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Renewable Integration and Direction of the US Electricity Markets

The United States Environmental Protection Agency (EPA) released the Clean Power Plan Rule (CPPR) to cut carbon pollution from existing power plants on August 3, 2015. The CPPR requires the current power fleet to cut CO2 emissions 32 percent below 2005 levels by 2030. The final ruling expects power generation from renewable resources to account for 28 percent of power generation by 2030. According to the U.S. Energy Information Administration (EIA), renewable sources of energy accounted for about 13% of electricity generation in the U.S. in 2014. Consequently the share of electricity generation from the renewable resources is expected to double in the next fifteen years.

Rapid penetration of renewables into the power system will likely change the way Independent System Operators (ISOs) currently operate. The future presence of such a high share of renewables on the grid raises some real-time reliability and operational concerns for the ISOs. For example, as it was famously depicted by the California Independent System Operator’s (CAISO) so called Duck Chart, rapid changes in renewable generation, such as solar generation, during the mid-day hours is likely to cause overgeneration and sharp changes in the real-time ramping needs. This is especially evident during the shoulder months, April and November, when loads are relatively low and renewable generation is high, including hydro. The ISOs are continually adjusting their operational procedures and market mechanisms to deal with rapid penetration of renewables within their footprint. This new paradigm leads to growing needs by the CAISO and other ISOs for:

  • better coordination between day-ahead market and 15-minute real-time market,
  • flexible\fast ramping capacity,
  • ancillary services and large and flexible energy storage capacity, and
  • integration of the distributed energy resources into the system.

A 15-minute Day-ahead Market

All of the ISOs in North America currently use hourly market optimization to schedule energy in the day-ahead markets. Given the developments in the software algorithms and improved data processing and storage technologies, day-ahead markets can incorporate more granular optimization models to schedule energy and ancillary services. That is, 15-minute scheduling by the day-ahead markets may be a viable option for the ISOs in the coming years. Some of today’s real-time ramping issues result from the scheduling differences between hourly day-ahead schedules and 15-minute schedules. These real-time ramping issues are more often observed at the beginning or end of a trading hour. The development of 15-minute scheduling in the day-ahead will likely help eliminate these real-time ramping issues.

Mechanisms for Reliable and Flexible Ramping Capacity

Rapid renewable penetration has caused the ISOs to develop and/or improve their capacity incentive mechanisms where there are financial incentives for the generators with fast ramping capabilities. The CAISO plans to launch a flexible ramping product that can be bid into both the day-ahead market and 5-minute real-time markets in 2016. Although its main scope is different from CAISO, the Pennsylvania-New Jersey-Maryland Interconnection (PJM) capacity performance product also provides incentives for more reliable capacity as well as flexible ramping capacity. The Midcontinent Independent System Operator (MISO) is working on integration of ramp capability products into the day-ahead and real-time markets. Similarly, Electric Reliability Council of Texas (ERCOT), New York Independent System Operator (NYISO), and Independent System Operator of New England (ISONE) are constantly working to improve their existing capacity incentive mechanisms to incentivize reliable and flexible ramping capacity.

Increasing Need for Ancillary Services and Energy Storage

As intermittent renewable energy, especially wind and solar, grows and more thermal plants retire, the ISOs prepare to use new resources like energy storage to provide some of the ancillary services needs in the coming years. Moreover, FERC Order 755 and 784 enabled
enhanced compensation for the ancillary services provided by fast-response resources such as energy storage resources. All the ISOs have been tuning their regulations to integrate fast-response resources such as batteries into their markets. For example, CAISO is working on new market design where aggregated rooftop solar, behind-the-meter batteries, plug-in electric vehicles and fast-acting demand response systems can bid in its markets by 2016. ERCOT and NYISO are also working on similar market structures.

Integration of Distributed Resources to the Market

California has a goal of installing 12,000 MW of small-scale renewable generation, i.e. projects 20 MW or smaller including the rooftop solar, by 2020. Currently, capacity from rooftop solar does not participate in any of the ISO markets and the ISOs guestimate the impact of rooftop solar on the load in their system. When generation from distributed energy, especially generation from rooftop solar, is not accounted by the ISOs, this may lead to load forecasting issues in day-ahead and real-time markets. These forecasting issues decrease economic efficiency of day-ahead and real-time energy and ancillary services prices. Accordingly, CAISO’s proposed market design will allow aggregated distributed energy resources (minimum required capacity of 0.5 MW) to bid in the ISO energy and ancillary services markets possibly in late 2016. ERCOT’s Distributed Resource Energy and Ancillaries Market (DREAM) and NYISO’s Reforming the Energy Vision (REV) are other current efforts that focus on regulatory proposals to include distributed energy resources in the electricity market.

Despite all the uncertainties and rapid changes in the power industry, there is a clear trend: there will be significantly more renewable capacity coming online in the next two decades. Preparing for this change and adjusting current market mechanisms will help assure successful integration of rapid increase in renewables development and minimize possible negative market side-effects while increasing real-time reliability and economic efficiency of the markets.

Erdal Kara is an industry solutions executive in ABB Enterprise Software and provides technical sales support for ABB’s System Optimizer, Planning and Risk and PROMOD software solutions. He received his BA in International Trade from Bogazici (Bosphorus) University in Istanbul and his PhD in Economics from the University of Wyoming. Between 2007 and 2011, he worked for Ventyx Energy (currently ABB Enterprise Software) in Sacramento, Vancouver and London offices and took part in several energy consulting projects for North American and European clients. Between January 2011 and June 2015, he worked as a senior analyst in the Department of Market Monitoring at the California Independent System Operator. He has detailed knowledge of the CAISO tariff and FERC regulations and expertise in energy market analysis, forecasting, economic modeling and power plant valuation.
Carlos A. Romero is Vice President, Energy Portfolio Management at ABB Inc. He is responsible for product positioning, business development and overall growth strategy for the Energy Portfolio Management product lines of ABB’s Enterprise Software. He has over eighteen years of experience in the design and implementation of regulatory framework, business strategies and solutions for generation management, smart grid commercial operations, portfolio optimization, hydro-thermal scheduling, bidding strategies and asset-centric trading operations. Carlos earned his B.Sc. in Electrical Engineering from La Salle University and his M.A. in Financial Administration from Business Administration School. He has worked with many customers around the world implementing software and consulting solutions, and reengineering business workflows to enhance profitability on Utility operations within the Smart Grid framework and GenCo operations. He has directed and lectured in numerous seminars and conferences focused on the planning, operation, structure and development of various aspects related to competitive and deregulated energy markets worldwide.
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