 years ago the very first iPod was introduced; 9 years ago the first iPhone) − Think deeply about how each future may challenge their own business model, and the functioning of the electricity markets ▀

The results of this workshop will support this study by helping to identify how Market Renewal can enable market evolution



Futures and recommendations will continue to inform the Market Renewal design process at all stages as IESO staff and stakeholders develop a market design that is robust to uncertainties 4 | brattle.com

Overview

Time Horizon Relevant for Market Renewal Market Renewal 2016

2017

Current Year

2022

3-5 Years Medium Term

 Operational  The parameters of the current Market decisions Renewal  Today’s  What are the nearmarket term changes in participants’ the marketplace? needs

 How to manage near-term risks?

2027

2032

10-15 Years Long Term  What are the Ontario’s electricity needs over the long-term?  What are the policy directions that the market should support?  What are the major changes in the industry that will affect existing and future market participants?

5 | brattle.com

Session 1: Identify Drivers of Market Evolution ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

6 | brattle.com

Session 1: Drivers

Jotting Down Drivers We will spend next 30 minutes discussing major drivers of the Ontario electricity market, that may have very different market design requirements Example: Pace of Environmental Policies in the Province (and Nationally) Trends: “Policy for decarbonization is moving at a fast pace”

Trends: “Costs of renewable generation such as wind and solar are decreasing.”

Uncertainties: Uncertain level of contracting for particular resource types, and uncertain resource costs

Drivers: • Environmental policy at the national and provincial level • Pace of renewable, especially intermittent, resource development 7 | brattle.com

Session 1: Drivers

Major Drivers of Market Design Requirements Object of this session is to identify drivers that may require very different designs to enable market evolution, potential examples include:   1. Market Fundamentals ▀ ▀ ▀

Gas prices GHG prices Hydrological conditions over the long term

  2. Broader Economic Conditions ▀ ▀

National and regional economic conditions Industrial growth (specific sectors and locations)

3. Environmental and Energy Policy ▀ ▀

Deep decarbonization Electrification of transportation and heating

  4. Transmission Development ▀ ▀

Upgrades within Ontario Potential increased interties capabilities, opportunities, and requirements for trade with neighboring regions (Quebec, New York, MISO, PJM)

  5. Regionalization ▀



6. Supply Investments/Retirements ▀



Policymakers’ directives for technology-specific procurements Nuclear refurbishments and contingencies

7. Distributed Generation Policies ▀ ▀ ▀

National and provincial environmental policies Electrification Incentives and contracting in Ontario or nearby regions

  8. Technology Game Changers ▀ ▀

▀ ▀

Solar and wind costs continue to drop Emerging technologies and business models to support distributed energy resources Storage costs decreasing Increased consumer control/price responsiveness (smart meters and control technologies)

  9. Others

Policies in nearby provinces and U.S. states that may lead to hydro and renewable import/exports Reliance on neighboring markets for flexibility or emergency support 8 | brattle.com

Session 2: Develop Market Evolution Futures ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

9 | brattle.com

Session 2: Futures

Ideas for Future Scenarios ▀

Workshop participants to discuss how to combine drivers into 4-5 “futures” that are likely to have qualitatively different market design requirements

10 | brattle.com

Session 3: Breakout Groups Analyze Implications for Market Renewal ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

11 | brattle.com

Future 1: Driver: • •

Story: • •

• •













SAMPLE: each breakout group will complete a worksheet Implications for Ontario Market Design

• • • •

• • •



• • •





• •

• •

• • •



12 | brattle.com

Session 3: Implications

Future Scenario Development Breakout Teams Future:

Future:

SAMPLE: each breakout group will complete a worksheet Future:

Future:

13 | brattle.com

Session 4: Groups Present Findings for Market Renewal ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

14 | brattle.com

Feedback on Study Approach ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

15 | brattle.com

Approach

Feedback on Study Approach Electricity Sector Benefits • Estimate efficiency benefits as production and investment cost savings from a province-wide perspective • Evaluate drivers of benefit-cost ratio • Identify risks and barriers to market evolution under status quo

Qualitative Analysis



We have previously described our proposed approach to the benefits case and posed questions to the stakeholders We now ask for your input

Quantitative Estimates



Implementation Costs • Assess IESO business cost impacts from software, information technology, etc. • Identify risks and limitations of status quo systems

Future Market Evolution • Work with stakeholders and IESO to envision the range of policy and market futures that the market must be prepared for • Identify the Market Renewal Project design components needed to support those futures

Market Renewal Benefits Case • Total benefit-cost estimates with uncertainty ranges • Identification of primary drivers of the benefits case • Recommendations for maximizing benefit-cost ratio and enabling market evolution • Identify risks and barriers to market evolution

16 | brattle.com

Approach

What Are the Biggest Benefit Drivers? Type of Benefit +

Energy Market Benefits

Day-Ahead Energy Market

+

Capacity Market Benefits

Capacity Exports/Imports

Single Schedule & Enhanced Real-Time Energy Market

What other markets had design enhancements or implementation experiences that are very applicable to Ontario?

Capacity Auction Improved Intertie Scheduling, Coordination, Pricing

+

Operability Benefits

Improved Real-Time Use of Hydro Flexibility Additional DA/RT Flexibility, improved Ancillary Services, Flexible Capacity Procurement IT Systems and Implementation Costs (Net of Avoided Costs)

Net  Implementation and Ongoing Costs

IESO Design and Implementation Costs

Can the market offer provisions of contracts be enhanced to incentivize enhanced operability?

What are the biggest implementation cost risks to be avoided and how?

