Long Term Adequacy
Recommendation
March 5, 2007
Colleen Fairhead
Gordon Nadeau
Background
What is LTA Initiative?
• On June 6, 2005 the Alberta Department of
Energy (DOE) released a Wholesale Market Policy
• AESO began discussion with stakeholders on LTA
in November 2005
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open invitation
meeting information posted to website
active participation by DOE
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Requirements of Policy Paper
• Metrics: The entire suite of LTA related
information items, including historical data,
forecasts and leading and lagging indicators that
the AESO will regularly capture, calculate and
report upon
• Thresholds: Specific points/quantum with respect
to one or more metrics when if breached or
forecast to be breached, the AESO may choose to
implement one or more Threshold Actions
• Threshold Actions: The “out of market” measures
the AESO may choose to implement to remedy an
actual or impending LTA shortfall
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Principles
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The combination of Metrics, Thresholds, Threshold Actions and
Enhancements will:
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create awareness of long term adequacy in Alberta
maintain the integrity of Alberta’s energy-only market
The combination of Metrics, Enhancements, Thresholds, and
Threshold Actions will not:
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work together harmoniously
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be a self-fulfilling prophecy. For example, the generation developer
community will not wait until the LTA Solution is executed before
building generation
create perverse incentives such that there are windfalls or substantial
capital leaves Alberta or plant retirements are unduly advanced.
be a price management tool.
Stakeholders will not be “surprised” when and if any portions of the
Action Plan are executed. Stakeholders will not be “surprised” at
how the Action Plan is executed.
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What is LTA in an Energy Only
Market?
• EUA states that “the need for and investment in
generation of electricity are guided by competitive
market forces”
• In energy only market, the market determines the
right level of reserves
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Traditionally regulated markets set reserve margin
targets
Some markets implement capacity markets to encourage
investment, due to significant bid mitigation and
transmission constraints
• What happens if that level is not enough?
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Bridge A Temporary Adequacy Gap
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Locational Resource Adequacy
• LTA does not address threshold or threshold
actions if adequacy is an issue on a regional basis
• Regional issue suggests the problem is
transmission adequacy, not generation adequacy
• Regional issues are currently dealt with through
Operating Policies and Procedures
• LTA recommendations do not directly apply,
however similar tools may be considered
• Transmission status will continue to be reported,
and likely be referenced in adequacy reports
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Market Modifications
• Early in process, stakeholders expressed a desire
to address “market modifications”
• Market Modifications: Any changes to the market
that the AESO can implement on a permanent
basis to improve LTA and decrease the probability
of a Threshold being breached
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Recommendations
Metrics
Rationale for Metrics
• Suite of metrics chosen because:
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They cover the key elements which directly or indirectly
measure adequacy
Are relatively simple to understand and will promote
understanding of the market
To the extent possible, are based on publicly available
and verifiable information
Provides an outlook on adequacy
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Metrics Reporting
• AESO would publish a quarterly report providing a
snapshot of all metrics
• Some metrics may be published separately and
updated on an ongoing basis
• Publication timing would be developed through the
ISO rule process
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Metrics
• New Generation Status and Retirements
• Reserve Margin
• Supply Cushion
• Two Year Probability of Supply Adequacy Shortfall
• Loss of Load Probability (LOLP) and Expected
Unserved Energy (EUE)
• Generation Investment Signposts
• Contribution to Fixed Costs of Notional Gas Fired
Peaking Unit
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New Generation Status and Retirements
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Near term outlook for generation capacity in Alberta
Information drawn from wide variety of publicly available
sources; AESO confidential information would not be
disclosed
Information provided on four general categories:
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Active Construction: generation projects under construction or
otherwise committed to completion
Approved: projects that have secured regulatory or other approvals
and permits required to proceed
Announced: projects in the early study stage or have a limited level of
investment
Retirements: units being demolished or otherwise committed to
retirement; potential retirements associated with expiring PPA contracts
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Reserve Margin
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Historical and forecast outlook for AIL and AIES reserve margins
Defined as: (Installed Generation Capacity – Peak Demand) x 100
Peak Demand
Data Sources:
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Peak demand from AESO published load forecasts
