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What Got Us Here Won't Get Us There

image credit: Photo by Science in HD on Unsplash

“Regulation must address issues of market design; markets cannot solve the problem of market design”

-Dr. William H. Hogan

Harvard University

 

 Coordination Produces Savings & Lower Carbon Emissions

Coordinated regional dispatch of power generation produces enormous financial and environmental benefits.

  • RTO/ISO markets
  • Imbalance markets
  • Joint Dispatch Agreements
  • Power Pools

Though each of the above offers different value propositions and governance nuances, nobody disputes that we burn less fuel and optimize the transmission grid more fully when Balancing Authorities of two or more coordinate dispatch.

The bigger the participation, the higher the level of benefits created.

For example, Western Energy Imbalance Market yielded $862,000,000 in gross benefits from the 11/2014 inception through the end of 2019.

As a result of more efficient economic dispatch of generation, we have been able to burn less fuel, especially coal. Coordinated dispatch also accelerated the introduction of abundant and cheap natural gas. The end result has been a massive reduction in U.S. greenhouse gas emissions and early retirements of coal plants.

As the new decade begins, coordinated dispatch of any form faces a critical inflection point.

Thanks to the avalanche of wind & solar generation plus the introduction of massive amounts of distributed energy resources, we now know that current market rules & products need to undergo a significant overhaul. If we desire to attain public policy goals and continue to lead the world in the reduction of greenhouse gas emissions, we need to change current rules and products of coordinated regional dispatch.

Coordinated regional dispatch is the right church, but we are now in the wrong pew.

What got us here will not get us there.

 

SOURCE

Inventory of U.S. Greenhouse Gas Emissions and Sinks 1990-2017 (EPA, 2019)

 

New Day Ahead Complexities & Challenges

Regional coordination of any form requires a day ahead plan. Accurate and reliable load and generation forecasts play a central role to determine the optimal economic dispatch plan. However, both forecasts now involve a significant level of complexity and uncertainty heretofore unseen.

Behind the meter generation and the “Internet of Things” are radically altering the usage patterns of retail and commercial load. Historical load data is much less reliable in determining a highly accurate load forecast.

 And that is a very significant change.

On the generation side of the equation, wind and solar are quickly gaining market share. The intermittency of both resources presents much more complex forecasting challenges than traditional base load generation like nuclear, coal & gas. The art of forecasting when the wind will blow, and the sun will shine present much more variance than thermal generation. The increase of zero marginal cost resources also presents challenges to the current system of economic dispatch.

What will be the rules to determine the order of dispatch when most if not all generation owns a zero-marginal cost? How do we regionally model a market whereby many states have different Renewable Portfolio Standards & goals? What about the states that have none?

In many ways, we are in the early innings of a change from economic dispatch to environmental dispatch.

 

Jack Be Nimble, Jack Be Quick

Increased wind and solar intermittency in the real time market poses unique challenges and risks. We need to define and value generation and demand response products that will provide desperately needed nimbleness to balance load and generation. Especially in a future world where load patterns and generation enter a new world of volatility.

The Incentive Theory declares that incentives can get people to engage in certain behaviors, but they can also be used to get people to stop certain behaviors. The best way to create value for flexibility is to enhance pricing signals in the regional energy markets. The Incentive Theory is a significant cornerstone of fully organized markets and thus a reason why positive and negative prices exist.

Being nimble and open to new ideas is the key to longevity. Simply put, being nimble is far more important than being right.

As we enter a new world of intermittent renewable resources dominating the grid, the coordinated regional markets now recognize the need to be nimble. New products and new market rules need to be developed in the next year.

 

Jumping Over Candlesticks

Jumping over candlesticks was once traditional in England, mostly practiced in fairs and markets. It was believed that it is a good-luck sign to succeed to clear the candle and to not damp down the flame.

In order to continue to significantly reduce greenhouse emissions, we do not need to douse the flame of regional coordinated dispatch. Why would we?

The current forms of coordinated dispatch already own the three elements critical to future success:

  • Successful track record of positive results derived from working together rather than alone.
  • Transparency
  • Trust

The business of assigning revenues and expenses to a group of people requires transparency and trust. Trust takes years to build and can be lost in a day. Trust is the critical building block of any successful personal or business relationship.

We are in the right church. But we need to move to a different pew.