IESO Ongoing Operating Costs (Net of Avoided Costs) Stakeholder Costs (Indicative)

= Total Net Benefits

How will Market Renewal affect your business costs?

17 | brattle.com

Approach

What Studies Should We Review? Design Element

Ontario Studies

(Note that these benefits are sometimes embedded in U.S. RTO formation or membership studies)

De-Pancaked Transmission Scheduling

(multiple) Energy Imbalance Market studies for western U.S.

Real-Time Market Nodal Pricing and Settlements

Partially Estimated by Market Reform (2015)

Real-Time Unit Commitment Day-Ahead Market

Examples of Studies from Other Market

Partially Estimated by IESO (2008)

ERCOT & CAISO, going from zonal to nodal markets SPP going from RT imbalance to Integrated Marketplace SPP going from RT imbalance to Integrated Marketplace

Real-Time Co-optimization of Energy and Ancillary Services

U.S. RTOs implementing Standard Market Design

Refined Scarcity Pricing and Operating Reserves Demand Curve

U.S. RTOs implementing Standard Market Design

Capacity Trade and Capacity Auction Enhanced Hydro Flexibility and Scheduling

IESO (2014), Brattle to supplement Pan-Canadian Wind Integration (2016)

Reformed or Increased Ancillary Services for Renewables Integration Enhanced Intertie Scheduling, Pricing, and Coordination

Already in Place Potential Element of Market Renewal

Studies qualitative, but Brattle to supplement Pan-Canadian Wind Integration (2016) MISO Ramp Capability; ERCOT FAS Study; NREL Low Carbon Grid

IESO (2012)

NYISO/PJM/ISO-NE implementation of Coordinated Transaction Scheduling

18 | brattle.com

Approach

How Do Benefits Translate into Ontario’s Context?   Ontario’s current and future electricity market are very different from experience in other markets, requiring a qualitative and semi-quantitative approach to assessing the applicability Ontario   Factors to Consider: 1. Comparability of Design Changes 

Important to recognize “before and after” market design when comparing to Ontario (i.e., some markets do not have a comparable starting point as Ontario)

2. Basic System Characteristics Compare supply mix, load, interconnections, etc. to judge applicability to Ontario  Identify “scalars” such as total energy served, intermittent penetration, and diversity in marginal cost that may drive value (see next slide) 

3. Applicability to Ontario Quantified benefits to be translated per TWh of annual load, then scaled up/down based on market characteristics and/or scope of market design changes  Qualitative takeaways on benefit drivers will be more reliable for markets with similar circumstances 

19 | brattle.com

Approach

What Scalars Can be Used to Translate Benefits?   Diversity in Marginal Cost ▀







Energy market benefits depend on ability to adjust production to lower-cost resources Driven by the range in marginal costs across hours, including opportunity costs if hydro or interties are marginal Price duration curve “spread” is one indication (potentially growing spread in a future where the tradeoffs are high-cost DR and no/low-cost nonemitting plants) Challenges: Ontario prices not always reflective of marginal costs (and marginal cost sometimes illdefined e.g. when hydro is marginal)

  Penetration of Intermittent Resources ▀





Flexibility benefits dependent on degree of intermittent resource penetration Many markets reformed with modest intermittent penetration, but some studies compare benefits in base and high intermittent scenarios Ontario’s intermittent resources will expand significantly in the coming years

2015 Price Duration Curves Market

90th

10th

Spread

IESO

$39

$0

$39

CAISO

$42

$16

$26

ERCOT

$30

$15

$15

SPP

$32

$15

$17

90th Percentile Price

10th Percentile Price Spread

Intermittent Penetration by Market At the Time of Energy Market Reform Market

Year

Intermittent Penetration (% of total generation)

2015 (2020s)

8% in 2015 (~12% by early 2020s)

CAISO

2009

8%

ERCOT

2011

9%

SPP

2014

12%

IESO

20 | brattle.com

Next Steps ▀ ▀

▀ ▀

Overview Workshop − Session 1: Identify Drivers − Session 2: Develop Futures − Session 3: Analyze Implications − Session 4: Present Findings Study Approach Next Steps

21 | brattle.com

Contact Information JOHANNES PFEIFENBERGER

KATHLEEN SPEES

Principal │ Cambridge, MA [email protected] +1.617.234.5624

Principal│ Cambridge, MA [email protected] +1.617.234.5783

JUDY CHANG Principal and Director │ Cambridge, MA [email protected] +1.617.234.5630

MARIKO GERONIMO AYDIN Senior Associate │ Cambridge, MA [email protected] +1.617.234.5668

The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc. 22 | brattle.com

About The Brattle Group The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governmental agencies worldwide. We combine in-depth industry experience and rigorous analyses to help clients answer complex economic and financial questions in litigation and regulation, develop strategies for changing markets, and make critical business decisions. Our services to the electric power industry include: ▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀

Climate Change Policy and Planning Cost of Capital Demand Forecasting Methodology Demand Response and Energy Efficiency Electricity Market Modeling Energy Asset Valuation Energy Contract Litigation Environmental Compliance Fuel and Power Procurement Incentive Regulation

▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀ ▀

Rate Design and Cost Allocation Regulatory Strategy and Litigation Support Renewables Resource Planning Retail Access and Restructuring Risk Management Market-Based Rates Market Design and Competitive Analysis Mergers and Acquisitions Transmission

23 | brattle.com

Offices

CAMBRIDGE

NEW YORK

SAN FRANCISCO

WASHINGTON, DC

TORONTO

LONDON

MADRID

ROME

SYDNEY

24 | brattle.com