Existing generation from CSD report
New capacity from Active Construction projects in New Generation
metric
Other scenarios, as development progresses
Installed capacity will also address:
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Wind and hydro derates
Cogeneration available capacity to meet peak
Intertie capacity
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Supply Cushion
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Two year forecast of AIES available daily generation capacity and peak
demand
Defined as: (Total Daily Supply – Estimated forced outages) – Daily peak
demand
where Total Daily Supply incorporates available energy excluding wind;
available energy incorporates reported planned outages and estimated forced outages;
forced outages are based on generator history
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Data Sources:
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Daily peak demand from AESO published load forecasts
Existing generation from CSD report
New capacity from active construction projects in New Generation metric
Two years of reported planned outages (a new AESO market requirement)
Total Daily Supply addresses:
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Hydro derates on monthly / seasonal average basis
Cogeneration available capacity to meet daily peak
Available wind and import ATC would also be provided for context
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2 Year Probability of
Supply Adequacy Shortfall
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Two year probabilistic assessment of an AIES supply shortfall
Supply shortfall expressed in terms of:
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Expected number of hours of involuntary curtailments,
Expected total MWh’s not served, and/or
Expected number of events of involuntary curtailment
Data Sources:
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Hourly demand from AESO published load forecasts
Existing generation from CSD report
New capacity from committed projects in New Generation metric
Two years of reported planned outages (a new AESO market requirement)
The probabilistic model will have a distribution of outcomes addressing:
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Intermittent or energy limited production (wind and hydro)
Generation outages and derates
Available import ATC would be estimated within the model
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Loss of Load Probability (LOLP) and
Expected Unserved Energy (EUE)
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Long term probabilistic assessment of an AIES supply shortfall
Supply shortfall expressed in terms of:
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Expected total amount of unserved load in MWh’s
Data Sources:
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Probability of involuntary curtailments expressed in total hours,
Hourly demand from AESO published load forecasts
Existing generation from CSD report
New capacity from New Generation metric plus estimated cost of new generation
Two years of reported planned outages (a new AESO market requirement)
Estimated price responsive load (AESO estimate)
Forward fuel prices (published source to be determined)
The probabilistic model will require:
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The calculation of hourly pool prices (not expected to be published)
An assessment of the cost of entry for all potential types of new generation
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Generation Signposts
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Short term forecast which compares several generation investment
indicators specifically:
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Forward electricity and natural gas prices
Levelized cost in $/MWh of new generation (coal-fired, gas-fired, wind)
Data Sources:
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Reserve margin
Reserve margin metric
Energy prices from publicly available sources (brokers, NGX)
Levelized cost components reported and easily calculated; data sources to be
determined but non-confidential information used
The metric will seek to identify general inconsistencies between the need for
new generation, forward prices and the cost to build new generation
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Contribution to Fixed Costs of
Notional Gas Fired Peaking Unit
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Historical investment indicator which shows the contribution to fixed
capital a new gas-fired peaker could have received over the
previous three years.
Data Sources:
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Hourly electricity prices (AESO)
Daily natural gas prices (NGX)
The metric is not a forecast, only a rough investment indicator
which provides an opportunity to compare the capital cost of a new
unit to fixed cost contribution that might have been received.
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It does not attempt to access the impact that adding a new unit might
have had on pool price.
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Threshold
Threshold
• 2 year Probability of Supply Adequacy Shortfall
(2yrPSAS)
• Value has to be determined after metric is
developed and historical information is evaluated
• Will be used to determine when Threshold Action
should – and should not – be implemented
• Expect threshold level to proceed through normal
rule consultation processes
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Threshold Actions
Objective
• Effective – must directly address an impending
adequacy issue
• Market stability and certainty – assess the impact,
however understanding that it will be hard to
predict
• Cost – all actions will have a cost.
Actual cost will
be difficult to predict.
