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Using the DecisionTools
g
Suite for Risk Assessment in C
Competitive Electricity Markets
i i El
i i M k
P
Presented by
t db
Dr. Rahul Walawalkar & Jed Trott
Customized Energy Solutions Ltd.
1528 Walnut Street 22nd Floor
1528 Walnut Street, 22
Philadelphia, PA 19103 USA
Phone: 215‐875‐9440
Fax: 215‐875‐9490
i f @
info@ces‐ltd.com
ltd
1
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Outline
• Introduction
Introduction to Competitive Electricity Markets
to Competitive Electricity Markets
• Challenges for Risk Assessment of energy projects
• Overview of DecisionTool suite & examples of insights drawn from risk assessment using
insights drawn from risk assessment using DecisionTools suite
• Conclusions
C l i
• Q&A
Q
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US Generation Capacity (2007)
• US Generation Capacity : 995 GW
US Generation Capacity : 995 GW
– Coal – Natural Gas
– Nuclear
– Hydro – Petroleum
– Wind – Solar
: : : :
:
:
: 313 GW
393 GW
100 GW
78 GW
56 GW
56 GW
17 GW 0.5 GW
Analyze.
Simplify.
Implement.
US Generation Capacity Additions
Source: DOE / EIA: Annual Energy Outlook 2007 Analyze.
Simplify.
Implement.
Electricity Generation Growth Around the World
Source: Gapminder.org
Analyze.
Simplify.
Implement.
Growth of renewables in generation mix
Source: AWEA 2009
Analyze.
Simplify.
Implement.
Moving towards a “Smarter Grid”
Source: Walawalkar et. al 2007
Analyze.
Simplify.
Implement.
Implement
Electricity Restructuring
Electricity Restructuring
Customized Energy Solutions Ltd.
1528 Walnut Street 22nd Floor
1528 Walnut Street, 22
Philadelphia, PA 19103 USA
Phone: 215‐875‐9440
Fax: 215‐875‐9490
i f @
info@ces‐ltd.com
ltd
8
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Electricity Restructuring
•Major
Major reasons for competitive electricity markets
reasons for competitive electricity markets
1.
2
2.
3.
4
4.
More rational energy pricing
Expectation of lower prices through competition
Expectation of lower prices through competition
Promote innovation Allow for freedom of choice between suppliers
Allow for freedom of choice between suppliers
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Competitive Electricity Markets
Source: FERC: http://www.ferc.gov/industries/electric/indus‐act/rto/rto‐map.asp
Analyze.
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Comparison of ISOs/ RTOs
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Electricity Markets
• Energy Market
– Day Ahead
h d
– Real Time
• Capacity Credit Market
p y
– Daily
– Long Term
• Ancillary Services
Ancillary Services
–
–
–
–
Regulation Market
Spinning Reserve Market
Bl k
Blackstart
S i
Service
Reactive Service
• Demand Response Market
p
– Day Ahead (Energy)
– Real Time (Energy)
– Spinning Reserve and Regulation Spinning Reserve and Regulation
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Electricity Market Features
MISO Ancillary Service Markets started functioning in January 2009.
2009 CAISO completed implementation of MRTU on 31st March 2009.
2009
PJM has switched from the systemwide capacity market to locational markets in 2007.
Source: FERC
Analyze.
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Pre market price signal
Pre-market
• Investment
Investment decisions were made as part of system decisions were made as part of system
resource planning by vertically integrated utilities
• Energy price typically embedded cost of providing ancillary services
y
• Aim of maintaining the average price low
• Customers did not see real energy prices
C
did
l
i
14
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Energy and Ancillary Service Prices
15
9-Sep
28-Aug
16-Aug
4-Aug
3-Oct
20--Nov
8-Nov
8
27-Oct
2
15-Oct
14-De
ec
26-De
ec
23-Jul
11-Jul
21-Sep
2-D
Dec
17-Jun
n
29-Jun
Days in Year
5-Jun
n
24-Ma
ay
12-M
May
30--Apr
18
8-Apr
6-Apr
6
25-Mar
2
13-Mar
1-Mar
18-Feb
6-Feb
25-Jan
13-Jan
1-Jan
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NYISO Net Load - 2006
NYISO - Net Load - Yr 2006
35000
30000
25000
20000
MW
15000
10000
5000
0
S21
S17
S13
S9
Hrs in
S5
S1
Day
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Short Run Marginal Cost Curve
Analyze.
Simplify.
Implement.
Transmission Infrastructure
National Interest Electric Transmission Corridor
Analyze.
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Congestion Example
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Location Location,
Location,
Location Location
• PJM
• NYISO
East
NY West
NY East
West
South
NYC
•
•
•
NYC: NYC, Long Island
NY East: Capital, Hudson Valley, Millwood,
Dunwoodie
NY West: West, Genesee, Central, Mohawk
Valley, North
Central
•
•
•
•
PJM East: AECO, DPL, JCPL, METED,
PECO, PPL, PSEG, RECO
PJM Central: PENELEC, APS
PJM South: DOM, BGE, PEPCO
PJM West: COMED, AEP, DAY, DUQ
Analyze.
