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FCM PI Impact Assessment Update. Assessment Method, Assumptions and Data. Paul J. Hibbard Analysis Group June 4, 2013. Overview. FCM PI vs. FCM Status Quo (and alternatives) March 1 Meeting Overview of impact analysis Role of Analysis Group Potential additional scope items - PowerPoint PPT Presentation
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BOSTON CHICAGO DALLAS DENVER LOS ANGELES MENLO PARK MONTREAL NEW YORK SAN FRANCISCO WASHINGTON
FCM PI Impact Assessment Update Assessment Method, Assumptions and Data
Paul J. HibbardAnalysis GroupJune 4, 2013
PAGE 2
FCM PI vs. FCM Status Quo (and alternatives)
March 1 Meeting
Overview of impact analysis
Role of Analysis Group
Potential additional scope items
April 10 Meeting
Proposed analytic approach
Key elements of scenarios
Expected sources of data and assumptions
Today
Model construct and status
Scenarios and assumptions, data sources
Examples of outputs
Feedback on inputs
Overview
PAGE 3
Comparison
Status Quo FCM PI NRG Alternative (under review by AG, ISO)
What is the difference?
With FCM PI, existing and new resources will adjust offers based on expected performance revenues (positive and negative) and perceived risk
This will effectively alter the supply curve for the capacity market …changing clearing prices, cost to load, and revenues to
suppliers …changing the mix of resources in the market …changing system reliability
Impact on supply curves depends on many assumptions
Initial review of a realistic set of scenarios
Reminder: Analytic Approach
PAGE 4
Approach to estimating offers by market participants in the FCM PI case (see ISO April 9th MC presentation)
Analytic Approach
The offers (B) used to determine the supply curves reflect a Common Value Component (CVC) and a Private Value Component (PVC), which are defined as follows:
max 0,
B CVC PVC
PPR r H GFC PPR H A
where the variables are defined below.
Variable Description
PPR Performance Payment Rate (dollars per MWh)
r Average of Balancing Ratio during scarcity condition hours:
load reservesr
ICR
H Number of scarcity condition hours
GFC Net Going Forward Costs (dollars per MW)
A Actual (average) unit performance during scarcity condition hours
Status Quo Offers
PAGE 5
DemandNet ICR from RSP for 2018/2019
High/Low sensitivities to represent potential range of outcomes over time
ResourcesExisting generation from FCA7, including delists
Passive DR from FCA7
AG estimates of active DR and imports based on FCA results and ISO data
Renewables (on-shore wind) sufficient to meet RPS requirements per RSP for 2018/2019
Additional new generation CC/CT (based on ORTP costs, with market revenue estimates updated by AG)
Key Data Sources, Assumptions
PAGE 6
System Parameters: expectations based on past performance
Reserve shortage hours (H) based on system data 2010-2012, and ISO modeling of at criteria conditions
Actual reserve shortages under current RCPFs ($500 system) (simulated 1/10 – 5/12) ~ 3.2 hours/year
Sensitivities to capture potential future conditions (e.g., low and high values with the system “at criteria”)
Unit performance (A) based on 2010 – 2012 operations, with variations based on seasonal pattern of assumed shortages
Shortages spread across all months Shortages mostly in summer (2011 pattern) Shortages mostly outside of summer (2010 pattern)
Balancing ratio based on review of system data 2010-2012
PPR set to $5,000 (high/low sensitivities at $4,000, $6,000)
Key Data Sources, Assumptions (cont’d)
PAGE 7
Going-Forward Costs (GFCs)
Fixed Costs (FC) and Variable Costs (VC) based on unit-specific data from SNL
Investment Costs (I) reflect annualized cost of new capital investments (e.g., new plant, environmental compliance, dual fuel upgrades) AG estimates, using updated ORTP financial assumptions
Net generation (Q) based on actual unit output 2010-2012
Heat rates (HR) based on unit-specific data from SNL
Fuel prices (Pfuel) based on NYMEX forward prices (natural gas), SNL (uranium), ORTP (biomass), and EIA (the rest)
Market prices (P) reflect energy and reserve/AS revenues from 2010-2012, adjusted for forecast fuel price expectations
PI Risk Premium (RF) based on AG estimates
Key Data Sources, Assumptions (cont’d)
* * FuelGFC FC I Q P VC HR P RF
PAGE 8
