Beginning June 1, 2017
September 26, 2013
© ISO New England Inc.
Demand Response Resource Participation in ISO New England Reserves Markets Beginning June 1, 2017
September 26, 2013
Table of Contents
I. Executive Summary 4
A. Reserves in ISO New England 5
1. Reserve Requirements 5
2. Procurement of Reserves 5
3. Resource Eligibility Requirements 7
B. DRR Providing Reserves 8
C. Design Challenges Related to DRR Providing Reserves 8
1. Telemetry 8
2. Zonal Issues 9
3. Use of Behind-the-Meter Generation to Provide TMSR 9
4. Estimating a DRR’s Upper Dispatch Limit 10
II. Reserves in ISO New England 11
A. Why Do We Need Reserves? 11
B. What are the Reserve Requirements? 11
C. What are the Different Reserve Products? 12
III. Resources Providing Reserves 13
A. How Does a Resource Qualify to Provide Reserves? 13
1. Participate in the Energy Market 13
2. Demonstrate Capability 13
3. Provide Real-Time Telemetry and Revenue Quality Meter Data 14
4. Be Committable and Dispatchable 14
B. Participants Must Provide Accurate Information Reflecting Resource Capability 15
1. CLAIM10/30 Adjustments 15
2. ISO-Initiated Parameter Audits 16
3. Re-declaration of Offer Parameters 16
C. Real-Time Reserves Procurement and Compensation 17
1. Procuring TMSR, TMNSR, and TMOR 17
2. Real-Time Reserve Clearing Prices 17
3. Real-Time Reserves Compensation 18
4. Additional Materials 20
D. Forward Reserve Procurement and Compensation 21
1. Forward Reserve Auctions 21
2. Forward Reserve Compensation 23
3. Additional Materials on the FRM 26
IV. Are Market Design Changes Required to Allow DRRs to Participate in the Real-Time and Forward Reserves Markets? 27
A. How Will A DRR Provide Reserves? 27
1. How Does A DRR Participate in the Energy Market? 28
2. How Will DRR Demonstrate Capability? 30
3. Provide Real-Time Telemetry and Revenue Quality Meter Data 30
4. Can DRR be Committable and Dispatchable? 31
B. What are the Opportunities for DRR to Provide Reserves? 35
1. Real-Time Reserves 36
2. Forward Reserves Market 36
C. Will DRR be Subject to Auditing Similar to Other Resources that Provide Reserves? 36
D. Will DRR be Compensated Like Other Resources Providing Reserves? 37
1. Real-Time Reserve Credit 37
2. Forward Reserve Market Compensation 38
V. Design Challenges 40
A. Telemetry 40
B. Zonal Issues 41
C. Use of Behind-the-Meter Generation to Provide TMSR 41
D. Estimating a DRR’s Upper Dispatch Limit 41
I. Executive Summary
ISO New England (“the ISO”) is committed to enabling Demand Response Resources (“DRRs”) to participate in the Forward and Real-Time Reserves Markets beginning June 1, 2017, coincident with the full integration of DRRs into the energy markets.[1] As stated in the ISO’s April 26, 2012 Forward Capacity Market (“FCM”) conforming changes filing with the Federal Energy Regulatory Commission (“the Commission”):
[T]he ISO will work to develop market rules to allow demand response resources that participate in the energy market to participate in the reserve market coincident with the implementation of the fully integrated [Price Responsive Demand] rules in June 2017.[2]
In January 2013, demand response providers requested information on how DRRs will provide Real-Time Reserves and participate in the Forward Reserve Market to assist them in evaluating the ISO’s FCM Performance Incentive proposal.[3] This whitepaper was prepared in response to that request. The purpose of the whitepaper is to describe the proposed approach by which DRRs will provide Real-Time Reserves and participate in the Forward Reserve Market starting June 1, 2017. This document does not address how the ISO will implement this approach. Tasks such as developing market rules, software specifications, business requirements and processes, etc., will be carried out at a later time.
This whitepaper will explain:
· The reserve products that the ISO must procure per the requirements of North American Electric Reliability Corporation (“NERC”) and Northeast Power Coordinating Council (“NPCC”);
· The structure of the New England Real-Time Reserves and Forward Reserve Markets;
· A description of how DRRs will be able to provide Real-Time Reserves and participate in the Forward Reserve Market under full integration, and;
· Certain demand response-specific design challenges with regard to eligibility requirements, measurement, and auditing that must be addressed to enable DRRs to provide reserves, and a proposal to address each challenge.