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NYISO & PJM LMP Profiles (2001-09*)
(2001 09*)
* Partial year data as of June 2009
Analyze.
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Effect of Natural Gas Price in NYISO
Analyze.
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Implement.
Average Daily LMP Curves for each month in NYC
Analyze.
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Impact of Renewables
• PJM has 40GW + wind projects in interconnection queue
– Current wind penetration is 1.3 GW
• NYISO is anticipating
p
g more than 3 GW of wind being
g added
on the grid in next 3-4 years
– Current wind penetration is 1 GW
• Represents around 10% of peak load for NYISO
– 20-30% of off peak load
• M
May result
lt in
i iincreased
d regulation
l ti and
d ancillary
ill
service
i
requirements
• Can improve the case for energy arbitrage by lowering off
peak prices
Analyze.
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Occurrence of Negative LMPs in NYISO Zones
Analyze.
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Implement.
Distribution of –ve
ve LMPs
Analyze.
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Emerging Key Issues
• Green house gas emission limits
Green house gas emission limits
• Renewable integration / interconnection
• Role of Energy Storage technologies
Analyze.
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Regional GHG Emission legislations
Source:
www.pewclimate.org
Analyze.
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Federal GHG Legislations under consideration
Analyze.
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Policies used for promoting renewables
•
•
•
•
Renewable Portfolio Standard
Renewable
Portfolio Standard
Net metering
Small Generation Interconnection
Production tax Credit / Investment tax Credit
Production tax Credit / Investment tax Credit
Analyze.
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Renewable Portfolio Standards
Source: http://www.dsireusa.org/documents/SummaryMaps/RPS_Map.ppt
Analyze.
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Renewable Technology Options
Analyze.
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Implement.
Wind Penetration in US
Mix of New Installed
Generation
Installed Wind Capacity: 29.4 GW
Capacity Under construction: 5.6 GW
Source: AWEA
33
Analyze.
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Solar PV
Current growth concentrated g
in Ca, Nv, Az, NJ
• Significant intermittency problems exist for PV
•
34
Source: Dr. Jay Apt et. al, CMU
Analyze.
Simplify.
Implement.
Renewable Energy Cost Trends
Analyze.
Simplify.
Implement.
Estimated cost of new generation
S
Source:
FERC 2008
Analyze.
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Capacity Factor for Different Technologies
Source – NREL 2009
Analyze.
Simplify.
Implement.
Implement
Using DecisionTools Suite
Using DecisionTools
Customized Energy Solutions Ltd.
1528 Walnut Street 22nd Floor
1528 Walnut Street, 22
Philadelphia, PA 19103 USA
Phone: 215‐875‐9440
Fax: 215‐875‐9490
i f @
info@ces‐ltd.com
ltd
38
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DecisionTools Suite
• @
@Risk: Risk Analysis using Monte Carlo Simulations
y
g
• Top Rank: Automated “what if” sensitivity analysis
• PrecisionTree: Decision analysis to visually map out PrecisionTree: Decision analysis to visually map out
complex, multi‐layered decisions in a sequential, organized manner.
• NeuralTools: Forecasting and prediction based on the patterns in historical data
• RiskOptimizer: to solve optimization problems under uncertainty.
• StatTools: time‐series forecasting and statistical analysis
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@Risk
• Performs risk analysis
risk analysis using Monte Carlo using Monte Carlo
simulation.
• Ideal tool to understand the impact of uncertainty Ideal tool to understand the impact of uncertainty
in revenues and costs in electricity markets.
• Allows to understand the risk using probabilistic ll
d
d h
k
b bl
methods instead of using deterministic methods with high‐average‐low approach
@
• @Risk can be used in combination with other DecisionTools suite products for additional insights g
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Example 1: Ancillary Service Revenue
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Regulation Price Profiles NYISO (2001
(2001-09)
09)
Analyze.
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Implement.
Probability Curve for Expected Regulation Revenues
Analyze.
Simplify.
Implement.
E ample 2:
Example
2 Factors Affecting Energy
Energ Storage Economics
• EES Revenues & Cost
EES R
&C
– On Peak Energy Revenues On Peak Energy Revenues
– Off Peak Charging Costs
– Ancillary Service Revenues
– Capacity revenues
Capacity revenues
– Interconnection costs
– Natural Gas price
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Net Revenues with different CAES Configurations
~51% increase over daily operation
CAES Configuration
™Heat Rate
Annual Revenue $ / MW
™Energy Ratio
™Power Ratio
™Ramp rate ™Response time ™Storage St
Duration
0.50
0.75 1.00 (Daily) 1.00 (Monthly)
Power Ratio
Power Ratio
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Impact of capital cost on economics of CAES in NY
Analyze.
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TopRank
• Automated
Automated what
what‐if
if analysis to identify the most analysis to identify the most
important variables
• Quick way to perform sensitivity analysis in existing Quick way to perform sensitivity analysis in existing
spreadsheet models
– Select
Select any cell or cells as outputs
any cell or cells as outputs
– TopRank can identify and perform sensitivity analysis by varying different input variables
varying different input variables
– User can utilize AutoVary or define variability for each p
input cell
• TopRank ranks the variable cells according to the effect they have on the selected outputs.
y
p
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TopRank
• Results are displayed
Results are displayed graphically
– Tornado Graphs display the relative ranking of one i
input versus another by comparing the effects of all t
th b
i th ff t f ll
inputs on results.