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Threshold Actions
• Load Shed Service
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Offer to curtail load
• Back-up Generation
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Existing generators, not built with intention of offering into
the market
Excess to onsite needs
• Emergency Portable Generation
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Temporary addition offered by stakeholder
• Considered complementary services that would
compete on similar terms
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Threshold Action Options
• Other options considered (in report appendix)
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Some expected to have a significant financial cost that
outweighs the perceived contribution to the LTA bridging
solution
Others require significant structural market changes
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Terms of Threshold Actions
• Terms of contract to be determined
• Only contracted when necessary
• Only called upon when in supply shortfall
procedures
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Main Contract Features
• MW Amount
• Minimum Length of curtailment period/minimum
run time
• Notice period prior to dispatch
• Compensation
• Penalties
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Rationale for Threshold Actions
• Expected can provide significant capacity at the
time it is required, and relatively quickly
• Minimal impact on the market when they are
procured and when they are dispatched
• Costs could be significant when procured (unsure
of what offers will be), however overall cost should
be much lower than most other options
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Timeliness of procurement – purchased only when
necessary
No long term capacity payments
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Who Pays?
• Load would pay for threshold actions
• Rationale: Alternative is that load would be
curtailed (and pay through curtailment) or pay for
load shed service to avoid curtailment
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Will it work?
• Precedent that reasonable capacity was offered
through a similar program in 1998 – 2000
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About 600 MW of interest, although each month there
was 112 to 190 MW offered
• DOE study referenced in 2005 market policy
indicated that there could be about 600 MW of
curtailable load available.
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Market Modifications
Outage Reporting
• Report outages and expected retirements 24
months in advance
• Submitted on monthly basis
• Used as input into adequacy reports
• Continues to be confidential
• Increase accuracy of metrics
• Improve AESO planning ability
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Outage Reports
• AESO to report historical actual outage
information
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Information generally available today, although not in a
convenient format and may not be fully inclusive
• May provide historical information on outage
forecast schedules
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Metrics can be replicated, albeit at a later date
Enables evaluation of accuracy of forecasts
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Scope of Market Modifications
• Some interest to expand scope of project to
include more modifications
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Price cap/floor
Interties
Demand Response
• Concerned that such discussions will extend
outside scope of LTA
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Market Power
Transmission Planning
Interjurisdictional issues
• Mixed stakeholder views
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Additional Items Considered
Threshold Actions Not
Recommended Under LTA
• Adequacy Contracts
• Acquire Intertie Right of Way/Add Intertie Capacity
• Lowering Interval Meter Threshold
• Temporary Price Cap Increase
• Constrained on Payments to Generators
• Acquire Site for Portable Generation
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Market Modification Items Not
Recommended Under LTA
• Permanent Increase to Price Cap
• Formal Outage Coordination
• Ancillary Service Expansion
• Education for Demand Side Response
• Force Wait Period for a Generating Unit to Return
from Retirement
• Discipline for Price Offer Pairs
• Improvements to Distribution Rate Structure
• Load Purchases Long Term Capacity Options
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Next Steps
Next Steps
• Submission Feedback – Thursday, March 8
• Progressing development of metrics
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Will initiate discussions with stakeholders within next
month
• Rules process
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Will be initiated after recommendation is finalized
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Metrics Timeline
Feb
Mar
May
Apr
Jun
Jul
Aug
Sep
Oct
Group I
Metrics
First Issue*
Group II
Metrics
Second Issue**
First Issue*
Second Issue**
Group III
Metrics
First Issue*
Second Issue**
* Draft for public comment
** Final version with documentation
Group I Metrics
New Generation Status/Retirements
Reserve Margin
Supply Cushion
2 Yr. PSAS
Group II Metrics
Generation Signposts
Contribution to fixed costs of Notional
Peaking Unit
Group III Metrics
LOLP
EUE
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Contact Information
Colleen Fairhead
colleen.fairhead@aeso.ca
(403) 539-2462
Gordon Nadeau
gordon.nadeau@aeso.ca
(403) 539-2568
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Discussion