A. Reserves in ISO New England
1. Reserve Requirements
To maintain system reliability, all bulk power systems, including the system administered by the ISO, need reserve capacity to be able to respond to contingencies, such as those caused by unexpected outages of large generation and transmission assets, and errors in forecasting the load on the power system. Reserve capacity is provided by resources that have the capability to help balance supply and demand on the system quickly (i.e., within 10 or 30 minutes). Resources providing reserves have the capability to impact the balance of supply and demand by:
· Increasing generation output to increase the supply of energy on the system, or,
· Reducing energy consumption to decrease the demand on the system.
The ISO must meet the reserve requirements established by the NERC and the NPCC.[4] The requirements are designed to ensure there are sufficient reserves available within 10 minutes to manage the largest contingency in the electric system. The largest contingency in the New England electric system is generally between 1,400 and 1,600 MWs.[5] The ISO requires additional 10-minute reserve to meet this contingency based upon historical non-performance of resources when reserves are activated (i.e., instructed to convert reserves to energy). Therefore, between 1,800 and 2,000 MW of resources are reserved to meet the first contingency. The ISO is also required to have sufficient reserves available within 30 minutes equaling 50% of the second largest contingency. Generally, about 700 to 800 MW of resources are reserved to meet 50% of the second largest contingency. The ISO can maintain additional 30-minute reserves as replacement reserves for the purposes of meeting the NPCC requirement to restore the ten-minute reserve requirement as described in ISO New England Operating Procedure No. 8, Operating Reserve and Regulation. In addition to the system-wide requirements, 30-minute reserves must be available to meet the local contingencies in import-constrained areas. Local reserve requirements are determined in three Reserve Zones: Connecticut (“CT”), Southwest Connecticut (“SWCT”), and NEMA/Boston.
2. Procurement of Reserves
The ISO designates resources to meet reserve requirements in real time, and also procures reserve capability in advance through a competitive, intermediate-term forward-market auction. In addition, reserve requirements are taken into consideration in the Day-Ahead Energy Market when completing the Day-Ahead resource adequacy assessment.
In real time, the ISO dispatches resources to provide energy and designates resources to provide reserves via a co-optimized market-clearing system. The co-optimization process produces real-time prices, dispatch quantities, and reserve designations based on the submitted offer data and real-time operational constraints, including reserve requirements and transmission constraints. During this process, Locational Marginal Prices (“LMPs”) are set and Real-Time Reserve Clearing Prices (“RTRCPs”) are determined for each reserve product and Reserve Zone.
There are three Real-Time Reserves products in New England:
· 10-minute spinning reserves (“TMSR”),
· 10-minute non-spinning reserves (“TMNSR”), and
· 30-minute operating reserve (“TMOR”).
Market Participants are paid the RTRCP for resources that provide Real-Time Reserves. In most hours, however, RTRCPs are zero because there is an excess of available reserves (i.e., there is no reserve deficiency). As the physical availability of resources providing the reserve products to meet the reserve requirement decreases, the cost of re-dispatching resources to maintain the reserve requirement increases. Re-dispatch typically involves decreasing the output of resources with fast ramping capabilities that were providing electric energy and increasing the output of slower, more expensive resources to replace this energy so that reserve requirements are met. This results in higher LMPs. The resulting RTRCPs are an economic representation of the value of reserves. Resources that are re-dispatched or kept offline to provide reserves instead of energy are paid the RTRCP.
In most cases, sufficient reserves to meet reserve requirements can be maintained through the re-dispatch process at a price below the Reserve Constraint Penalty Factors (“RCPFs”) which are used to cap the RTRCPs. When insufficient resources are available to meet the reserve requirement at any price, or insufficient resources are available at a price below the RCPF, the RTRCP is set equal to the RCPF for the requirement. The RCPFs ensure that there is a finite solution to the co-optimization algorithm, which is based on a linear program. Each reserve-requirement constraint has a corresponding RCPF. RCPFs for an individual reserve-requirement constraint vary between $50 to $850/MWh.
