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PHYSICAL FINANCIAL
RISK BASED RESOURCE ANALYSIS
BRIDGING PHYSICAL & FINANCIAL
Crossing the Chasm
• Weather
• Load
• Renewables
• Spot prices
• Asset operations
• Forwards
• Options
• Forecasts
• Investment Options
• Risk Premium
Monetizing the Value of Flexible Generation in Competitive Power Markets
PowerGen Natural Gas 2015Columbus, OH
Presented by:Gary Dorris, PhD
August 19, 2015
3 ascend analytics
Ascend Analytics – Overview
• Short, Intermediate, & Long-Tem: portfolio analytics and asset optimization
• Founded in 2002, continuing steady growth, currently with over 30 employees
• Offices in Boulder CO, Oakland CA, and Bozeman MT
Small Sample of Ascend’s Software Customers
4 ascend analytics
Decision Analysis Through Time
~6 years to 30+ yearsToday
Decision Analysis Timeframe – One Model Through Time
Operational Strategy(PowerSimm OPS)
1 month to ~5 years10 days
Long-term Valuation(PowerSimm Planner)
• Asset valuation
• Resource planning
• Cost versus risk tradeoff resource analysis
• Assessment of renewable energy technologies
• Portfolio management
• Renewable asset management
• Retail pricing
• Energy purchases and sales
• CFaR, GMaR, EaR
• Optimal short-term dispatch
• Short-term load & price forecasting
• Realized gains and losses
• Decision support for trading
Intermediate Analytics(PowerSimm Portfolio Manager)
Flexible Resource
Day-Ahead and Real-Time Operating Example
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• Flexible generator maximizes profits relative to RT prices
Real-time price > Strike price run generation
Real-time price < Strike price buy generation from market to meet day-ahead offer when Real-time price
Day-Ahead and Real-time markets
0
50
100
150
200
250
300
-1 4 9 14 19 24
$/M
Wh
Hour
Energy Prices of MISO Arkansas Hub on 05/01/2014
Day-Ahead
Real-Time
Generation Strike Price
Shut down period
Run period
6 ascend analytics
Realizing the Value of Flexible Generation
• Traditional generator valuation:
Supplier of energy in either the Day-ahead (DA) or Real-time (RT) market
May add on an additional adder for ancillary revenue
Analysis is done on an hourly basis
• Valuing flexible resources in this manner considerably undervalues the asset
• Correctly valuing flexible generation assets:
In a resource planning setting, in order to correctly value flexible assets methods are needed to co-optimize between energy and ancillaries on a sub-hourly time-scale
In a market setting, flexible generation needs to have the ability to capture sharp swings in real-time prices through joint optimization of energy and ancillary services for both DA and RT markets
7 ascend analytics
Flexible generation participating in wholesale power markets
Three scenarios for flexible generation to participate in wholesale energy and ancillary markets:
1. Sell energy into the DA and RT energy markets
2. Sell regulation into the DA and RT markets
3. Sell regulation and energy into the DA and RT markets
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NYISO Day-ahead and Real-time Energy Prices
• Load pocket on Long Island:
Day-ahead:
• Average Price: $100/MWh
• Volatility: 65%
Real-time:
• Average Price: $115/MWh
• Volatility: 220%
Flexible Resource
Operations to Energy & Ancillary Prices (1)
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• Energy and regulation 5 min real-time prices are volatile
• Flexible resources extract value from price volatility
Shut-down when prices low
Start-up when prices high
• Objective: Jointly optimize energy
and ancillary service value
s.t. operating constraints
• Strategy: Realize full extrinsic value
in the real-time market.
Shut down period
Run period
Evaluation of Market Price Signals for Flexibility
10 ascend analytics
ISO’s have a Day-Ahead and Real-time markets
Energy
• Day-Ahead hourly market prices
• Real-time prices settled 5 minute to 1 hour intervals (depending on ISO)
Ancillaries
• Regulation Capacity and Cycle Fee or Regulation Up and Regulation Down
• 10 minute spin and non-spin
Day-Ahead Example of 10 MW Generator Bid Energy @ Minimum Load
Generation Strike Price $40/MWH Start-up Cost = $0/MWh
Minimum Load of Gen 4 MW Ramp-time = 10 MW/min from start
Price of Energy $30/MWh
Price of Regulation $20/MWh
Margin Energy ($30/MWh-$40/MWh) *4 MW = ($40)
Margin Ancillaries $20/MWh*6MW = $120
Total Margin = $ 80
Value of Flexibility by ISO
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• The regional supply composition and
market structure are key determinants to
the value of flexible generation
• Value can be distilled into a couple of
critical factors:
Regulation prices > $12/MWh
High volatility in real-time prices
(>110%)
Trend of volatility and regulation
prices
• Future fundamentals (changes in supply)
play a critical role
SPP
• 47% reserve margins
• Coal and wind generation
lowest energy prices in
country
• High ancillary prices and real-
time price volatility
opportunity for fast flex-
ramp resources
CAISO has lowest ancillary service
prices in US by 50% and lowest price
volatility
• Substantial hydro storage and
interconnection ties to hydro
storage
• Lowest ancillary service prices
in US by 50% and lowest price
volatility with decreasing trend
SPP
12 ascend analytics
Massive planned wind capacity expansion in SPP
8,000+ MW of wind
Large geographical distribution
Flat coal based supply stack with limited flexibility to
respond to large entry of wind
Volatile wind, inflexible supply high ancillary
prices and volatile real-time prices
Excess capacity and coal economic
retirement of coal because of wind additions
SPP Energy and Ancillary Prices
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0%
200%
400%
600%
800%
1000%
1200%
1400%
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Spin Supplementary RegDown RegUP
Price Standard Deviation
0%
50%
100%
150%
200%
250%
300%
350%
400%
$0
$5
$10
$15
$20
$25
$30
$35
$40
Price Price Volatility Volatility
Zone 2 On-peak Zone 2 Off-Peak Zone 2 On-peak Zone 2 Off-Peak
Day-ahead Real-time
SPP energy market observations:
Day-ahead prices higher than Real-time prices
Real-time price volatility > 300%
Substantial opportunity for fast flex-ramp
generation with wind resource additions
SPP ancillary market observations:
Regulation prices > $14/MWh
Spin and Supplementary ancillaries
significantly more volatile than Regulation
Regulation benefits from relatively stable, high
prices
SPP Market Prices
14 ascend analytics
330% Volatility in Real-Time Prices
-200
0
200
400
600
800
1000
1200
1400
1600
-1 4 9 14 19 24
$/M
Wh
Hour
Energy Prices of SPP on 05/01/2014
Day-Ahead Real-Time
Importance of Sub-Hourly Time Step
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• Sub-hourly resource modeling can yield substantially different resource
selection CT’s with high start-up costs tend to perform less well than ICU’s
Fast ramp characteristics of ICUs and batteries become more valuable
Example Sub-hourly Analysis of ICU vs CT’s
2014 Resource Plan NorthWestern Energy South Dakota
0
10
20
30
40
50
60
70
80
90
100
Wartsila 50SG GE 7FA
$/kW
-yr
Day-Ahead Energy Real-Time Energy Ancillary Services
Evaluation of Market Signals for Flexibility
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A-
CA-
B+B+A-
B
B+
Key:A = outstanding potentialB = Strong potentialC = Limited potential
A-
Contact Information
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Gary Dorris, Ph.D.
Boulder, CO 80302
(303) 415 0311
Other Offices:
Bozeman, Montana
Oakland, California