 

Unleashing Latency

 

Another reason not to throw the baby out with the bathwater is that latent flexibility exists in today’s grid:

  • We can improve flexibility through better natural gas and electricity market coordination.
  • We can utilize demand response to a greater degree than present.
  • We can minimize restrictions on resource participation. For example, battery storage, both in front and behind the meter, provide one example. Electric vehicles may ultimately do so in the future as well.
  • We can create ramping products.
  • We can grow existing regional coordination efforts. Additional resources and participants produce more flexibility and ultimately more value.

We need to create investment signals for flexible new resources in order to meet the known complexity and volatility in the future.

 

Separation Events

Think about a multi-stage rocket…

By jettisoning stages when they run out of propellant, the mass of the remaining rocket is decreased. Each successive stage can also be optimized for its specific operating stages, such as decreased atmospheric pressure at higher altitudes. This staging allows the thrust of the remaining stages to more easily accelerate the rocket to its final speed and height.

Separation of each portion of multistage rocket introduces additional risk to the success of the launch mission. Reducing the number of separation events results in a reduction of complexity.

Regional coordination markets have approached a separation event to some degree. The first stage of the rocket would be the current construct and products of these markets. We safely achieved a successful blast off into space, but we now need another rocket to propel us to the next destination.

But we don’t need to have several separation stages. Regional coordinated markets are complex enough and contain way too many acronyms. Increased complexity will reduce transparency and trust.

 

Regional Challenges Require Regional Responses

When we consider future fine tuning to regionally coordinated markets, we need to remember that certain regional challenges are germane to that region.

For example, the CAISO duck curve and the Pacific NW wind & hydro capacity offer a unique challenge and solution than other regionally coordinated markets.

As such, we must be extremely careful to not create a “one size fits all” autocratic approach. People will support what they help to create. Allowing regional stakeholders to consider and develop regional solutions will provide the best results.

Bottom up solutions will provide quicker and longer lasting solutions than top down.

 

Summary

What got us here won’t get us there.

Our next destination is a place where we will be able to serve load in the most reliable, affordable and environmentally considerate manner possible. If we wish to continue down our current path of significantly reducing greenhouse gas emissions, we need a different market design centered on rewarding flexibility and nimbleness.

Change is easy. Transformation is the hard stuff.

Fortes in Unitate. Strength in Unity.

 

Patrick McGarry

Ponte Vedra Beach, Florida

March 15th, 2020

Patrick McGarry's picture

Thank Patrick for the Post!

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Discussions

Matt Chester's picture
Matt Chester on Mar 16, 2020 1:41 pm GMT

Thanks to the avalanche of wind & solar generation plus the introduction of massive amounts of distributed energy resources, we now know that current market rules & products need to undergo a significant overhaul. If we desire to attain public policy goals and continue to lead the world in the reduction of greenhouse gas emissions, we need to change current rules and products of coordinated regional dispatch.

Couldn't agree more-- but I think one of the big questions remains whether the significant stakeholders will allow the rewriting of the rules happen when those rules have benefitted them so greatly. Will the political power of legacy utility companies be overcome by this natural necessity thanks to industry evolution?

Patrick McGarry's picture
Patrick McGarry on Mar 16, 2020 1:55 pm GMT

Matt- Great question and here is my take. I spend time every week reading Pew & Gallop poll data. In regards to climate change & renewable energy, the ship has left the port in the minds of the public. Even in a 50/50 country, most would be surpised that a large majority would like to see cleaner energy and a continued reduction in greenhouse gas emissions. So to those who wish to fight it, they may well be fighting the wishes of their customers. I see this movement like water going down a stream with a few rocks in the way. The water will go around the rock and over the rock. Eventually, the water will reshape the rock so it isnt in the way anymore. Just my thoughts...

Matt Chester's picture
Matt Chester on Mar 16, 2020 4:31 pm GMT

Even in a 50/50 country, most would be surpised that a large majority would like to see cleaner energy and a continued reduction in greenhouse gas emissions.

Agreed with you here, but from what I read of the polls (and it sounds like it's much less than you, so I appreciate your insights!), people are definitely generally behind clean energy movement, but it's when you get to specifics (what if it costs a little more? what if the wind turbines are built in your community?) that the majority starts to get whittled away. I think those specifics can certainly be tackled, but I worry about the delay in that happening given that those with a stake in the status quo will hammer those measures (which there are numerous examples you can already point to!)

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