– Spider Graphs compare the effects of multiple inputs on results. For each input, the percentage changes in its value from the base case is plotted vs the percentage change in results.
– Sensitivity Graphs show the effects of an individual input on results with a standard line graph.
Analyze.
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Example: Tornado Graph
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Implement.
Risk Optimizer
• RiskOptimizer is an ideal tool for optimization is an ideal tool for optimization
problems that involve more than one variable.
• Allows to create models that accurately reflect real‐life situations.
• Example:
– Determining the optimal sizing blocks of power to D t
i i th
ti l i i bl k f
t
determine hedging strategy
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Hedging Load in PJM
• The Problem –
The Problem Load and LMP are unpredictable and volatile. To Load and LMP are unpredictable and volatile To
further complicate matters they have a high degree of correlation especially when they are high. This means that making mistakes
especially when they are high. This means that making mistakes in hedging can be devastating.
Hedging Options
• Full Requirements
• Capped
• Uncapped
• Fixed Forward Load Shape
• Generating Assets
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Hedging Options
• Full Requirements‐ Contract to cover entire cost of serving load. Can be risk free and therefore very expensive.
• Fixed Forward Load Shape ‐ Forward contract for power shaped on an hourly level to better fit the usage of a Load Serving Entity (LSE). This may decrease the risk of being over or under hedged but the shaping is costly.
• Generating Assets‐ In the long term generating assets have the advantage of providing supply with a high degree of correlation to price risk As LMP increases the chances of a
correlation to price risk. As LMP increases the chances of a generator being dispatched also increase.
Analyze.
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Hedging Options ..
• It can be difficult to gain access to the output of a generator in the near to medium term.
• Block Purchases of Power‐ Block purchases of power are traded on public exchanges and therefore have the advantage d d
bli
h
d h f
h
h d
of being one of the most efficient ways to obtain power in the short term However because they trade in 24 16 or 8 hour
short term. However because they trade in 24 , 16, or 8 hour blocks it is time consuming and difficult to fit them to a load shape.
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H d i O
Hedging
Options
ti
500
450
400
Megawattts
FFLS
Blocks
Assets
350
Load
300
250
200
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hour
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Example
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PrecisionTree
• PrecisionTree performs decision analysis using p
y
g
decision trees and influence diagrams.
• Decision trees help to visually map out complex, p
y
p
p
multi‐layered decisions in a sequential, organized manner.
• Helps to identify all possible alternatives and choose the best option.
• Example
l
– Decision to buy long term PPA vs buying energy in day ahead / real time electricity markets based on various
ahead / real time electricity markets based on various factors including fuel price scenarios, environmental rules etc.
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NeuralTools
• NeuralTools performs predictions in Microsoft Excel p
p
using sophisticated neural networks.
• Helps to “learn” patterns in historical data, and utilize p
p
them in forecasting.
• NeuralTools can also automatically update predictions when input data changes, thus enabling automating and robust analysis
• Examples include
l i l d
– Developing load forecasts using weather, time & seasonal data
– Developing price forecasts for bidding into day ahead markets
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StatTools
• Replaces
Replaces Excel
Excel’ss built
built‐in
in statistics functions with statistics functions with
more robust and accurate functions.
• Can be used for time‐series forecasting and statistical analysis
y
• Can be combined with @RISK for more in‐depth analysis For example to determine a confidence
analysis. For example, to determine a confidence interval on the @RISK simulation results.
Analyze.
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Summary
• US
US Electricity industry has undergone significant changes in past Electricity industry has undergone significant changes in past
decade with formation of competitive electricity markets
Competitive electricity markets now act as one of the most
• Competitive electricity markets now act as one of the most efficient ways for price discovery, where even bilateral contracts are settled against these markets in most of the regions.
• These markets where the value for energy and ancillary services vary from hour to hour and depends on the location in the electricity grid,
l
d present significant uncertainty for decision makers
f
f d
k
• DecisionTools suite is an integrated set of programs that is ideally suited for risk assessment in electricity market related projects.
it d f i k
t i l t i it
k t l t d
j t
• As with the case of use of any powerful tool, care should be taken in developing models to avoid “Garbage
in developing models to avoid Garbage‐In –
In Garbage‐Out
Garbage Out”
Analyze.
Simplify.
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Implement
QUESTIONS ???
D
Dr. Rahul Walawalkar
R h lW l
lk
215‐875‐
215‐
875‐9440
rahul@ces
rahul@ces‐‐ltd.com
www.ces
www.ces‐‐ltd.com Customized Energy Solutions Ltd.
1528 Walnut Street 22nd Floor
1528 Walnut Street, 22
Philadelphia, PA 19103 USA
Phone: 215‐875‐9440
Fax: 215‐875‐9490
i f @
info@ces‐ltd.com
ltd
60
60