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ERCOT Reports Changes To Offer Cap, Value Of Lost Load Need To Be Considered For Real-Time Co-optmization (Prices of $18,000/MWh One Approach)

ERCOT Reports Preliminary $40 Million Estimated Price Tag, 4-5 Years Implementation Time for Real-Tme Co-optimization

July 17, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

ERCOT filed a report on the potential implementation of the co-optimization of energy and operating reserves in the real-time market (RTC) in which ERCOT indicated that changes to the Value of Lost Load (VOLL) and System-wide Offer Cap (SWOC) would need to be considered

"[B]ecause RTC determines the energy and the Ancillary Service schedules for each resource within the Security Constrained Economic Dispatch ('SCED') engine, the results should give a higher priority to meeting the energy demand than meeting the Ancillary Service demand. In other words, the objective in SCED should establish a priority that energy supply is equal to energy demand, with any shortfall in the ability to meet Ancillary Service requirements reflected in the price of such shortages consistent with the demand curve established for each Ancillary Service. This objective requires coordination between the VOLL, SWOC, the maximum value on the ASDCs [Ancillary Service Demand Curves], and the PBPC [Power Balance Penalty Curve] such that the maximum value on the ASDC is equal to VOLL minus SWOC, and the PBPC = VOLL + $1," ERCOT said

ERCOT set forth several scenarios for these values, noting several of them are unworkable.

Example 1 included a VOLL of $9,000/MWh and a SWOC of $9,000/MWh. Each of these values is consistent with existing Commission rules and/or prior discussions. "However, to meet the RTC coordination criteria, the maximum ASDC value for Example 1 is $0/MWh, which is unworkable because such a value is unable to effectively establish reserve shortage pricing," ERCOT noted

"Example 2 addresses the flaw in Example 1 by raising the VOLL to $18,000/MWh, which allows the maximum ASDC value to rise to $9,000/MWh. Yet, this change presents the possibility of energy prices of $18,000/MWh," ERCOT noted

"Examples 3 and 4 maintain a VOLL of $9,000/MWh, but with the SWOC changed to $2,000/MWh and $4,500/MWh, respectively. If marginal energy offers are $2,000/MWh or less, Example 3 is more likely than Example 4 to achieve energy prices close to VOLL during acute reserve shortage conditions," ERCOT said

"Therefore, in order to achieve a coordinated and workable result with RTC, decisions related to the appropriate VOLL and/or SWOC would have to be considered by the Commission. Specifically, the Commission would need to consider a change to the SWOC for the Real-Time Market in paragraph (g)(6) of P.U.C. Subst. R. 25.505, Resource Adequacy in the Electric Reliability Council of Texas Region, and/or a change to the VOLL that was last discussed by the Commission in 2013 in Project No. 40000, Commission Proceeding to Ensure Resource Adequacy in Texas," ERCOT said

ERCOT also reported a preliminary cost estimate (minimum of $40 million) and time estimate (4 to 5 years) for implementing RTC, which indicates a large scale project that impacts multiple core ERCOT systems. "Although more detailed than ERCOT’s cost and time estimates for RTC reported to the Commission in September 2013, both estimates are still high-level and preliminary," ERCOT said

See ERCOT's report here

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