Variations on GFC related to incremental investment in existing assets: Dual fuel capability costs (based on AG analysis)
Fixed costs to maintain Investment costs to establish, or recommission Investments made if additional net FCM PI revenues (due to
improved performance) exceed incremental GFC
Environmental compliance investment Identify units potentially affected by EPA air, water, and ash
regulations (ISO analysis, AG review) between now and 2020 Estimate investment and annual fixed cost increments for
compliance (ISO and NERC analysis, AG review) Consider 3 scenarios
No compliance investments Moderate compliance investments Severe compliance investments
Key Data Sources, Assumptions (cont’d)
PAGE 9
Existing Units: unit- and plant-level data from SNL, ISO
• Operating capacity, net generation (historical)• Variable non-fuel production costs ($/MWh)• Fixed production costs ($/kW-yr)• Heat rate• Potential for dual fuel capability• Environmental compliance obligations, estimated costs• Missing values extrapolated with representative
technology/fuel-type class data
New Units: based on ORTP analysis, updated for current market conditions
Model Inputs
PAGE 10
• Supply curves based on GFC and PI offer adjustments for existing and new units
• Developed for a number of scenarios
• Generate results with PI, without, and difference:
• Clearing price• Supplier
payments, surplus• Load payments
Sample Model OutputsExhibit A
FCM Bidding Model Results
ICR Quantity (MW) 34,500 $K:$K
With Performance Incentives 12
FCA Clearing Price w/PITotal Payments to Suppliers w/PI ($bil)
Total Surplus of Suppliers w/PI ($bil)Average Payments by Load ($/MWh)
Without Performance Incentives
FCA Clearing Price w/o PITotal Payments to Suppliers w/o PI ($bil)
Total Surplus of Suppliers w/o PI ($bil)Average Payments by Load ($/MWh)
Difference Between Non-PI and PI
FCA Clearing Price ($)Total Payments to Suppliers ($bil)
Total Surplus of Suppliers ($bil)Average Payments by Load ($/MWh)
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
FCM
Bid
($/
kW
-mon
th)
Cumulative MW
Supply Curve
Supply Without PI
Supply With PI
ICR (MW)
PAGE 11
• With and without PI, and difference
• Changes to resource mix by asset class
• Units that clear, delist
Sample Model OutputsResults With PI
Total MW of Units that Clear Total MW of Units that Delist
Total
Payme
Unit Fuel Type
DR/ImportCombined Cycle (Natural Gas)Gas Turbine - GasGas Turbine - OilHydroelectric - AllInternal CombustionOtherPhotovoltaicSteam Turbine - CoalSteam Turbine - Natural GasSteam Turbine - NuclearSteam Turbine - Residual Fuel OilSteam Turbine - Wood/Wood Waste SolidsWindTotal
Results Without PI
Total MW of Units that Clear Total MW of Units that Delist
Total
Payme
Unit Fuel Type
DR/ImportCombined Cycle (Natural Gas)Gas Turbine - GasGas Turbine - OilHydroelectric - AllInternal CombustionOtherPhotovoltaicSteam Turbine - CoalSteam Turbine - Natural GasSteam Turbine - NuclearSteam Turbine - Residual Fuel OilSteam Turbine - Wood/Wood Waste SolidsWindTotal
Difference Between non-PI and PI
Total MW of Units that Clear Total MW of Units that Delist
Total
Payme
Unit Fuel Type
DR/ImportCombined Cycle (Natural Gas)Gas Turbine - GasGas Turbine - OilHydroelectric - AllInternal CombustionOtherPhotovoltaicSteam Turbine - CoalSteam Turbine - Natural GasSteam Turbine - NuclearSteam Turbine - Residual Fuel OilSteam Turbine - Wood/Wood Waste SolidsWindTotal
PAGE 12
How does FCM PI affect clearing prices? Revenues to generators? Costs to load?
Do offers from new entry increase or decrease as a result of FCM PI? Existing asset classes?
To what extent would FCM PI drive retirements for units with poor performance or compliance investments?
How sensitive is the FCM PI clearing price to various system parameters?
To what extent may FCM PI change the resource mix?
How would FCM PI affect reliability through improving aggregate system performance due to resource mix changes?
Directionally, how would FCM PI likely affect energy market outcomes (e.g., fewer RT price spikes, reductions in NCPC)?
Areas of Inquiry
PAGE 13
Complete preparation of input data analysis and quality control checks on model
Review results, compare outcomes under various scenariosHigh/low ICRFCM PI parameters (H, A, BR, PPR)Environmental compliance obligations
Construct analysis of NRG alternative
Review results with stakeholders (July)
Next Steps