The Forward Reserve Market (“FRM”) is designed to attract investments in, and to compensate for, resources that most often provide TMNSR and TMOR. The FRM acquires forward commitments from Market Participants to provide (deliver) TMNSR and TMOR in real time. To procure reserves in advance, the ISO conducts two Forward Reserve Auctions each year, one each for the summer and winter reserve periods (June through September, and October through May, respectively). To participate in an auction, Market Participants submit portfolio-based offers consisting of a MW amount, type of reserve product (TMNSR or TMOR), location (Reserve Zone), and price. Participants whose offers clear in the Forward Reserve Auction are awarded a Forward Reserve Obligation. Market Participants may trade an obligation through a bilateral transaction. Forward Reserve Obligations are not tied to a specific resource until the day before the Operating Day. At that time, the Market Participant must assign resources (“Forward Reserve Resources”) to provide reserves, on an hourly basis, in the amount of the Forward Reserve Obligation for the Operating Day. Market Participants must submit energy offer prices associated with their Forward Reserve Resources, which are at or above the Forward Reserve Threshold Price (“FRTP”). By offering at or above the FRTP, the scheduled capability is intended to be available as reserves until the energy price is greater than or equal to the FRTP.
Compensation to Market Participants with a Forward Reserve Obligation is determined on an hourly basis and paid at a rate equal to the Forward Reserve Clearing Price minus the applicable prorated Capacity Clearing Price for the relevant Capacity Commitment Period, for the Capacity Zone associated with the Reserve Zone, in effect for that month. Market Participants with a Forward Reserve Obligation are assessed penalties when:
· The Market Participant fails to have enough qualified resources to meet the reserve quantity it cleared in the FRM auction (Failure-to-Reserve Penalty), and
· Any assigned resources fail to provide energy when activated (Failure-to-Activate Penalty).
3. Resource Eligibility Requirements
A resource must meet a number of requirements to be eligible to provide reserves.
· The resource must participate in the energy market because the resource’s energy offer is used to determine its capability to provide reserves or deliver energy, and to determine the cost to convert reserves into energy.
· The energy offer must include parameters that identify the minimum and maximum levels of output or consumption for a resource, which is used to determine a dispatchable range for the resource.
· The resource must have electronic dispatch capability and must follow ISO Dispatch Instructions during the Operating Day to provide energy – in the form of generation or reduced consumption – when instructed.
· If activated (instructed to provide energy), the resource must be able to sustain energy production for at least one hour from the time of activation per NPCC requirement 5.13, Sustainability of Operating Reserve.
· A resource that provides reserves from an offline state must establish, through an audit, its ability to provide energy within 10 or 30 minutes. A resource’s demonstrated ability to provide offline 10-minute reserve is referred to as “CLAIM10” capability; its demonstrated ability to provide offline 30-minute reserve is referred to as “CLAIM30” capability. The resource must include, in its energy offer, values for CLAIM10/30 at a level less than or equal to its demonstrated CLAIM10/30 capability.[6]
· An online generator does not have to demonstrate its capability to be eligible to provide reserves through a CLAIM10/30 audit. The capability of an online generator is determined based on real-time telemetry, Economic Maximum Limit, and ramp rate.
· The resource must provide real-time telemetry and revenue quality meter data. Real-time telemetry is used in the determination of dispatch for energy and designation for reserves. Revenue quality meter data, which is more accurate and has a lower error rate than real-time telemetry, is used to calculate compensation for energy, Real-Time Reserves, and Forward Reserves provided by a resource.
· The resource must be able to provide up-to-date information on its real-time physical capabilities.
A resource is subject to ISO-initiated audits of any offer parameter that impacts its ability to provide real-time energy or reserves. Offer parameters that reflect a resource’s real-time capability to provide energy help ensure that the ISO does not instruct the participant to deliver energy or provide reserves in an amount that is inconsistent with their resource’s capabilities.
B. DRR Providing Reserves
Beginning on June 1, 2017, DRRs will be fully integrated into the energy market and will submit energy offers with most of the parameters needed to determine their capability to provide reserves. At that time, DRRs that meet the eligibility requirements will be able to provide reserves and will be eligible for compensation for Real-Time Reserves and for meeting Forward Reserve Obligations. For this to occur, however, additional parameters must be added to a DRR’s energy offers to provide information needed to determine its dispatchable range. These parameters include the DRR’s Upper Dispatch Limit and Lower Dispatch Limit. Further, DRRs will be required to have electronic dispatch capability and follow Dispatch Instructions during the Operating Day, and must demonstrate CLAIM10/30 capability through an audit in the same manner as other resources providing reserves. Parameters must be added to DRR energy offers to reflect CLAIM10/30 offered MWs.
DRRs must provide real-time telemetry so that the resource is integrated into the systems used to co-optimize the dispatch of resources, and provide revenue quality meter data for use in the calculation of energy and reserve market compensation.